Deed of Trust on Condo, how can borrower get a release if lender dies?

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CULater
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Deed of Trust on Condo, how can borrower get a release if lender dies?

Post by CULater » Thu Jun 28, 2018 4:57 pm

Purchasing condo from mother with Deed of Trust based on carry back loan from mother. Am the sole beneficiary of her estate and mother dies. What must be done legally to release the Deed of Trust post mortem. Even though there is a "cancel on death" clause in the promissory note, can the Deed of Trust be released without going through probate?
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Re: Deed of Trust on Condo, how can borrower get a release if lender dies?

Post by Carefreeap » Fri Jun 29, 2018 11:06 am

Sure. The executor/Trustee issues a quitclaim deed or Release of Lien. The title company can help you with the documents to get the wording correct. You can also use a lawyer to prepare the deed but it's not that difficult of a task.

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Re: Deed of Trust on Condo, how can borrower get a release if lender dies?

Post by CULater » Fri Jun 29, 2018 11:45 am

Carefreeap wrote:
Fri Jun 29, 2018 11:06 am
Sure. The executor/Trustee issues a quitclaim deed or Release of Lien. The title company can help you with the documents to get the wording correct. You can also use a lawyer to prepare the deed but it's not that difficult of a task.
Looking at the wording of a Deed of Release, it looks like it has to be signed by the lien holder. I have POA but it is no good after the person has died. I am the executor of the estate, and you are saying that the executor has the power to sign a Deed of Release without probate?
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Re: Deed of Trust on Condo, how can borrower get a release if lender dies?

Post by bsteiner » Fri Jun 29, 2018 11:49 am

CULater wrote:
Fri Jun 29, 2018 11:45 am
Carefreeap wrote:
Fri Jun 29, 2018 11:06 am
Sure. The executor/Trustee issues a quitclaim deed or Release of Lien. The title company can help you with the documents to get the wording correct. You can also use a lawyer to prepare the deed but it's not that difficult of a task.
Looking at the wording of a Deed of Release, it looks like it has to be signed by the lien holder. I have POA but it is no good after the person has died. I am the executor of the estate, and you are saying that the executor has the power to sign a Deed of Release without probate?
Until the Will is probated, the named executor isn't an executor.

How hard is it to probate her Will? Usually it's an administrative task. You file the Will, a death certificate, and some forms. Was she in California?

Was this her only asset?

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Re: Deed of Trust on Condo, how can borrower get a release if lender dies?

Post by CULater » Fri Jun 29, 2018 12:01 pm

bsteiner wrote:
Fri Jun 29, 2018 11:49 am
CULater wrote:
Fri Jun 29, 2018 11:45 am
Carefreeap wrote:
Fri Jun 29, 2018 11:06 am
Sure. The executor/Trustee issues a quitclaim deed or Release of Lien. The title company can help you with the documents to get the wording correct. You can also use a lawyer to prepare the deed but it's not that difficult of a task.
Looking at the wording of a Deed of Release, it looks like it has to be signed by the lien holder. I have POA but it is no good after the person has died. I am the executor of the estate, and you are saying that the executor has the power to sign a Deed of Release without probate?
Until the Will is probated, the named executor isn't an executor.

How hard is it to probate her Will? Usually it's an administrative task. You file the Will, a death certificate, and some forms. Was she in California?

Was this her only asset?
Property is located in Phoenix and it is her only asset. Presently she holds a TOD deed on it, which settles outside probate. However, when we purchase it from her with a carry-back loan there will be a Deed of Trust and a Promissory Note if we do it with an FSBO contract with the title company.
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Re: Deed of Trust on Condo, how can borrower get a release if lender dies?

Post by Carefreeap » Fri Jun 29, 2018 12:02 pm

CULater wrote:
Fri Jun 29, 2018 11:45 am
Carefreeap wrote:
Fri Jun 29, 2018 11:06 am
Sure. The executor/Trustee issues a quitclaim deed or Release of Lien. The title company can help you with the documents to get the wording correct. You can also use a lawyer to prepare the deed but it's not that difficult of a task.
Looking at the wording of a Deed of Release, it looks like it has to be signed by the lien holder. I have POA but it is no good after the person has died. I am the executor of the estate, and you are saying that the executor has the power to sign a Deed of Release without probate?
Sorry, I read your post too quickly and missed the part about needing to go through probate. Of course BSteiner is correct.

