What Is an Inter Vivos Revocable Trust
An inter vivos revocable trust is a legal arrangement you create while you're alive to hold ownership of your assets, including real estate. The term "inter vivos" means "during life" in Latin. You can change or cancel this type of trust at any time for any reason while you're living.
People use these trusts for estate planning purposes. When you die, the property transfers to your beneficiaries without going through probate court. This saves time and money for your heirs.
Say you and your spouse want to buy a home but also want to avoid probate when you die. You create a revocable trust, name yourselves as trustees, and have the trust hold title to the property. You still live in the home and control it completely, but legally the trust owns it.
How Fannie Mae Treats Trust Mortgages
Fannie Mae normally requires individual people to be the borrowers on mortgages. The agency also typically won't accept property as collateral unless a borrower has an ownership interest in it. But Fannie Mae makes an exception for inter vivos revocable trusts.
The trust can be named as the mortgagor on the security instrument. This means the trust, not you personally, signs the mortgage or deed of trust. However, you still must qualify as the borrower on the promissory note using your personal income, assets, and credit.
Your lender underwrites the loan based on your financial qualifications, not the trust's. The trust is just the legal entity that holds title to the property.
Trust Structure Requirements
The trust must meet specific requirements to qualify for Fannie Mae financing. One or more individuals must establish the trust. You cannot use a business entity or corporation to create an eligible trust.
The primary beneficiary must be the person or people who created the trust. If you and your spouse create the trust together, you can both be primary beneficiaries. At least one of you must use your income or assets to qualify for the mortgage.
The trustee requirements offer some flexibility. Either you (the trust creator) must serve as trustee, or you can name an institutional trustee. Banks and trust companies that are authorized to act as trustees in your state qualify as institutional trustees.
Say you create a trust but want a bank to manage it. The bank can serve as the sole trustee as long as it's legally authorized to perform trust functions in your state. The trustee must have the power to mortgage the property to secure a loan for you.
Documentation the Lender Needs
Your lender must review the trust documents to ensure they meet Fannie Mae requirements. The lender needs a complete copy of the trust agreement, including any amendments or restatements.
The title insurance company will also review the trust documents when issuing the title policy. Your lender must keep copies of any trust documents the title company required for its coverage decision.
The mortgage documentation follows special requirements outlined in [[B8-5-02]]. The signature requirements vary depending on who serves as trustee and how many people created the trust, as detailed in [[E-2-04]].
Your lender must verify that state law allows mortgages to validly created trusts that meet Fannie Mae's terms. Some states have specific requirements for trust mortgages that your lender must follow.
Title Insurance Requirements
The title insurance policy must provide full protection to Fannie Mae without exceptions related to the trust or trustees. This is critical because Fannie Mae needs assurance that it can foreclose and obtain clear title if you default on the loan.
Title can be held in several ways. The trustee can hold title alone, or title can be held jointly between the trustee and you personally. If you have multiple trusts, the trustees of different trusts can hold title together.
The title policy must state that title is vested in the trustee of the inter vivos revocable trust. It cannot list any exceptions that would limit Fannie Mae's rights as the lender.
Your lender must confirm that the title insurance provides the same level of protection as it would for a standard mortgage to individuals. If the title company requires additional documentation or has concerns about the trust structure, your lender must address these issues before closing.
Underwriting and Occupancy Rules
The loan underwriting process focuses on you as an individual, not the trust. Your lender evaluates your income, assets, credit score, and debt-to-income ratios just like any other mortgage application.
If multiple people created the trust, the lender must underwrite the loan with at least one creator as a borrower. Other creators can be added as co-borrowers if their income and credit will help qualify for the loan.
For primary residences, at least one person who created the trust must occupy the property and sign all loan documents. You cannot have the trust buy a home as your primary residence if you won't be living there.
Investment properties and second homes have no special occupancy requirements beyond Fannie Mae's standard rules for those property types.
Common Complications
Trust structures can create complications that delay or prevent loan approval. If your trust becomes irrevocable before closing, it no longer qualifies for this program. Some trust documents include provisions that make the trust irrevocable when one spouse dies, but this doesn't affect eligibility as long as the trust remains revocable at closing.
Successor trustee provisions can cause confusion. If the original trustee cannot serve and the trust names a successor, the successor can act for the trust. But your lender must verify that the succession mechanism in your trust documents is valid.
Complex trust structures with multiple beneficiaries or unusual distribution provisions may not qualify. The trust must be straightforward with you as both the creator and primary beneficiary.
Some title insurance companies are unfamiliar with trust mortgages and may require extensive documentation or refuse coverage altogether. Your lender must work with a title company that can provide full coverage without trust-related exceptions.
Loan Delivery Requirements
When your lender sells the loan to Fannie Mae, only information about the individuals who created the trust gets reported. The trust name cannot be included in the loan delivery data.
Your lender must use Special Feature Code 168 when delivering the loan to identify it as a trust mortgage. This helps Fannie Mae track these loans and ensure proper handling.
The loan delivery includes your name and Social Security number, not the trust's tax identification number. From Fannie Mae's perspective, you remain the borrower even though the trust holds title to the property.
References
For the official guidelines, see B2-2-05: Inter Vivos Revocable Trusts in the Fannie Mae Selling Guide.
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Original Fannie Mae Guideline Text
B2-2-05, Inter Vivos Revocable Trusts (10/31/2017)
Overview
Inter Vivos Revocable Trust as Eligible Mortgagor
Overview
Except as expressly provided elsewhere in the Selling Guide, Fannie Mae only accepts individuals as credit-qualifying borrowers. In addition, Fannie Mae normally deems property in which no borrower has an ownership interest as ineligible collateral. However, to accommodate the use of inter vivos trusts as an estate planning tool, Fannie Mae provides an exception for property held by inter vivos revocable trusts created by credit-qualifying borrowers.
Inter Vivos Revocable Trust as Eligible Mortgagor
An inter vivos revocable trust is a trust that
an individual creates during their 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 mortgagor (a party to the security instrument) for all transaction types, provided it complies with the requirements in this topic.
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 mortgagor in a subsequent loan transaction.
Lender Requirements
A lender delivering a loan that has an inter vivos revocable trust as mortgagor 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.)
Legal document requirements are described in B8-5-02, Inter Vivos Revocable Trust Mortgage Documentation and Signature Requirements. Also see E-2-04, Signature Requirements for Mortgages to Inter Vivos Revocable TrustsE-2-04, Signature Requirements for Mortgages to Inter Vivos Revocable Trusts, for signature requirements under different inter vivos revocable trust scenarios.
Trust and Trustee 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 individual (or individuals) who are the borrower(s) under the mortgage or deed of trust note.
Note: In the event the originally named trustee is unable or unwilling to serve, and the trust instrument has a mechanism for appointment of a successor trustee, the trust can properly act through the successor trustee.
Eligible Property and Occupancy Types
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.
Underwriting Considerations
The loan must be underwritten with at least one individual establishing the trust as borrower. Additional individuals, including other individuals establishing the trust, may also be considered co-borrowers if those individuals’ credit will be used to qualify for the loan.
Title and Title Insurance Requirements
The lender must retain in the individual loan 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.
Loan Delivery Data
Only the information related to the individual(s) establishing the inter vivos revocable trust whose credit is used to qualify for the loan 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 loan that has an inter vivos revocable trust as a mortgagor must be delivered with Special Feature Code 168 (in addition to any other special feature codes that may also be applicable to the transaction).
