Wasco, CA asked in Estate Planning, Real Estate Law and Probate for California

Q: California: Can she alter the terms of the trust and refuse to sign the deed?

My oldest sister is the trustee of my mother’s trust. The only item in the trust is my mother’s home. The trust terms are that the home is divided equally among my two sisters and myself. There is an existing mortgage on the home. We have agreed I may purchase the home and buy out their interest. My sister, the trustee, says she will not sign the deed unless I pay the entire existing mortgage out of my third. That would be a 90% loan to value in obtaining lending. Can she alter the terms of the trust and refuse to sign the deed? Wouldn’t one third each equally require each of us to pay one third the existing mortgage and split the remainder equally?

Thank you.

2 Lawyer Answers
Nina Whitehurst
Nina Whitehurst
PREMIUM
Answered
  • Estate Planning Lawyer
  • Crossville, TN
  • Licensed in California

A: The most straightforward way is for you to open an escrow and deposit the entire purchase price. Then those funds are used to pay the mortgage and closing costs. What is left is split three ways. If you don't have all cash, then you will have to get a loan, so you will deposit part cash and sign a new promissory note and mortgage. If you are going to get a loan, the lender WILL require an escrow. The sale proceeds will be applied first to pay off the existing mortgage and closing costs and what is left would be split three ways.

Here is an example: Sale price = $360,000. Mortgage payoff = $300,000. Sale price ($360,000) - mortgage payoff ($300,000) = $60,000. (Assume no closing costs, although that is never the case.) One third of $60,000 is $20,000. You each get $20,000. So $20,000 would be distributed to your sister, $20,000 to the other sibling, and $20,000 to you.

Your net out of pocket is $340,000 in this example ($360,000 - $20,000), so another way to do this if you don't need to get a loan is for you to pay $300,000 to the lender pay off the loan and pay $20,000 directly to each of your siblings.

Bill Sweeney agrees with this answer

Manuel Alzamora Juarez
Manuel Alzamora Juarez
PREMIUM
Answered
  • Berkeley, CA
  • Licensed in California

A: This is how you should resolve this issue. Find out via an appraiser what is the FMV of your mother’s house. Assume that the price is $800,000.00. assume the mortgage owed is $200,000. After sale of the house, the mortgage of $200k has to be repaid to the bank. That leaves $ 600,000.00 to be divided equally between the three of you or $200,000 each person.

As an example, You may wish to purchase the house for $800.000. If so, you may have to qualify for the loan. After payment of the remaining mortgage of $200,000.00, you must then distribute the remaining $600,000 equally to each sibling or $200,000.00 each.

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