IBA Compliance Connection

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We have heard the Illinois Supreme Court recently ruled that a land trustee that executes a mortgage is entitled to receive the TILA disclosures, including the notice of right to rescind for refinancings. Is this correct? Also, should these loans to trusts be reported on our Home Mortgage Disclosure Act loan application register (HMDA LAR) based on this decision?

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Yes, the Illinois Supreme Court held that the trustee of a land trust for residential property is covered by the Truth in Lending Act (TILA) and is entitled to receive TILA’s mandated disclosures and the right of rescission. The Court observed that Regulation Z expands TILA’s right of rescission to “a natural person in whose principal dwelling a security interest is or will be retained or acquired,” and the term “natural person” is defined in Regulation Z to include a land trust.

Home loans made to trusts (including land trusts) or other non-natural persons are subject to the HMDA reporting requirements, and the Illinois Supreme Court’s decision regarding TILA’s disclosure requirement has no impact on HMDA’s reporting requirements. We note, though, that the CFPB has acknowledged that some LAR data points are not applicable to trusts and need not be reported, such as ethnicity, race, sex, age, and income. For these points, you may simply use the Codes for “not applicable.”

For resources related to our guidance, please see:

  • Financial Freedom Acquisition, LLC v. Standard Bank and Trust Co., 43 N.E.3d 911, 920 (Ill. 2015), reh'g denied (Nov. 23, 2015) (Holding that “[c]redit extended to a land trust is credit extended to a natural person. Thus, the trustee of the land trust is a consumer, whose ownership interest is subject to the security interest. Accordingly, we conclude Standard, as trustee, was entitled to TILA disclosures and has the right to rescind the transaction.”)
  • Regulation Z, Official Interpretations, 12 CFR 1026, Paragraph 2(a)(11), Comment 3 (“Credit extended to land trusts, as described in the commentary to § 1026.3(a), is considered to be extended to a natural person for purposes of the definition of consumer.”)
  • Regulation C, 12 CFR 1003.4 (“A financial institution shall collect data regarding applications for, and originations and purchases of, home purchase loans, home improvement loans, and refinancings for each calendar year.”)
  • Regulation C, 12 CFR 1003.5 (“…a financial institution shall send its complete loan/application register to the agency office specified in appendix A of this part. …and make it available to the public.”)