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  • Amy Privette

Why does the bank need a copy of my trust? SPOILER ALERT: It doesn't!

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When the Bank Asks for Your Trust - JUST SAY NO!

For the last few years, we have experienced historically low interest rates which have enticed a lot of people to refinance their mortgages. Refinancing to take advantage of low interest rates allows homeowners to reduce their monthly mortgage payment and provides an opportunity to consolidate higher-interest debts into a lower-interest mortgage. With a low-inventory housing market and next-level competition among buyers, other homeowners are opting for a cash-out refinance. By cashing out the equity in their home, homeowners can remain in their current residence and secure the funds for renovations and remodels at a favorable rate. These are all great strategies that can help families better manage their finances. Yet, it's not always smooth sailing. Sometimes during the process of refinancing, clients with living trusts are derailed by a request from their lender to submit their trust for review prior to loan approval. The conversation usually goes something like this:

"We'd be happy to handle your loan refinance for you. Since the property is currently titled in the name of your trust, our underwriters will need a copy of your trust in order to process your application and approve your loan."

Wait, what?!?

Yes, it's true. We have lost count of the number of trust clients who have called or emailed to say the lender is holding their loan hostage until the client turns over a full copy of their living trust, despite the client telling the lender that they have been advised by their attorney not to turn over the document.

Why does the lender need to know who your heirs are, how their inheritance is structured, what family heirlooms you want to give to particular people, which charities you have included, how the Trustee is to be compensated, or the details of countless other provisions that may be in your trust? The answer is --- they don't! None of that has any bearing on your loan application. Yet, the bank will routinely ask for a copy of the full trust in order to proceed. So, let's be clear about this:

Under North Carolina law, the bank does not have the automatic right to read and review your entire trust. Period. End of sentence.

In fact, it's North Carolina law that a Certification of Trust can be used in lieu of turning over the entire trust document (see full details of the law here: § 36C-10-1013). The Certification of Trust we use for our clients includes the information that a financial institution needs to see without disclosing confidential details of your estate plan. If you are asked to produce a copy of your entire trust, provide instead the Certification of Trust.

In addition, one of the benefits of creating a trust is the ability to keep your private information private. No one, including your lender, should coerce you into turning over the entirety of your trust agreement. While the bank needs to make sure your trust is valid and that you have the authority under the terms of the trust to engage in a particular transaction, those requirements can be met with excerpts from the trust coupled with the Certification of Trust. For example, for one client who ran into problems with her bank, we submitted five pages of a 67-page trust document. For another client, we provided seven pages of a 76-page trust. An excerpt that includes the signature page, the title page, the identification of Trustees, and evidence that the Trustee has loan or borrowing powers is sufficient to meet the bank's needs.

If the bank is still playing hardball, then be aware that subsection (h) of the law cited above allows you to request damages (money) should the lender continue to demand something to which it is not entitled. Suppose, for example, the interest rate on your loan increased while the bank sat on your paperwork since you did not give them your entire trust. Perhaps you had to obtain legal counsel and incurred legal fees to get the bank to abide by the law. Whatever the situation, if the bank's unreasonable demand causes you financial harm, then the bank can be liable for damages.

Remember, you have the power here. If the bank or lender will not back off its demands, take your business elsewhere! And, as always, contact us with questions or concerns. We have your back!

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