Can my trust foreclose on my house if I got my loan from my trust?
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Can my trust foreclose on my house if I got my loan from my trust?
My mother had a living trust for herself that she passed down to me when she died. The trustees have discretionary judgement on distributions. There is a clause in the trust that states that the trust and I can make secured and unsecured loans back and forth with each other. The trustees granted me a secured building loan from the trust which is my inheritance. Now the trust has lost much in investments is going broke. They say they will sell my house out from under me. Can they do this? I signed loan payments with them.
Asked on February 9, 2012 under Estate Planning, Minnesota
Answers:
SJZ, Member, New York Bar / FreeAdvice Contributing Attorney
Answered 12 years ago | Contributor
For a thorough answer, you need to consult with an attorney, such as a real estate attorney, bringing with you all the relevant documentation. There are laws, such as TILA (Truth-in-Lending Act), which require certain protections in the case of residential mortgages and consumer credit transactions, so an attorney needs to review the transaction in light of relevant laws, like TILA.
The short answer is that if you were given a loan which was secured by the house and you defaulted on that loan, then yes, the trust can foreclose on the home; any lender who is given a security interest in property, whether real estate or not, can potentially foreclose on it or repossess it when the lan is not paid. That is why you need to have the specifics of the transaction reviewed by an attorney, so see if it complies with all the relevant laws--if not, you may have a good defense.
Note that if you are not in default--if you have been paying the loan on time, complying with all terms, etc.--then the trust should not be able to foreclose on the house. When property is given as security, the lender only has recourse to it in the event of a default; the fact that the lender itself is in desparate financial straights would not, without more, give it the right to foreclose on your property.
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