All of the deeds I've executed have been as a Trustee including having to go through a Heggstad petition because my mom didn't title her house in her Trust.

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Re: Deed of Trust on Condo, how can borrower get a release if lender dies?

Post by NotWhoYouThink » Fri Jun 29, 2018 12:13 pm

If Medicaid has paid for her care before her death they may put a lien on her estate to recover those costs. If the debt is structured so they can't do that, they may refuse to pay for her care at all. Make sure you are consulting with an attorney familiar with the Medicaid laws in the state where your mother may need care.

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Re: Deed of Trust on Condo, how can borrower get a release if lender dies?

Post by CULater » Fri Jun 29, 2018 12:25 pm

NotWhoYouThink wrote:
Fri Jun 29, 2018 12:13 pm
If Medicaid has paid for her care before her death they may put a lien on her estate to recover those costs. If the debt is structured so they can't do that, they may refuse to pay for her care at all. Make sure you are consulting with an attorney familiar with the Medicaid laws in the state where your mother may need care.
Yes, Medicaid is a main concern here. I was told that you can exclude a home from being included in a Medicaid evaluation, but that Medicaid could/will place a lien on it for recovery of costs. Not something we were considering doing anyway. But you say they could place a lien on her estate, and I didn't know that. The note would revert to her estate upon her death, but it would have a "cancel on death" clause so any outstanding balance would not be paid. Makes me wonder if Medicaid would have an objection to the cancel on death clause, since any remaining balance on the note, representing residual value of her condo, would not be recoverable under that clause. Thanks for bringing this up, as it had not occurred to me at all.
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Re: Deed of Trust on Condo, how can borrower get a release if lender dies?

Post by ChrisC » Fri Jun 29, 2018 12:35 pm

NotWhoYouThink wrote:
Fri Jun 29, 2018 12:13 pm
If Medicaid has paid for her care before her death they may put a lien on her estate to recover those costs. If the debt is structured so they can't do that, they may refuse to pay for her care at all. Make sure you are consulting with an attorney familiar with the Medicaid laws in the state where your mother may need care.
Besides the Medicaid recovery/lien issues, I have to question what the OP thinks he’s accomplishing by this contrived scenario of purchasing his mother’s condo and his mother extending seller financing to him for the purchase with the income stream going to his mother to pay for her assisted living expenses. Seems a convoluted way of helping her out.

And I believe he’s stumbling into unintended tax and accounting issues, aside from the minor real estate issue of who has authority to release a lien on behalf of a deceased individual lender assuming the loan is cancelled or paid off. OP will have to document the financing and have interest set at no lower than the Applicable Federal Interest Rate — lest the loan be considered a gift — and his mother will have to report and account for the loan income stream on her tax returns. And if the loan is forgiven or cancelled, the cancellation of indebtedness is income to the OP.

Why bother? Of course, we don’t know what OP plans to do with the Condo; perhaps there is more than meets the eye here.

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Re: Deed of Trust on Condo, how can borrower get a release if lender dies?

Post by CULater » Fri Jun 29, 2018 12:55 pm

ChrisC wrote:
Fri Jun 29, 2018 12:35 pm
NotWhoYouThink wrote:
Fri Jun 29, 2018 12:13 pm
If Medicaid has paid for her care before her death they may put a lien on her estate to recover those costs. If the debt is structured so they can't do that, they may refuse to pay for her care at all. Make sure you are consulting with an attorney familiar with the Medicaid laws in the state where your mother may need care.
Besides the Medicaid recovery/lien issues, I have to question what the OP thinks he’s accomplishing by this contrived scenario of purchasing his mother’s condo and his mother extending seller financing to him for the purchase with the income stream going to his mother to pay for her assisted living expenses. Seems a convoluted way of helping her out.

