We just received a great question from one of our readers:

Hey ARLO! Thanks for being around to help so many looking for opinions on Reverse Mortgage questions.

I am the Trustee of a revocable trust where my Mother-in-Law is the Trustor & Beneficiary. I thought I was close to signing a reverse mortgage with a Lender. Now the Loan underwriter/lender is having issue with Trustor of Trust as she is unable to take care of her finances. This phrase is included in a letter, requested by lender, from the Trustor’s Principal Care Physician. Why she is concerned that the trustor is unable to take care of her finances does not make sense to me. It has been knowing the physical impairments she has. Earlier my wife was granted a Power of Attorney over her financial interests. I have always thought that I, as Trustee, held legal title to the property in the trust. On the grant deed it reads, Grantor(s) L.M. Grants to M.M. trustee of the Trustee I felt it important to try to find something in California law that would convince me that a Trustee of a trust is the owner of the property held in trust, that the Trustor or Sole Beneficiary, is not the owner.

This is what I found…

The California Court of Appeals has stated that legal title to property owned by a trust is held by the Trustee (Galdjie v. Darwish, 113 Cal. App. 4th 1331, 1343-1344.) Based on these rules, upon creation of a trust, title to trust property is split between the trustee and the beneficiaries. The trustee holds legal title to the property and the beneficiaries hold equitable title. Because the trustee holds legal title to the property, that property must be held in the Trustee’s name. Excerpts from trust ARTICLE I TRUST PROPERTY the Trustor has transferred and delivered or will transfer and deliver to the Trustee, without consideration, all property currently owned by Trustor. Should the Trustor not actually execute the appropriate conveyance, bill of sale, or other documentation customarily required to transfer title of the property, said property will nevertheless be considered owned and administered by the Trustee 8.13. Reservation of Use and Occupancy of Home: If, at any time, the Trust estate shall contain any improved real property used or suitable for occupancy as a residence, or any interest therein, the Trustor shall have the right to reside on such property if they may desire to do so, free of rent. 7.05. Power to Borrow: To borrow money, and to encumber, or hypothecate Trust property by mortgage, deed of Trust, pledge or otherwise. Trustee shall notify lender of any subsequent change of occupancy or transfer of beneficial interest.

I know you cannot provide legal help. Here are my questions. If it is so that I as trustee do hold title, would I be the one to sign the Reverse mortgage documents, as trustee for trust? Would it also be me (trustee for CFtrust) that signs as borrower’s Name or would the trust be borrower?

Might it be your opinion that the incapability of the trustor, non-owner of property, should be of no concern? Should I just find another Lender?


You are correct in that I cannot give you legal advice or direction.  What I can do is to refer you to the HUD HECM manual (4235.1) wherein it discusses taking title in the name of a trust and borrowers who lack competency.

This is what HUD has to say about the relationship of the parties to a trust:


HUD will insure HECMs on property held in the name of an inter vivo trust, also known as a living trust.  In general, a living trust is created during the lifetime of a person [as opposed to a testamentary trust which is created by the person’s will after his/her death].  A living trust is created when the owner of property conveys his/her property to a trust for his or her own benefit or for that of a third party [the beneficiaries].  The trust holds legal title, and the beneficiary holds equitable title.  The person may name him/herself as the beneficiary.  The trustee is under a fiduciary responsibility to hold and manage the trust assets for the beneficiary.  The trustee’s responsibilities are set out in a trust agreement.

You will notice that they state that the Trustee has duties to hold and manage the trust assets for the beneficiary but does not hold title.  The trust holds legal title, and the beneficiary holds equitable title.  HUD further goes on the delineate the conditions which must be met to originate a HUD-insured loan in the name of a living trust:

  1. Conditions for Origination in the Name of a Living Trust.

1). All beneficiaries of the trust must be eligible HECM borrowers at the time of origination and until the mortgage is released [i.e., borrower/beneficiary must occupy the property as a principal residence and new beneficiaries may not be added to the trust].  Contingent beneficiaries, that receive no benefit from the trust nor have any control over the trust assets until the beneficiary is deceased, need not be eligible HECM borrowers.

