An inter vivos revocable trust is a trust that
an individual creates during his or her lifetime;
becomes effective during its creator’s lifetime; and
can be changed or canceled by its creator at any time, for any reason, during that individual’s lifetime.
Fannie Mae will accept an inter vivos revocable trust that has an ownership interest in the security property as an eligible borrower for a mortgage for all transaction types.
Note: A trust must meet Fannie Mae’s revocability and other eligibility requirements at the time the loan is delivered. Trust eligibility is not affected if the trust documents contain a provision that the trust will, in the future, become irrevocable upon the death of one of the settlors. However, such a change in the trust structure after delivery of the mortgage loan may affect the eligibility of the trust as a borrower in a subsequent loan transaction.
A lender delivering a loan that has an inter vivos revocable trust borrower is responsible for:
determining that both the trust and the mortgage satisfy Fannie Mae eligibility criteria and documentation requirements;
determining under the laws of the states in which it does business that it can originate mortgages to validly created inter vivos revocable trusts that meet the terms and conditions specified by Fannie Mae; and
completing a review of the mortgage documentation, applicable state law, and the trust documents to ensure that title insurers provide full title insurance coverage without exceptions for the trust or the trustees for inter vivos revocable trusts in that state. (See Title and Title Insurance Requirements below for additional information.)
Note: Required legal document requirements are described in B8-5-02, Inter Vivos Revocable Trust Mortgage Documentation and Signature Requirements.
The inter vivos revocable trust must be established by one or more natural persons, solely or jointly. The primary beneficiary of the trust must be the individual(s) establishing the trust. If the trust is established jointly, there may be more than one primary beneficiary as long as the income or assets of at least one of the individuals establishing the trust will be used to qualify for the mortgage.
The trustee(s) must include either:
the individual establishing the trust (or at least one of the individuals, if there are two or more); or
an institutional trustee that customarily performs trust functions in and is authorized to act as trustee under the laws of the applicable state.
The trustee(s) must have the power to mortgage the security property for the purpose of securing a loan to the party (or parties) who are the borrower(s) under the mortgage or deed of trust note.
All property and occupancy types are eligible. For properties that are the borrower's principal residence, at least one individual establishing the trust must occupy the security property and sign the loan documents.
The mortgage must be underwritten as if the individual establishing the trust (or at least one of the individuals, if there are two or more) were the borrower (or a co-borrower, if there are additional individuals whose income or assets will be used to qualify for the mortgage).
The lender must retain in the individual mortgage file a copy of any trust documents that the title insurance company required in making its determination on the title insurance coverage.
The following requirements apply to title and title insurance:
Title held in the trust does not in any way diminish Fannie Mae’s rights as a creditor, including the right to have full title to the property vested in Fannie Mae should foreclosure proceedings have to be initiated to cure a default under the terms of the mortgage.
The title insurance policy ensures full title protection to Fannie Mae.
The title insurance policy states that title to the security property is vested in the trustee(s) of the inter vivos revocable trust.
The title insurance policy does not list any exceptions with respect to the trustee(s) holding title to the security property or to the trust.
Title to the security property is vested solely in the trustee(s) of the inter vivos revocable trust, jointly in the trustee(s) of the inter vivos revocable trust and in the name(s) of the individual borrower(s), or in the trustee(s) of more than one inter vivos revocable trust.
Only the information related to the individual(s) establishing the inter vivos revocable trust whose income and assets are used to qualify for the mortgage should be provided at the time of loan delivery, such as the borrower name and Social Security number. The name of the inter vivos revocable trust cannot be included within the loan delivery data.
A mortgage that has an inter vivos revocable trust as the borrower must be delivered with Special Feature Code 168 (in addition to any other special feature codes that may also be applicable to the transaction).
The table below provides references to the Announcements that have been issued that are related to this topic.
|Announcement SEL-2013–01||January 17, 2013|