And I believe he’s stumbling into unintended tax and accounting issues, aside from the minor real estate issue of who has authority to release a lien on behalf of a deceased individual lender assuming the loan is cancelled or paid off. OP will have to document the financing and have interest set at no lower than the Applicable Federal Interest Rate — lest the loan be considered a gift — and his mother will have to report and account for the loan income stream on her tax returns. And if the loan is forgiven or cancelled, the cancellation of indebtedness is income to the OP.

Why bother? Of course, we don’t know what OP plans to do with the Condo; perhaps there is more than meets the eye here.
You are certainly correct that using a carry-back loan to buy the condo from her in installments seems more and more snaggy to me as you and others have pointed out issues. Really, the only reason to do it is that we don't have the cash to buy it outright; not trying to be tricky about it at all. The more snaggy this gets, the more I'm inclined to figure out some way to do a cash purchase if there's any way I can accomplish that.
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Re: Deed of Trust on Condo, how can borrower get a release if lender dies?

Post by Gill » Fri Jun 29, 2018 1:11 pm

Would a private annuity make sense where you agree to pay her a certain amount monthly as long as she lives?
Gill

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Re: Deed of Trust on Condo, how can borrower get a release if lender dies?

Post by ChrisC » Fri Jun 29, 2018 1:38 pm

Gill wrote:
Fri Jun 29, 2018 1:11 pm
Would a private annuity make sense where you agree to pay her a certain amount monthly as long as she lives?
Gill
Better yet; let her sell the condo on the open market and use the proceeds to pay her expenses. And Bank of Son provides her assistance on an “as needed as able basis.”

If OP/Son does not have the cash to buy her condo, he does not seem a worthy backstop for his Mom’s assisted living expenses on an installment basis. His heart might be in the right place but his finances aren’t. Look at it from Mom’s standpoint: does this seem like a good plan for her?

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Re: Deed of Trust on Condo, how can borrower get a release if lender dies?

Post by CULater » Fri Jun 29, 2018 2:27 pm

ChrisC wrote:
Fri Jun 29, 2018 1:38 pm
Gill wrote:
Fri Jun 29, 2018 1:11 pm
Would a private annuity make sense where you agree to pay her a certain amount monthly as long as she lives?
Gill
Better yet; let her sell the condo on the open market and use the proceeds to pay her expenses. And Bank of Son provides her assistance on an “as needed as able basis.”

If OP/Son does not have the cash to buy her condo, he does not seem a worthy backstop for his Mom’s assisted living expenses on an installment basis. His heart might be in the right place but his finances aren’t. Look at it from Mom’s standpoint: does this seem like a good plan for her?
I should have clarified: I've got the money but it is located in tax-deferred accounts or my Roth. I don't wish to raid either one at this moment with a large distribution. Buying her condo with smaller, monthly distributions seemed a better way to go. Lower tax burden and could avoid dipping into the Roth. It would make the most sense to just sell it on the open market, but we're trying to hold onto it.
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Re: Deed of Trust on Condo, how can borrower get a release if lender dies?

Post by Mlm » Fri Jun 29, 2018 2:34 pm

Is there a reason why you don't just get a mortgage to buy the property?

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Re: Deed of Trust on Condo, how can borrower get a release if lender dies?

Post by CULater » Fri Jun 29, 2018 2:46 pm

Mlm wrote:
Fri Jun 29, 2018 2:34 pm
Is there a reason why you don't just get a mortgage to buy the property?
Basically didn't consider this because we were figuring to buy on payments via the carry back loan, and this would be a cheaper and less complicated approach.
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Re: Deed of Trust on Condo, how can borrower get a release if lender dies?

Post by ChrisC » Fri Jun 29, 2018 3:49 pm

CULater wrote:
Fri Jun 29, 2018 2:46 pm
Mlm wrote:
Fri Jun 29, 2018 2:34 pm
Is there a reason why you don't just get a mortgage to buy the property?
Basically didn't consider this because we were figuring to buy on payments via the carry back loan, and this would be a cheaper and less complicated approach.
You mean less complicated for you, rather than her. Not being judgmental, jeez saying.

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Re: Deed of Trust on Condo, how can borrower get a release if lender dies?

