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Who are "beneficiaries of mortgages or deeds of trust" in…

Who are "beneficiaries of mortgages...
Who are "beneficiaries of mortgages or deeds of trust" in the context of condominium property? Such are required to sign any amendment to the "Enabling Declaration for the Establishment of a Condominium" for a particular group of condos, but would this include unnamed heirs, next-in-line to an intestate condo co-owner, or co-owners with wills and named heirs but no established trust?
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Answered in 8 minutes by:
3/17/2018
socrateaser
socrateaser, Lawyer
Category: Real Estate Law
Satisfied Customers: 40,061
Experience: Attorney and Real Estate broker -- Retired
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Hello,

You ask a question which is more complex than it may appear on its surface.

The "beneficiaries of mortgages or deeds of trust", in the context of a condominium property, are the lenders who are entitled to the lien created by the mortgage or deed of trust, so as to maintain a right to foreclose on the property if the borrower/property owner fails to pay back the loan according to its terms (typically stated in a separate promissory note or loan agreement).

"Heirs, next-of-kin, co-owners," etc., are not the beneficiaries of a mortgage or deed of trust, unless the original beneficiary/lender assigns the mortgage or deed of trust to the heir before death; or the named beneficiary of the decedent lender's estate receives a bequest which includes the benefits of and right to enforce the promissory note or loan agreement.

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Customer reply replied 4 months ago
if a condo owner who mortgaged their condo dies without the lender assigning the mortgage to the owner's heir(s), then could the lender foreclose on the mortgage after the original owner dies before the owner's heir could take title to the property, even if that heir is named in the owner's will? Lenders typically want to retain an obligor to repay their loan so typically do mortgages contain assignment language to cover this situation, i.e the owner / obligor dies and their heirs inherit the property under an "automatic" assignment of the mortgage / loan obligation to the new owner / heir? Or usually must there be a separate and specific assignment agreement pursuant to the mortgage which assigns to the owner's heir the title of "beneficiary" under the mortgage so that heir becomes the new obligor when the original owner dies? And in the context of a "beneficiary of a deed of trust", would that pertain only to a trust for deed of property? Or to a trust for other assets in addition to real property, i.e. a general trust covering the estate of the original owner?
Customer reply replied 4 months ago
if a condo owner who mortgaged their condo dies without the lender assigning the mortgage to the owner's heir(s), then could the lender foreclose on the mortgage after the original owner dies before the owner's heir could take title to the property, even if that heir is named in the owner's will? Lenders typically want to retain an obligor to repay their loan so typically do mortgages contain assignment language to cover this situation, i.e the owner / obligor dies and their heirs inherit the property under an "automatic" assignment of the mortgage / loan obligation to the new owner / heir? Or usually must there be a separate and specific assignment agreement pursuant to the mortgage which assigns to the owner's heir the title of "beneficiary" under the mortgage so that heir becomes the new obligor when the original owner dies? And in the context of a "beneficiary of a deed of trust", would that pertain only to a trust for deed of property? Or to a trust for other assets in addition to real property, i.e. a general trust covering the entire estate of the original owner?

So if a condo owner who mortgaged their condo dies without the lender assigning the mortgage to the owner's heir(s), then could the lender foreclose on the mortgage after the original owner dies before the owner's heir could take title to the property, even if that heir is named in the owner's will?

A: As long as the lender follows the requirements of Texas law and provides notice to the public that the property will be sold, then the lender can foreclose.

Lenders typically want to retain an obligor to repay their loan so typically do mortgages contain assignment language to cover this situation, i.e the owner / obligor dies and their heirs inherit the property under an "automatic" assignment of the mortgage / loan obligation to the new owner / heir?

A: I respectfully ***** ***** your premise that "lenders typically want to retain an obligor to repay their loan...." This may or may not be true. What is indubitably true is that lenders have a duty to their shareholders to maximize profits and preserve capital. So, if a loan is nonperforming, then the lender will simply follow its internal procedures, with the eventual result being a foreclosure, unless the deceased property owner's heirs or estate representative bring the loan current or sell the property.

Or usually must there be a separate and specific assignment agreement pursuant to the mortgage which assigns to the owner's heir the title of "beneficiary" under the mortgage so that heir becomes the new obligor when the original owner dies?

A: There's no requirement for an assignment. The requirement is that the loan be paid according to its terms and conditions. If not, then the lender can foreclose -- absent a restraining order issued by a probate court judge.

And in the context of a "beneficiary of a deed of trust", would that pertain only to a trust for deed of property? Or to a trust for other assets in addition to real property, i.e. a general trust covering the entire estate of the original owner?

A: A deed of trust is not a true trust, because the trustee has only a very limited role: to provide notice of sale and sell the property if the beneficiary of the trust deed (the lender) instructs the trustee to commence the foreclosure process.

Other trust assets have different rules, much of which depends on the trust instrument, itself, and the law of the state in which the trust was originally established. Interpretation of a true trust instrument is a very complicated issue -- entirely outside of the scope of any service that could be provided in this forum. If that's what you are seeking, you will need to hire local legal counsel to assist.

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Hello again,

I see that you have reviewed my answer, but that you have not provided a rating. Do you need any further clarification concerning my answer, or is everything satisfactory?

