Conservator & Guardian Loans

How Conservators and Guardians can use untapped real estate equity to provide timely cash liquidity

More and more, Attorneys are seizing upon using mortgage financing. Clearly, the financing concept has taken root and become an acceptable practice.

Faced with the very real prospect of being forced to sell their family home to a stranger, concerned relatives often prefer to find a way to keep estate realty. In other cases, there is insufficient liquidity in the estate to pay creditor claims and the cost of administration without selling what is the major asset: estate realty. Consequently, borrowing is a quicker, less expensive and more attractive solution compared to selling estate realty.

Conservators and Guardians can obtain equity-based mortgages for up to 50-65% of the current appraised property value. Lenders use the protective equity remaining in the property to be used as security as the major driving force in approving these loans. Lenders will require that the subject property be in insurable condition, since the mortgage is primarily qualified by the soundness of the security (the property's equity).

Another factor, which may influence a lender's decision to lend, is whether or not the borrower is a professional fiduciary. Also, the presence of a major adversarial situation or even litigation may dissuade a would-be lender from granting a loan.

Interest rate premiums for first mortgages are typically 2.5 - 5% above the equivalent 30 year fixed rate for a conventional loan for a fully qualified, "A" paper borrower. Mortgage terms available are usually shorter than for conventional loans: 10-15 years on average. Shorter terms are not uncommon.

So, what can you do with mortgage financing? Here are just a few examples:
1. Pay ongoing debts and medical bills
2. Pay attorney fees
3. Provide quick funds for emergencies
4. Pay Medi-Cal and other creditors
5. Stop foreclosure
6. Pay delinquent taxes
7. Money for repairs
8. Pay settlements and fund other legal actions
9. Get "Junior" and his family out of the house (also called a "get out" loan)

Attorney Actions specific to Conservator & Guardian loans:

• Requires Court Order to Borrow in all cases
• Gain flexibility by Petitioning/Noticing for more funds than needed
• Use flexible language (i.e, "approximate interest rate") if possible
• Provide lender courtesy copy of drafts for their review prior to filing
• Advise lender if increased bond required or likely to be required
• Distribute estate realty to heirs subject to new mortgage

Due to their protective nature, all California courts require loans to Conservators and Guardians to obtain court authority via a Court Order. This may take from as few as several days to several months to accomplish. It's not unusual for the step alone to take 5-6 weeks in many court jurisdictions.

Special Note: Typically, banks and other lenders' borrower pre-qualification letter don't specify the ownership title vesting of the borrower. Don't be surprised if, at the last minute, the lender requires the property to be transferred and vested in the name of the borrower personally. To avoid this, demand a written statement that clarifies this matter if the loan is to be made to a Conservator or Guardian.