The reasons, in plain terms
Somebody has to read the trust. A standard home equity file never needs a legal document reviewed beyond the deed. A trust file needs someone to confirm the trust is revocable, the trustee is who the deed says, and the trustee may borrow. Large banks route that to a legal department or an outside attorney, which adds days and cost to a product they price thin.
The title insurance has to be right. The lender needs a title policy insuring its lien with no exception for the trust or the trustee. Title insurers do this every day for first mortgages, but a bank whose home equity line closes on a lighter title product may not have a workflow for the endorsement.
The automated system has no box for it. Many online applications ask for the owner's name and match it to the deed. "Jane Doe, Trustee of the Doe Family Trust" does not match "Jane Doe," the file falls out of the automated path, and the simplest response is a decline.
Policy written for the worst trust, applied to every trust. Irrevocable trusts, land trusts and trusts with professional trustees really are harder. A blanket rule against all trusts is easier to write than a rule that separates a family living trust from those.
What the decline does not mean
It does not mean your trust is defective, that your credit was the problem, or that you need to change your estate plan. If a decline letter cites the trust as the reason, the next step is a lender that handles trusts, not an amendment or a deed.
Questions to ask before you apply anywhere
- Do you lend on homes held in a revocable living trust in my state?
- Will you accept a certification of trust, or do you require the full trust document?
- Who has to sign — the trustee, the settlor, both?
- Will you ask me to deed the house out of the trust? (If yes, keep looking.)
Why a broker helps here
West Capital Lending is a brokerage. Instead of one bank's policy, we work with wholesale programs whose guidelines we see side by side, including which ones accept trust vesting, in which states, and with which documents. That turns "does anyone lend to my trust?" from a week of phone calls into a first conversation.
- Fannie Mae Selling Guide B2-2-05, Inter Vivos Revocable Trusts — trust established by natural persons, a settlor among the trustees with power to mortgage, settlor occupancy and signature on a principal residence, title insured without trust-related exceptions
Questions trust owners ask about this
Is my trust the reason my HELOC was declined?
If the decline letter or the loan officer cited the trust, it was most likely the bank's policy on trust-vested homes rather than anything about you. A program that accepts trusts may approve the same file.
Do credit unions lend on homes in trusts?
Some do and some do not; policies vary by institution, and some require their attorney to review the full trust. Ask the four questions on this page before you apply.
Keep reading
- How a HELOC on a trust-owned home worksWho signs, what the lender reviews, and why the trust can stay exactly as it is.
- What the lender needs from your trustThe certification of trust, and why you rarely have to hand over the whole document.
- Should you deed the house out of the trust?The bank's workaround, and the problems it leaves behind.
- Irrevocable trusts, land trusts and LLCsWhich kinds of trust can borrow, and which usually cannot.