Post by Carefreeap » Fri Jun 29, 2018 4:25 pm

ChrisC wrote:
Fri Jun 29, 2018 3:49 pm
CULater wrote:
Fri Jun 29, 2018 2:46 pm
Mlm wrote:
Fri Jun 29, 2018 2:34 pm
Is there a reason why you don't just get a mortgage to buy the property?
Basically didn't consider this because we were figuring to buy on payments via the carry back loan, and this would be a cheaper and less complicated approach.
You mean less complicated for you, rather than her. Not being judgmental, jeez saying.
The stream of income approach might actually be a better option for Mom too so long as the income doesn't exceed the Medicaid threshold for income. But this is a tricky situation that does need to set up properly. I agree with the earlier post about seeking the advice of someone who specializes in Medicaid planning. I went through something similar when my father got a small lump sum distribution of a pension recently from an employer he left back in 1975. He's still in the 5 year lookback period and has contracted an aggressive form of cancer. Although formerly very healthy for an 82 year old he may be headed to skilled nursing within a year. Fortunately the delay due to the look back may only be days vs years but those rules are state specific.

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Re: Deed of Trust on Condo, how can borrower get a release if lender dies?

Post by ChrisC » Fri Jun 29, 2018 4:59 pm

Carefreeap wrote:
Fri Jun 29, 2018 4:25 pm
ChrisC wrote:
Fri Jun 29, 2018 3:49 pm
CULater wrote:
Fri Jun 29, 2018 2:46 pm
Mlm wrote:
Fri Jun 29, 2018 2:34 pm
Is there a reason why you don't just get a mortgage to buy the property?
Basically didn't consider this because we were figuring to buy on payments via the carry back loan, and this would be a cheaper and less complicated approach.
You mean less complicated for you, rather than her. Not being judgmental, jeez saying.
The stream of income approach might actually be a better option for Mom too so long as the income doesn't exceed the Medicaid threshold for income. But this is a tricky situation that does need to set up properly. I agree with the earlier post about seeking the advice of someone who specializes in Medicaid planning. I went through something similar when my father got a small lump sum distribution of a pension recently from an employer he left back in 1975. He's still in the 5 year lookback period and has contracted an aggressive form of cancer. Although formerly very healthy for an 82 year old he may be headed to skilled nursing within a year. Fortunately the delay due to the look back may only be days vs years but those rules are state specific.
I'm not saying the stream of income approach might not be a better financial option for Mom, assuming all the moving parts work together, especially if the purchase is at fair market value (and there is the absence of normal real estate transaction costs associated with an open market sale) and the borrower son is still around to make payments. But from what the OP has posted before and his inclination to DIY this situation, I have little confidence that he can pull this off, except with the most seasoned and competent elder care lawyer, which will add to the cost of his proposed action. I'm a retired lawyer and know my way around the block and I retained a competent elder care counsel to help me navigate a more complicated Medicaid situation and I paid alot for that counsel and skill. So, I know how valuable that counsel can be if you're messing with Medicaid staff who sometimes are not well adept in understanding their own rules when something out of the ordinary comes by their desk.

Nonetheless this stream of income approach extends the look back period until the last payment is made and if the loan amortization schedule is not of very short term duration (and beyond 5 years, then Mom won't likely be Medicaid eligible for a while -- seems a bit contrary to what the OP is aiming to achieve. More importantly, with a lump sum from the sale of the condo, the OP and Mom have greater flexibility to spend down, including prepaying funeral expenses and paying legal fees with setting up a suitable, modest estate plan, etc.

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Re: Deed of Trust on Condo, how can borrower get a release if lender dies?

Post by CULater » Fri Jun 29, 2018 5:29 pm

In this case the stream of payments from the condo sale will only last for two years. She has no other resources now, and the value of her condo makes up about two years worth of assisted living costs. Past that point, she will be eligible for Medicaid based on having no remaining assets. Our intention is that she liquidate the condo and then spend down the proceeds for the next two years' of assisted living expenses. We are considering the following options:

- The first option is to sell the condo on the open market, put the proceeds in her account, and spend down that account for her monthly assisted living costs.

- The second option is for myself to purchase the condo from her with a lump sum at fair market value, put the proceeds in her account to spend.

- The third option is for me to purchase the condo with a carry back loan and promissory note specifying monthly payments toward the full purchase price in the amounts of her assisted living costs.

