Assuming the borrower is the beneficiary of the land trust, and the trustee of the land trust signs the transfer,  we do not believe that your loan or collateral position would be jeopardized by a transfer of the property out of the land trust and into the borrower’s name, as the transfer would not change your lien position, and the borrower would remain responsible for the repayment of the loan. However, we recommend reviewing the proposed transfer with your title insurance provider, as your policy may need to be updated.

Illinois courts have found that the beneficiary of a land trust “maintains full management and control of the property” with “[e]very attribute of real property ownership . . . except title.” Illinois courts also have described a land trust as “a legal fiction that is a useful instrument for handling real estate transactions, with true ownership of the property lying with the beneficiary.” Consequently, we do not believe that transferring title to the property to the borrower will affect your loan, as the borrower already maintains control of the property and will remain liable for the loan’s repayment (since the borrower already signed the note and mortgage in their individual capacity).

For resources related to our guidance, please see:

• Warczak v. Attorneys’ Title Guaranty Fund, Inc., 2015 IL App (2d) 140677-U, ¶ 37  (“In Illinois, a land trust is an arrangement in which a trustee holds legal and equitable title to real property, and the beneficiary's interest is personal property, not a direct interest in the real estate res of the trust. However, in contrast to a traditional trust where the trustee has broad powers over the trust property's management and disposition, in a land trust the beneficiary maintains full management and control of the property, and the land trustee may act only at the beneficiary's direction. A land trust beneficiary has the power to possess, manage, and physically control the property; receive income the property generates; direct the trustee in dealing with the property's title; and receive proceeds from the property's sale made pursuant to the power of direction. An Illinois land trust is essentially a form of real property ownership. Every attribute of real property ownership is retained by the beneficiary, except title. As such, even through a beneficiary's interest may be labeled as personalty, courts have recognized that the beneficiary is the owner of and has an interest in the real estate res.”) (internal citations omitted)

• Warczak v. Attorneys’ Title Guaranty Fund, Inc., 2015 IL App (2d) 140677-U, ¶ 38 (“‘The Illinois land trust primarily serves “as a useful vehicle in real estate transactions for maintaining secrecy of ownership and allowing ease of transfer.”’ Our supreme court has described a land trust as a legal fiction that is a useful instrument for handling real estate transactions, with true ownership of the property lying with the beneficiary. The only ownership attribute that the trustee has is related to title, and third parties may rely on this in transactions where title to the real estate is of primary importance. In contrast, beneficiaries are responsible for things such as real estate tax obligations because revenue collection focuses on ownership realities rather than legal title. Land trust beneficiaries can also pursue litigation regarding the property in situations relating to the property's management and control.”)

• Land Trust Beneficial Interest Disclosure Act, 765 ILCS 405/1 (“‘Land trust’ means any express agreement or arrangement whereof a use, confidence or trust is declared of any land, or of any charge upon land, for the use or benefit of any beneficiary, under which the title to real property, both legal and equitable, is held by a trustee, subject only to the execution of the trust, which may be enforced by the beneficiaries who have the exclusive right to manage and control the real estate, to have the possession thereof, to receive the net proceeds from the rental, sale, hypothecation or other disposition thereof, and under which the interest of the beneficiary is personal property only.”)