We do not believe that your bank may exercise a right of setoff in this situation. Setoff rights arise from mutual debts between parties, and in the bank context they apply primarily when a bank holds a borrower’s deposit, such as in the form of a checking account or certificate of deposit. Here, the land trusts owe a debt to your bank, but they do not have any funds on deposit (which is typical for land trusts, which hold only real property).

Because your bank’s land trust agreements provide for an unsecured lien on the trust property, your bank may be able to collect unpaid fees when the land trust property is sold. One approach would be to establish a policy that all trust fees must be paid in full before your bank will deliver the trustee’s deed conveying the property. Another approach would be to insert a clause in the sale pay proceeds letter (or a loan pay proceeds letter, if applicable) requiring full payment of all outstanding trust fees before distributing sale or loan proceeds.

Also, land trust instruments typically provide that if the land trust beneficiaries fail to pay the trustee’s annual fee, the corporate fiduciary may resign as the trustee. If your bank chooses to exercise its right to resign as trustee, it should carefully adhere to the trust instrument’s resignation provisions, including any notice requirements.

For resources related to our guidance, please see:

• First Nat’l Bank of Deerfield v. Lewis, 186 Ill.App.3d 16, 19 (1st Dist. 1989) (“The general rule in Illinois is that a bank may apply its depositor’s account for a debt he owes to the bank.”)

• First Nat’l Bank of Blue Island v. Philp’s Estate, 106 Ill.App.3d 360, 362 (1st Dist. 1982) (“A bank has the right to set off funds on general deposit against a debt of depositor.”)

• Robinson v. Chicago Nat’l Bank, 176 N.E.2d 659, 661 (1st Dist. 1961) (“The land trust is a device by which the real estate is conveyed to a trustee under an arrangement reserving to the beneficiaries the full management and control of the property. . . .”)

• Illinois Counties Code, 55 ILCS 5/3-5020(c) (“In the event that the document of conveyance is a trustee’s deed issued under resignation by a land trustee, the statements pursuant to paragraphs (1) and (2) of subsection (b) shall not be required, but the trustee's deed shall instead be accompanied by a sworn or affirmed statement executed by the grantor land trustee stating that the trustee’s deed has been issued pursuant to resignation by the trustee, and that the name of the grantee shown on the trustee's deed is the name of the beneficiary of the trust as his name appears in the trust files as of the date of resignation.”)