That is a very intereseting legal question, because the loan would have been done in your own name. That is, banks don't lend to living trusts, and even if you refinance a home in a living trust, the bank will first have you take the property out of the living trust so you can refi in your own name, then you may sign a deed putting the property back into the trust once the refi is done. Because the bank does these loans in the name of the purchaser individually and not the trust, it is highly unlikely the bank would have success litigating against the trust. Also, since a living trust is (generally speaking) revocable and a "look through" fictitious entity used for probate avoidance, the settlor would remove all assets and revoke the trust prior to any judgment being entered against the trust. That might raise a fradulent transfer argument for the bank (which is why I say the question is interesting), but it is highly unlikely that a bank/lender would undertake such risky litigation. The risk to the bank is that they pay their attorneys with no payout at the end of the day. If, however, you have reason to believe the bank will pursue your other assets or attempt to garnish your income, you should consult an attorney right away.
- David Turturici, Attorney at Law / Broker