In all three of the above options, the intent is the same: for her to have liquidated her condo and spent down the proceeds on her assisted living costs. If she is still living at that point we would apply for Medicaid. From my standpoint, option #3 is most desirable because we would like to have ownership of the condo, and I would prefer not to buy it with a lump sum purchase.
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Re: Deed of Trust on Condo, how can borrower get a release if lender dies?

Post by Carefreeap » Fri Jun 29, 2018 5:58 pm

CULater wrote:
Fri Jun 29, 2018 5:29 pm
In this case the stream of payments from the condo sale will only last for two years. She has no other resources now, and the value of her condo makes up about two years worth of assisted living costs. Past that point, she will be eligible for Medicaid based on having no remaining assets. Our intention is that she liquidate the condo and then spend down the proceeds for the next two years' of assisted living expenses. We are considering the following options:

- The first option is to sell the condo on the open market, put the proceeds in her account, and spend down that account for her monthly assisted living costs.

- The second option is for myself to purchase the condo from her with a lump sum at fair market value, put the proceeds in her account to spend.

- The third option is for me to purchase the condo with a carry back loan and promissory note specifying monthly payments toward the full purchase price in the amounts of her assisted living costs.

In all three of the above options, the intent is the same: for her to have liquidated her condo and spent down the proceeds on her assisted living costs. If she is still living at that point we would apply for Medicaid. From my standpoint, option #3 is most desirable because we would like to have ownership of the condo, and I would prefer not to buy it with a lump sum purchase.
Keep in mind that assisted living is something different than skilled nursing. I'll post a link I found helpful but I strongly suggest again getting some professional help.

https://www.seniorplanning.org/long-ter ... y/arizona/

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Re: Deed of Trust on Condo, how can borrower get a release if lender dies?

Post by CULater » Fri Jun 29, 2018 9:13 pm

I've searched and searched with google to find the answer to the original question about who has the authority to sign a release to remove the Deed of Trust on a property if the grantor is deceased. No luck. Was hoping someone would know. Probably have to talk to an attorney.
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Re: Deed of Trust on Condo, how can borrower get a release if lender dies?

Post by Carefreeap » Fri Jun 29, 2018 10:18 pm

CULater wrote:
Fri Jun 29, 2018 9:13 pm
I've searched and searched with google to find the answer to the original question about who has the authority to sign a release to remove the Deed of Trust on a property if the grantor is deceased. No luck. Was hoping someone would know. Probably have to talk to an attorney.
B. Steiner (4th post) is an estate/probate atty. He gave you the answer. You need to go through the probate process. Alternatively you could have your mother set up a Trust and make the note beneficiary her Trust. That's what my F-I-L did. We had to clean up a note on his house as well as a Life Estate.

For our own situation we paid about $2500 in 2009 for an "Estate Plan" with an attorney in Phoenix.

But with the Medicaid issue we keep urging you to get professional legal help from an Elder Law atty based in AZ. It's not like it's hard to find one in AZ. :oops:

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Re: Deed of Trust on Condo, how can borrower get a release if lender dies?

Post by CaliJim » Fri Jun 29, 2018 10:36 pm

I'm ignorant here.. but after mom's death...can't he just continue to pay on the note into the estate, (or even default on the note), and settle up in probate?

Say he pays $24k on the note into the estate while it's going through probate, he'll get that all back, less whatever it costs to go through probate.

What's more expensive? Probate or fancy estate planning?
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Re: Deed of Trust on Condo, how can borrower get a release if lender dies?

Post by ChrisC » Sat Jun 30, 2018 12:03 am

Well, there isn't an easy answer to this question. The short answer is "whatever the title insurance company would require when the property is later sold." This doesn't seem like a probate or estate law question but it's largely a real estate transactional issue. Let's say, the OP keeps the condo a number of years after the lien holder has died and no estate has been probated by a living heir (because there is no will to be probated or no assets to be distributed in a probate proceeding aside from a promissory note that the borrower/heir decides to do nothing about). 15 years later the OP decides to sell the condo; the title insurance company, particularly if a lender is financing a buyer's purchase, might not require the probate of the Mom's estate to release a lien but might accept the filing of a death certificate, an addifavit of heirs and a release signed by a representative heir. The title insurance company would rely on it's own counsel to determine what might be needed there.

