If a bank is the trustee of a land trust that will provide collateral for a home loan entered into by an individual, is the bank entitled to receive a copy of all disclosures? The trust beneficiary will be signing the loan documents, and the trustee will be signing only the mortgage.

Yes, we believe that the trustee (as well as the individual borrower) would be entitled to receive all disclosures for a mortgage loan secured by property held in the land trust. The Official Interpretations to Regulation Z clarify that a land trustee that enters into a mortgage transaction is treated as the “consumer” and is entitled to receive all mortgage disclosures. This also was confirmed in a recent Illinois Supreme Court case.

This situation differs slightly from the facts contemplated in the Regulation Z Official Interpretations and in the Illinois Supreme Court case. In this situation, the land trustee is not signing the promissory note and is signing only the mortgage. In the Official Interpretations and the Illinois Supreme Court case, the land trustee signed both the mortgage and the promissory note or installment note in its capacity as land trustee. However, we believe that the same reasoning would apply here — because the land trustee is signing the mortgage, it should be treated as a consumer entitled to receive all mortgage disclosures, along with the individual borrower.

For resources related to our guidance, please see:

Official Interpretations, Regulation Z, 12 CFR 1026, Paragraph 3(a), Comment 10(ii) (“In some jurisdictions, a financial institution financing a residential real estate transaction for an individual uses a land trust mechanism. Title to the property is conveyed to the land trust for which the financial institution itself is trustee. The underlying installment note is executed by the financial institution in its capacity as trustee and payment is secured by a trust deed, reflecting title in the financial institution as trustee. In some instances, the consumer executes a personal guaranty of the indebtedness. The note provides that it is payable only out of the property specifically described in the trust deed and that the trustee has no personal liability on the note. Assuming the transactions are primarily for personal, family, or household purposes, these transactions are subject to the regulation because in substance (if not form) consumer credit is being extended.”)

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.”)

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.”)