Actual ownership of real property (how ownership is recorded on title) can make or break a real estate sale during the escrow process. When there’s a transfer of property during the typical real estate transaction, real estate professionals have a better understanding of common methods of holding such as joint tenancy, tenancy in common, tenants by entirety, sole ownership, and community property. However, many properties are held in a trust and present a special set of circumstances for title and closing. If the seller or principal representing the seller already has a Certificate of Trust in place, it helps to expedite the process. As such, understanding trust certifications and trust agreements is vital.
What Is a Trust Certificate?
Simply stated, A Certification of Trust is a legal document that authenticates:
- The legal existence of a Trust if property ownership is in the trust
- The trustee’s legal authority to act on behalf of the trust
- Whether or not the trust if revocable or irrevocable
- Trust tax identification number
- Other essential information including number of trustees, assets included in the trust, and more
The Trust Certificate is included in the transaction documentation to show essential details regarding the trust, (date created, legal trust name of trustee, etc.) and other high-level details without divulging complete details of the actual trust.
Why Is a Trust Certificate Needed?
The Trust Certificate assures lenders, title, escrow, and other third parties involved in a transaction that Trustees are authorized to buy, sell, borrow, or take other business actions on behalf of the trust. In the event of any improprieties, the certificate makes the trustee liable for misleading statements.
In Many Instances, the Actual Trust Agreement May Be Required
Be advised that if the trust requires mortgage financing, portions of the trust agreement is mandatory if the trust, and not an individual is the borrower. These pages include:
- The First 2 pages of the Trust, which confirms the trust
- The signatory page of the trust, which confirms the names of the Trustees
- Finally, the Notary Page of the Trust which ensures the validity of the Trust
If the Trust has been “Amended” a full copy of the Trust is required. The lending institution, Escrow and Title will normally ask for both the Trust Agreement in addition to the Trust Certification. The Trust Agreement will absolutely be requested if the original trustee has been replaced by a “successor.”
However, third parties have their own liability issues to consider if they request the complete agreement. If proven private information from the full trust agreement not pertaining to the transaction is used inappropriately or illegally, third parties could be liable for damages and attorney costs.
Understanding Trust Certifications and Trust Agreements
If the sales property is part of a trust, please advise your sellers to consult with an attorney. And of course, your professionals here at Escrow Hub are familiar with the scenarios involving trust certification and are here to assist you and your clients.