IBA Compliance Connection

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When extending a home equity line of credit (HELOC) secured by property held in a land trust for which our bank is the trustee, must our bank sign the loan documents as trustee for the land trust? LaserPro creates loan documents (such as the HELOC agreement and disbursement request) with signature lines for the borrower individually and for our bank as trustee. While we require borrowers sign these documents, our loan department would like to leave the trustee signature lines blank.

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Since the land trustee is the legal titleholder of the property being mortgaged, we believe your bank should sign the mortgage as trustee of the land trust. However, we do not believe it is necessary for your bank to sign the note or other HELOC documentation that does not affect title to the property.

In Illinois, “a land trust is an arrangement in which a trustee holds legal and equitable title to real property.” The beneficiary of the land trust “maintains full management and control of the property” with “[e]very attribute of real property ownership . . . except title.” As the holder of legal title to the property, the land trustee should sign all documents that affect title to the property, including the mortgage. Additionally, under the Illinois Conveyances Act, a mortgage signed by the mortgagor or mortgagors will “be deemed and held a good and sufficient mortgage.”

Conversely, if the note (or HELOC agreement) does not affect title to the property, the land trustee does not need to sign it. Although some lenders may obtain a land trustee’s signature on a note to provide continuity between the note and mortgage, it is not required, and such notes generally contain language providing that the trustee is not liable for repayment of the note. Similarly, the land trustee would not need to sign a disbursement request, which does not affect title to the property.

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. . . . 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 though 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)
  • David J. Lanciotti, IICLE, Modern Land Trust Practice 2020 Edition, Chapter 8 — Land Trust Transactions (“As legal titleholder of the property, the land trustee must sign all documents that affect the title to the property. These documents may include conveyances, mortgages, contracts, and leases. Under many of these documents, the trustee is not the real or primary obligor but is a necessary party for the purpose of binding the title.”)
  • David J. Lanciotti, IICLE, Modern Land Trust Practice 2020 Edition, Chapter 8 — Land Trust Transactions (“Some lending institutions have the note signed only by the beneficiary and not the trustee, whereas the trustee signs only the mortgage, which states that it secures the obligation of the beneficiary under a note. Most often, however, the lender obtains the trustee’s signature on the note to provide continuity between the note and the security instrument.”)
  • Illinois Conveyances Act, 765 ICLS 5/11(a) (“Mortgages of lands may be substantially in the following form: . . . . (signature of mortgagor or mortgagors) . . . Such mortgage, when otherwise properly executed, shall be deemed and held a good and sufficient mortgage in fee to secure the payment of the moneys therein specified . . .”)
  • Freddie Mac Single-Family Seller/Servicer Guide, Section 5103.7 — Land Trust (“Each beneficiary of a Land Trust who is a Borrower must sign the Note in that beneficiary’s individual capacity. . . . The trustee of the Land Trust must execute the Security Instrument.”)