Quick Summary

Here’s a frustrating situation we’re seeing more often.

A homeowner wants to refinance their mortgage. Everything seems straightforward until the bank discovers there is a Lady Bird Deed on the property.

Suddenly, the refinance stalls.

The bank requests additional paperwork. Questions start flying. Sometimes the loan is denied outright, or the homeowner is told the deed must be updated before the refinance can proceed.

The problem is that, in most cases, the issue is not the Lady Bird Deed.

The issue is that the bank doesn’t understand it.

Why This Matters

Lady Bird Deeds have been used in Michigan for decades.

They are one of the most effective tools available to help families avoid probate while allowing the property owner to maintain complete control during their lifetime.

A properly drafted Lady Bird Deed allows the homeowner to:

  • Sell the property
  • Mortgage the property
  • Refinance the property
  • Change beneficiaries
  • Revoke the deed entirely

All without obtaining permission from the remainder beneficiaries.

In other words, the homeowner keeps all of the rights and powers they had before the deed was signed.

From a lender’s perspective, this should be reassuring.

If the homeowner defaults on the loan, the bank’s mortgage remains protected.

If the homeowner refinances, the bank receives a valid mortgage interest in the property.

The beneficiaries named in the Lady Bird Deed have no present ownership or property rights that interfere with the homeowner’s ability to refinance.

Yet many loan officers encounter Lady Bird Deeds so infrequently that they immediately send the file into a special review process or simply conclude that the title is defective.

This is not a legal problem at all.

It is an education problem.

Unfortunately, large financial institutions can sometimes struggle with situations that fall outside their standard checklist. The file may be reviewed by someone in another state who has never seen a Michigan Lady Bird Deed before.

The result is delays, frustration, and unnecessary stress for homeowners.

The Value of Working With People Who Know You

When banks give our clients a hassle about their Lady Bird Deed, we encourage them to consider local or community banks that will take the time to understand the situation rather than simply rejecting it.

That does not mean every large bank is difficult to work with or every small bank is perfect.

But we often find that local lenders are more willing to have a conversation, review the legal framework, and understand how the planning works.

When people know their customers, they tend to spend more time solving problems and less time checking boxes.

That can make a tremendous difference when unusual situations arise.

Simple Lesson

A Lady Bird Deed is usually not the problem. The problem is often the bank’s lack of understanding about how a Lady Bird Deed works, and its refusal to take a few minutes to get educated.  Or the loan officer’s refusal to send a message to the bank’s corporate office telling corporate they are losing business because they are so inflexible.

Action Step

If you have a Lady Bird Deed and are considering a refinance:

  • Let the lender know about the deed early in the process.
  • Be prepared to provide a copy of the deed.
  • Ask whether the bank’s underwriting department is familiar with Michigan Lady Bird Deeds.
  • If the lender seems unwilling to understand the planning, get a second opinion from another bank or credit union.
  • If enough people say “no” to the bank, maybe at some point they will listen.

Bottom line, don’t stress about it, sometimes the easiest solution is working with people who take the time to understand your situation.

Visit us at www.MichiganEstatePlans.com or call us at (517) 548-7400.