Hi Aaron,

Good question, and the answer is more nuanced for a HomeSafe loan than for a standard HECM.  Let me walk through it.

Transferring the property into a trust after closing

Under FAR's HomeSafe guidelines, a borrower can transfer the property into a living trust after closing without triggering the loan as due and payable, provided the trust meets all the requirements that would have applied had the trust owned the property at closing.  Those requirements include the following:

• All primary beneficiaries of the trust must be the original borrowers
• The borrowers must continue to occupy the property as their principal residence
• No new beneficiaries can be added to the trust after closing
• The trust must be valid and enforceable and provide a means for the lender to be notified of any change in occupancy or transfer of beneficial interest
• Each borrower must retain the legal right to occupy the property for the remainder of their life

If the trust meets those requirements, the loan does not become due and payable.  FAR can also require the trust to formally assume the borrowers' obligation to repay the debt as stated in the Note.

Can Aaron's equity interest be conveyed to him via the trust?

This is where it gets more specific.  A HomeSafe loan does not allow the addition of new beneficiaries to the trust after closing.  If the intent is to convey an equity interest to Aaron as a new beneficiary of the trust, that would not be permissible under FAR's guidelines without triggering the loan.

If Aaron is already a contingent beneficiary of the trust, that is a different situation.  Contingent beneficiaries do not receive any benefit from the trust while the primary beneficiaries are alive, so they need not be eligible borrowers.  That arrangement is generally permissible.

The bottom line

Your parents need to talk to a trust attorney AND contact FAR directly before making any changes to the trust.  The HomeSafe guidelines require an Attorney Opinion Letter from an FAR-designated law firm whenever a trust is involved, and FAR must confirm that the trust meets all its requirements.  Any transfer that adds Aaron as an active beneficiary with equity rights while the loan is still outstanding is likely to create a problem.

If the goal is simply to ensure Aaron can keep the home after your parents pass, the better path is making sure he understands the process at that point - he would have the right to pay off the loan or refinance into a traditional mortgage, and if the loan balance exceeds the appraised value, he could purchase the property at the lesser of the outstanding balance or 95% of the appraised value under HECM rules.  For HomeSafe specifically, the terms governing what happens at maturity are set out in the loan documents, so that is worth reviewing directly with FOA.

Reference: FAR HomeSafe Underwriting Manual - Trusts Section (pages 134-136) and HUD Handbook 4000.1, Section II.B.2.ii(A)(5) - Living Trust Requirements (PDF pages 568-570).