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Customer reply replied 4 months ago
As a corporate (not mortgage) lender of 20 years, I will confirm that most lenders wish to retain an obligor to the loan and NOT to foreclose on a property after the original obligor has passed away. I'm just trying to understand if a condo owner with a mortgage who intends for the condo to pass to their heir(s) needs to get the mortgage lender to make an assignment of the mortgage (precluded on the owner's death) to pass to their heirs before the owner dies. This might call the creditworthiness of the heir into question if the lender is going to accept the heir stepping into the shoes of the original obligor via an assignment (activated by the mortgagee's death) before the mortgagee dies and to the heir. In other words, is a will stating the condo is to pass in ownership to the original owner's heir(s) when the owner dies, or is a separate document / assignment agreement needed to do this before the original owner dies?

No separate assignment is required to pass title from a deceased property owner to an heir or beneficiary of a will or trust. However, while title/ownership may be transferred by will or trust, the mortgage/deed of trust does not pass, and cannot be assigned without the lender's consent. Consequently, the only way for an heir/beneficiary to deal with a preexisting mortgage/deed of trust is to: (1) refinance the property, thereby eliminating the previous loan; (2) negotiate with the lender to assume the existing mortgage/deed of trust; (3) maintain the existing payments so that the lender doesn't foreclose (because the lender can't foreclose as long as the loan is being paid according to the terms and conditions of the note/loan agreement); (4) sell the property before its foreclosed, use the proceeds to pay off the loan.

I hope I've answered your question. Please let me know if you require further clarification. And, please provide a positive feedback rating for my answer (click 3, 4 or 5 stars) -- otherwise, Justanswer retains your entire payment, and I receive nothing for my efforts in your behalf. Note: If you cannot find the rating button on your webpage, please just type in your rating in a response to this note, and customer service will apply the rating for you.

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Customer reply replied 4 months ago
in the context of signing an amendment to an Enabling Declaration for the Establishment of a Condominium, the "beneficiaries of mortgages or deeds of trust" who would need to sign the amendment, would not be the heirs of the condo owners but rather the lenders to those condo owners who mortgaged their condos, correct?

The record title holder signs the enabling declaration. The typical declaration contains express terms subordinating the rights of condo owners to institutional lenders. Without that languge, the condo would be unmarketable, because no lender would underwrite a loan on the property. So no lender needs to sign, because the lender is protected by the enabling language.

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Customer reply replied 3 months ago
While your direction references the typical declaration, our specific declaration requires mortgagees (i.e. lenders) as well as beneficiaries of mortgages and deeds of trust to approve any amendment to the declaration unanimously with the condo co-owners. I interpret that to mean the lenders would have to sign any amendment to the declaration but I may be incorrect if some other language elsewhere mandates otherwise. If there is some other language in the typical declaration which negates lenders from having to approve and sign any amendments to the declaration, then in which part of the declaration would that typically be found? Note that this declaration was copied and signed many times over in the establishment of multiple condominium developments by the same builder throughout an entire township so it may have been "typical" in that regard locally, but may have differed from the "typical declaration" you are familiar with given your superior experience base with real estate documents of this kind. I am keenly interested to know, however, if typical declarations do not require lender / mortgagee signatures for amendments so as to improve the marketability of those loans in secondary syndication. We've had issues with the FHA on one mortgage requiring removal of the co-owners' rights of first refusal in the sale of their condos, specifically to improve marketability of one loan in secondary syndication so my sense is that the FHA (or successor lender), if still a mortgagee on one of our condos, would be required to sign any amendment to the declaration. But if not required via some other language found elsewhere in the typical declaration, I'd like to know where that would be typically found as I've not seen it yet in my review (and our declaration is short at only 7 pages) and if, indeed, our declaration is "non-typical" in requiring lender signatures for any amendments to the declaration.

You're declaration is atypical. I've never reviewed a CC&R that required lenders/trust deed beneficiaries/mortgagees to expressly accept amendments to CC&Rs. The CC&Rs should be drafted to protect the marketability of association member property. Anything less may be professional malpractice by the attorney who drafted the CC&Rs (assuming the CC&Rs were drafted by an attorney).

Let's say that the CC&Rs originally required that all subsequent loans secured by association member property would have priority over the CC&Rs, except as to preexisting liens and encumbrances recorded by the association. This provision would protect the marketability of the properties so as to permit routine home and equity financing -- not including assessment or penalty liens against a member-owner recorded prior to any new home or equity financing.

If the "typical" CC&Rs required all lenders to sign off on CC&R amendments, then the association would have to search for every lender on every member-owner property, in order amend the CC&Rs. Such a provision would be unreasonable/unconscionable/absurd (it may even be unenforceable as a restraint on alienation -- which is strongly disfavored by the courts, and has been since before there was a United States of America -- the free transfer of property is strongly favored by the courts, so as to not intrude into the functions of markets and 5th Amendment property rights of persons).

I cannot help you fix something that's as "broken" as what you are describing. Your association may actually need to sue for declaratory relief and to "try title" against all lenders in the world, in order to jettison your described requirement for CC&R amendment.

We're now way beyond the scope of the general Q&A of this forum. You need to hire a real estate attorney who handles association CC&Rs and related litigation.

I hope I've answered your question. Please let me know if you require further clarification. And, please provide a positive feedback rating for my answer (click 3, 4 or 5 stars) -- otherwise, Justanswer retains your entire payment, and I receive nothing for my efforts in your behalf. Note: If you cannot find the rating button on your webpage, please just type in your rating in a response to this note, and customer service will apply the rating for you.

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