Use of Revocable Trusts Frequently Problematic in Short Sales

There is a new and disturbing trend in foreclosure cases and short sales. "Experts" are advising distressed home owners to place their home in a revocable trust and appoint themself as trustee. There would be advantages to this, but I am suggesting that such home owners consider some free legal advice - and yes, I understand and appreciate the value of "free" advice!!

This is arguably fraud. It would appear to a lender or a judge, that this is an attempt to cloud title or delay or obstruct the foreclosure process. If the short sale is unsuccessful, there could be serious ramifications to this maneuver. The reasons that many experts suggest to do this are valid, but there are other - less risky methods to achieve the same results.

At the point in time that a home is in default - more than 30 days past due - anything that a home owner does regarding title, is going to be closely examined by a Court or lender. Even placing the home in a trust just prior to entering default is problematic, so my advice is "DON'T DO IT". Another problem with this tactic is that (IMHO) about 85-90% of trusts are not properly established and maintained and consequently, they are voidable. I know of one lender that threatened to charge the home owner with the unauthorized practice of law for establishing a trust without the use of an attorney. It was a complicated matter, but the point is that the tactic of delaying foreclosure, attempting to cloud title or avoid transfer tax via revocable trust is challenging and will almost always appear to be fraud to a lender or judge. Another aspect of this tactic that is problematic is that the trusts are not being set up by an attorney and they need to be. Listing and buyer agents: my advice is to never ever aid a home owner in the development of a revocable trust (I have seen this a number of times). Advise a home owner that is considering this tactic to seek the counsel of an attorney and tell them "EVERYTHING". Do not selectively leave out details as the "devil is truly in the details" in such matters.