The Listen to Lawrence Letter: Can you mortgage a house that is in a trust?

December 16, 2021
Dear Clients and Friends:
Many of you have questions that involve property that is being held in an Irrevocable Medicaid Trust. Here’s one that specifically asks about mortgaging a house in a trust.
I enjoy your Listen to Lawrence Letters and find them very helpful. My question is as follows: Can I mortgage my house that is in an irrevocable Medicaid trust and use the money to buy a second home that would also be held in the same trust? Thank you.
The answer is yes and no. Understand that you cannot mortgage the house because you do not own the house. The trust owns the house. The trustee is permitted, however, to obtain a mortgage on the house and use the money to invest in another property for the trust.
The problem is that most banks will not issue a mortgage on a house inside one of these irrevocable trusts. The trust may not have the income to support a mortgage and FHA guidelines may not allow it in any event. However, I do know one bank where trustees have been successful in getting a conventional 30-year mortgage: Quontic Bank.  As I understand it, this bank holds all their mortgages and does not sell them on the secondary market, which would subject them to the FHA oversight.
I hope this helps! Please forward this information to your friends and relatives to share these informative answers to some very commonly asked questions.
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As always, please send me your questions. If you are thinking about it, others are probably too, so my answers will no doubt help you and many others.
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Stay safe!
Until next time…
peace, health and happiness,
Lawrence Eric Davidow