2). The trustee must sign the mortgage, and the mortgage must be signed by each borrower/beneficiary if necessary, to create a valid first mortgage.  The borrower/beneficiary must sign the Note and Loan Agreement.  The lender may require the signature of the trustee on the Note or the signature of the borrower/beneficiary on the mortgage.

3). The trust shall not be a party to the Loan Agreement.  The borrower/beneficiary may issue instructions to the lender to permit the trustee to exercise one or more rights stated in the Loan Agreement on behalf of the beneficiary, i.e., the right to receive loan advances or to request changes in the payment plan.

4). The lender must be satisfied that the trust is valid and enforceable, that it provides the lender with a reasonable means to assure that it is notified of any subsequent change of occupancy or transfer of beneficial interest and ensures that each borrower/beneficiary has the legal right to occupy the property for the remainder of his or her life.

In the very next section, under 4-6, HUD defines the use of a power of attorney:


The following guidelines apply to all phases of HECM loan processing:

  1. Mortgage Loan Application.

1)   Borrowers with legal competency:

  1. All borrowers must sign mortgage loan application.
  2. Mortgage loan application may be executed on behalf of a borrower by an “agent” or “attorney in fact” holding a durable power of attorney specifically designed to survive incapacity and avoid the need for court proceedings.

2)   Borrowers lacking legal competency:

  1. Incompetent borrower may not sign the mortgage loan application.
  2. Court-appointed conservator or guardian may execute any necessary documents, including the mortgage loan application.  The lender must provide evidence that the conservator or guardian has authority to obligate the borrower.
  3. A person holding a durable power of attorney specifically designed to survive incapacity and avoid the need for court proceedings, may execute any necessary documents, including the mortgage loan application.

(1) To be valid, a durable power of attorney must be prepared when the “principal” is competent to understand the nature and significance of the instrument.

(2) The durable power of attorney must comply with State laws regarding signatures, notarization, witnesses, and recordation.

  1. Closing Documents.  Power of attorney (durable or otherwise) may be used for closing documents.  Any power of attorney must comply with State law and allow for the Note to be legally enforced in that jurisdiction.
  2. Counseling Session.  For borrowers lacking legal competency, the counseling session may be conducted with a person holding a power of attorney, or with a court-appointed conservator or guardian.


So, the bottom line to me if I am reading your comments correctly is that you are the trustee but not the Power of Attorney (POA), that is another individual.

As the Trustee of the Trust, there will be places you need to sign the documents.

Since the beneficiary is not competent, the trust itself would need to stipulate that the POA had the authority to act on behalf of the beneficiary of the trust and under what circumstances, and then if those specific instructions so allow, the POA will be required to sign in other places under the HUD requirements where HUD has indicated that the borrower must sign the Note and Loan Agreement as the POA instead of the borrower.

That being the case, the lender would need to approve both the trust and the Power of Attorney.

Then there are letters required from the doctors of the beneficiary that must indicate that the onset of the illness or accident that incapacitated the beneficiary was after the date of the Power of Attorney.

If the illness or accident predates the onset of the incapacitation, then a court ordered conservatorship would be required by HUD.

I do not have an opinion on the legal cases you cite, I am not an attorney and cannot express a legal opinion on them (and truth be known, have never even read about them).

I can however read and relay what HUD has stated they will require for the use of Trusts and Power of Attorney for incapacitated borrowers/owners.  The excerpts above are taken directly from the HUD manual.

I cannot express an opinion on HUD’s legal footing or whether that seems to contradict any case law, but I do know that HUD had made the determination that if you want a loan insured by HUD, this is the procedure you must follow to utilize a Power of Attorney and/or close the loan in the name of a trust.

Does that make sense?

You can find the entire HUD 4235.1 manual online at http://www.hud.gov/sites/documents/42351HBHSGH.DOC and the chapter concerning trusts and Powers of Attorney is Chapter 4 (4-5 and 4-6).

Also recommends these helpful resources: