Pursuant to California Probate Code Section 18100.5, the trustee of a trust may present a certification of trust to a lender in lieu of providing a copy of the trust instrument to establish the existence or terms of the trust. See, California Probate Code Section 18100.5(a).
“1. The existence of the trust and date of execution of the trust instrument.
2. The identity of the settlor or settlors and the currently acting trustee or trustees of the trust.
3. The powers of the trustee.
4. The revocability or irrevocability of the trust and the identity of any person holding any power to revoke the trust.
5. When there are multiple trustees, the signature authority of the trustees, indicating whether all, or less than all, of the currently acting trustees are required to sign in order to exercise various powers of the trustee.
6. The trust identification number, whether a social security number or an employer identification number.
7. The manner in which title to trust assets should be taken.
8. The legal description of any interest in real property held in the trust.”
The certification of trust “shall contain a statement that the trust has not been revoked, modified, or amended in any manner which would cause the representations contained in the certification of trust to be incorrect and shall contain a statement that it is being signed by all of the currently acting trustees of the trust. The certification shall be in the form of an acknowledged declaration signed by all currently acting trustees of the trust.” See, Probate Code Section 18100.5(c)
Upon receipt of certification of trust, the lender may request solely “those excerpts from the original trust documents, any amendments thereto, and any other documents which designate, evidence, or pertain to the succession of the trustee or confer upon the trustee the power to act in the pending transaction, or both.” See, Probate Code Section 18100.5(e). The Lender cannot obtain “the dispositive provisions of the trust or the entire trust and amendments thereto.” See, Probate Code Section 18100.5(e).
Furthermore, a Lender who makes a demand for the trust documents (other than excerpts which designate, evidence, or pertain to the succession of the trustee or confer upon the trustee the power to act in the pending transaction) in addition to a certification of trust to prove facts set forth in the certification of trust acceptable to the third party shall be liable for damages, including attorney’s fees, incurred as a result of the refusal to accept the certification of trust in lieu of the requested documents if the court determines that the person acted in bad faith in requesting the trust documents.
A lender who “acts in reliance upon a certification of trust without actual knowledge that the representations contained therein are incorrect is not liable to any person for so acting.” Any loan “transaction, and any lien created thereby, entered into by the trustee and a person acting in reliance upon a certification of trust shall be enforceable against the trust assets.” However, if the Lender “has actual knowledge that the trustee is acting outside the scope of the trust, then the transaction is not enforceable against the trust assets.” See, Probate Code Section 18100.5(e).
Based on the provisions of California Probate Code Section 18100.5, a lender should not ask for dispositive provisions of the trust or the entire trusts and amendments thereto. Furthermore, if a lender requests for excerpts that confer upon the trustee the power to act in the pending transaction and the excerpts demonstrate that the trustee does not have the power to act, the transaction may not be enforceable against the trust assets (due to assertions of actual knowledge of the lender). As such, it is prudent for lenders not request that trust borrowers or trust guarantors furnish to the lender dispositive provisions of the trust that confer upon the trustee(s) the power to act.
Simantob Law Group is a law firm of business attorneys and real estate lawyers. We have represented the business and real estate legal needs of individuals and companies, from start-ups to regional and national US corporations for over 20 years. Please contact us at 310.281.0041 or complete our online contact form to discuss your legal guidance/documentation needs.