If I were to keep the condo for occupancy or rental purposes, why do I need a release? I only need a release to show there isn't an existing encumbrance if I'm selling the condo and the title insurance or purchaser requires me to obtain a release to transfer the property with title insurance coverage. And after a certain number of years, title insurance companies probably don't care about "stale liens" from individuals who have long since passed away.

Of course, if the OP decides to sell the condo, shortly after the death of the lien holder, he should clear title by obtaining a release from the estate (and thus start probate proceedings to effectuate that). In the case of OP, many States have small estate proceedings where he could easily be appointed an Administrator of the Estate (if no will is present) or confirmed as the Executor (if he was named in a Will) -- this is a question for an estate attorney as to how to go about those proceedings. As Administrator or Executor, he could execute a release.

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Re: Deed of Trust on Condo, how can borrower get a release if lender dies?

Post by BillyK » Sat Jun 30, 2018 12:30 am

You may be looking at the wrong clause in the deed of trust. The release clause is for her to release it while she is alive, such as if you pay the note off in full to her. You should be looking at the successor and or assigns clause, which should include language similar to the note that it terminates upon her death. It wouldn’t have made sense that termination language was included the note, while then leaving typical successor upon her death language in the deed of trust.

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Re: Deed of Trust on Condo, how can borrower get a release if lender dies?

Post by CULater » Sat Jun 30, 2018 8:33 am

BillyK wrote:
Sat Jun 30, 2018 12:30 am
You may be looking at the wrong clause in the deed of trust. The release clause is for her to release it while she is alive, such as if you pay the note off in full to her. You should be looking at the successor and or assigns clause, which should include language similar to the note that it terminates upon her death. It wouldn’t have made sense that termination language was included the note, while then leaving typical successor upon her death language in the deed of trust.
Just to clarify what you are saying since I'm totally unfamiliar with a Deed of Trust. Successors can be named for the Grantor in the Deed of Trust, and then those successors assume the place of the Grantor (lender) upon her death? The successor would then have the ability to release the DT? And/or there can be wording in the DT that causes the DT to be released upon the death of the Grantor?
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Re: Deed of Trust on Condo, how can borrower get a release if lender dies?

Post by ChrisC » Sat Jun 30, 2018 10:49 am

CULater wrote:
Sat Jun 30, 2018 8:33 am
BillyK wrote:
Sat Jun 30, 2018 12:30 am
You may be looking at the wrong clause in the deed of trust. The release clause is for her to release it while she is alive, such as if you pay the note off in full to her. You should be looking at the successor and or assigns clause, which should include language similar to the note that it terminates upon her death. It wouldn’t have made sense that termination language was included the note, while then leaving typical successor upon her death language in the deed of trust.
Just to clarify what you are saying since I'm totally unfamiliar with a Deed of Trust. Successors can be named for the Grantor in the Deed of Trust, and then those successors assume the place of the Grantor (lender) upon her death? The successor would then have the ability to release the DT? And/or there can be wording in the DT that causes the DT to be released upon the death of the Grantor?
Please, get a lawyer. You're compounding your confusion. Grantors are in the Deed of Conveyance (Warranty, Bargain, Special Warranty or Quitclaim -- pick your choice of covenants of title with the transfer); the Grantor conveys or transfers title of property to a Grantee. Trustees are in the Deed of Trusts, and the Grantee in the Deed of Conveyance is normally the Trustor in the Deed of Trust (the Trustor is conveying legal title to property to the Trustee for the Trustee to hold to secure payment of the Promissory Note, but the Trustor has equitable title to the property).

And what is being said is that in the Deed of Trust, there is a "successor and assigns" clause that in case the Trustee is no longer around, a successor can be appointed to handle the Deed of Trust. In conventional residential mortgage financing, I believe the Trustee named in the Deed of Trust is typically a lawyer who then would have the power of sale in a foreclosure situation when there's a default in the payment of the mortgage.

This is my last point here as I give up with trying to help you untangle your confusion. DIY has its place but you need legal assistance on the real estate and Medicaid fronts.

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