In our view, such a customer would have a right of rescission if his or her interest in the land trust is subject to the security interest. Regulation Z provides a right to rescind to “each consumer whose ownership interest is or will be subject to the security interest . . . .” 12 CFR  1026.15(a). This right to rescind applies to all persons whose property rights can be affected by having a lien placed on the property.

Under Illinois law, the beneficiary of a land trust has a personal property interest in the real estate, even though the trustee of the land trust retains legal title to the real estate. 765 ILCS 430/1Hoxha v. LaSalle Nat. Bank, 847 N.E.2d 725, 730 (1st Dist. 2006).  Consequently, the land trust beneficiary’s interest in the property would be subject to your bank’s security interest. Provided that the loan is for personal, family or household purposes, the transaction is subject to Regulation Z’s right to rescission.

As an aside, if a non-commercial loan is made directly to the land trust, the land trust also would have a right of rescission. The Commentary to Regulation Z states that the term “consumer” includes a land trust, as follows: “Credit extended to land trusts . . . is considered to be extended to a natural person for purposes of the definition of consumer.” Comment 3, Official Staff Commentary, 12 CFR 1026.2(a)(11).