Question: Am I able to obtain a mortgage on my real property if it is owned by an irrevocable Medicaid trust? Can a bank demand that an existing mortgage be due in full if I transfer my property to an irrevocable Medicaid trust?
Answer: It depends on what kind of financing you are looking to obtain. Unfortunately, most banks will not offer traditional mortgages or home equity lines of credit against real property owned by an irrevocable trust. Luckily, in New York State an irrevocable Medicaid trust can be revoked, meaning you can remove a property you wish to mortgage from the irrevocable Medicaid trust so long as you obtain the consent of all those who are beneficially interested in the trust. This should always be done with the help of an attorney as the consent must comply with strict requirements.
Keep in mind that if you remove a property from an irrevocable Medicaid trust to obtain financing, and later transfer the property back to the irrevocable Medicaid trust, it will re-start the look-back period. In other words, because Medicaid requires the assets to be in trust for a period of five years before they are considered “unavailable” for eligibility purposes, if you remove a property from the trust you will lose any time accrued while the property was in the trust. If you later transfer the property back to the trust, it will re-start the clock.
If you are looking to obtain a reverse mortgage on your home in an irrevocable Medicaid trust, you may be in luck. There are some banks who will permit homeowners to obtain a reverse mortgage on their property in a Medicaid trust provided the trust meet the bank’s guidelines for underwriting. Again, so long as all those beneficially interested agree to amend a trust, you can revise the terms to comply with a bank’s requests.
With regard to transferring properties that are already subject to a mortgage, under the Garn-St. Germain Act, a bank cannot “call the note” or require that the homeowner pay the balance of the mortgage in full so long as the trust retains rights of occupancy for the borrower. However, this is not necessarily true for properties subject to a reverse mortgage. If you own a property that is already subject to a reverse mortgage, it is prudent to obtain the permission of the mortgage company before making any transfers.
Dealing with properties that are subject to a mortgage or for which you are contemplating taking out a mortgage can be a tricky business once an irrevocable trust is involved. Be sure to seek the counsel of an attorney experienced in Elder Law and real estate transactions before making any decisions.
By Nancy Burner, Esq. and Kimberly Trueman, Esq.