Q. My husband has dementia and I wonder about my ability to refinance or even sell the home, as he cannot sign. The home is held in a Living Trust. Can you advise?
A. The short answer is that, under these circumstances, it may be easier for you to sell the home than it would be to refinance. Here’s why:
Sale of Home: Your Living Trust probably provides that both of you are co-trustees, but that when one of you dies or becomes incapacitated the other becomes the sole trustee with full power to convey trust assets. So, assuming that you can document your husband’s incapacity as required by the terms of the trust, the trust terms would then typically permit you, as sole Successor Trustee, to convey clear title to the buyers on your signature alone. Then, as Successor Trustee, you would usually then be able to sell your home. In these situations, title companies are usually willing to insure the passage of title to your buyer. In the sale situation, unlike the Refinance situation, you are not the one seeking a loan; instead, it is your buyer who will apply for the loan and who must meet his or her lender’s requirements.
Refinance: However, if your goal were to refinance an existing loan on your home, this could be problematic. In this situation you will need to comply with your lender’s requirements. Many lenders require that the home be removed from trust during the loan escrow and require that all loan documents be signed by both homeowners as individuals, rather than as trustees. Once removed from trust, your authority to sign would no longer be governed by the trust instrument. Instead, it would be governed by a Durable Power of Attorney (“DPOA”) if one exists. However, your lender may not accept that DPOA, if, for example, it had been signed long ago, or it does not adequately identify your home, or it does not clearly give you authority to encumber the home to secure the loan. Also, the lender may require that you obtain physicians’ letters certifying both (a) that your husband had full capacity when the DPOA was originally by him signed years ago, and (b) that he currently is incapacitated. A letter certifying your husband’s capacity years ago could be a problem if, for example, your husband’s then physician is now unavailable.
Even lenders who do not require that the home be first removed from trust, may still require signatures by both the acting trustees and by both homeowners as individuals. This appears especially true with regard to Reverse Mortgages. So, again, even in this situation you may need a “friendly” lender and a DPOA that is acceptable to the lender.
Possible Work-a-rounds: Here are my suggestions if you wish to refinance and anticipate that you may encounter lender resistance: (A) shop around: some lenders, such as credit unions, may have more relaxed standards. For example, some may not require that you remove the home from trust in order to refinance and may accept your signature, alone, on all loan documents as sole successor trustee; and/or (B) consider a Petition to the Superior Court asking the judge to issue an order which substitutes for your husband’s signature. This procedure is available in California under what is called a Petition for Substituted Judgment, so named because it asks the court to substitute its judgment for that of your husband. In most cases, the lender would then accept the resulting court order in lieu of your husband’s signature. For more on Substituted Judgment, click here.
Whether you seek to sell, or refinance, I recommend checking out these issues with one or more title companies and/or lenders early on and before you get too committed to a specific course of action.