Topic: Land Trusts
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We serve as trustee for two trusts that annually file Form 990-PF tax returns for private foundations. Generally, the rules governing private foundations under Section 501(c)(3) of the Internal Revenue Code require the trusts to annually distribute funds for their charitable purposes equal to at least 5% of the fair market value of the trusts’ assets. In this case, the majority of the trusts’ assets are farmland, and the only way to distribute funds equal to 5% of their assets would be to sell the farmland. Is there a way to avoid this? Can the type of the trusts be changed to preserve the assets, since the grantor did not intend for the land to be sold?
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We do not believe that the trusts you have described would qualify for any exceptions related to the requirement of a private foundation to make distributions for charitable purposes. Additionally, trusts may be modified by the settlor only if the trust expressly provides that the trust is revocable or amendable, or by a court according…
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We recently closed a mortgage loan secured by a property held in an Illinois land trust. The note, mortgage, and land trust riders were signed by both the borrower and the trustee of the land trust. Now the borrower has requested that we consent to a transfer of the property out of the land trust and into the borrower’s name so the borrower can close the land trust. If we authorize this transfer of title, could our loan and collateral position be jeopardized?
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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…
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We are looking for guidance on how to title a mortgage loan when a living trust is involved. For example, if Jen Test is the trustee of the Jen Test Revocable Living Trust dated 1/1/18 and the mortgaged property is held in the trust, how should this be reflected in the mortgage and deed? What if the property is not held in the trust, but the trust is a borrower on the loan? Also, our LaserPro documentation system requires that we input the names of any natural person beneficiaries of trust borrowers when a loan is made for personal, family, or household purpose. Would this apply to both living trusts and land trusts?
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The mortgagor described in the mortgage should be the party that holds title to the property. If the property is held in a living trust, the mortgagor would be listed in the name of the trust (e.g., “Jen Test Revocable Living Trust dated 1/1/18”), and the trustee would sign the mortgage on behalf of the…
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How long are we required to retain land trust files after the trust has been closed?
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Disclaimer: The Electronic Commerce Security Act (ECSA) was repealed and replaced with the Uniform Electronic Transaction Act (UETA), effective June 25, 2021. Please note that this change may affect the continued accuracy of this guidance as it pertains to the ECSA. The length of time you are required to retain documents contained in a land trust…
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For HMDA reporting purposes, when we make a mortgage loan to both a land trust and an individual who is a beneficiary of the land trust, should we list the land trust as a co-applicant or co-borrower? The beneficiary of the land trust signed the note individually, and the trustee signed the note on behalf of the land trust.
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Yes, we believe you should list a land trust as a co-applicant or co-borrower on your HMDA report when the trust is a co-obligor on the note. The official commentary to Regulation C recognizes that a co-applicant may be a non-natural person, such as a trust, and provides that the requirement to report a non-natural…
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When we extend a loan secured by a mortgage on a property held in a land trust, we frequently take an assignment of beneficial interest (ABI) in the land trust as additional collateral for the loan, out of an abundance of caution, which allows us to foreclose on the additional properties held in the land trust. In such cases, we obtain a flood certification for the mortgaged property but not for any other properties held in the land trust (which could include as many as fifteen tracts). We also do not obtain appraisals or title work for these additional properties. Are we required to obtain flood certifications for all the buildings held in a land trust when we take an ABI in the land trust as additional collateral for a loan out of an abundance of caution?
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Yes, we believe a flood certification is necessary for every building or mobile home held in a land trust that is security for your loan, even if the assignment of beneficial interest (ABI) in the land trust was taken only out of an abundance of caution. There is no exception to the flood insurance requirements…
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When taking an assignment of the beneficial interest in a land trust, is a flood certification required, although the collateral is considered personal property?
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Yes, we believe that a flood certification (also known as a flood determination) is required for an assignment of beneficial interest (ABI) in a land trust if a building or mobile home held in the trust is collateral for your loan. However, we are checking with FEMA to see whether they agree with our analysis.…
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Does FinCEN’s beneficial ownership rule apply to loans made to a trustee of a land trust?
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No, FinCEN’s beneficial ownership requirements do not apply to land trusts and their trustees. FinCEN’s beneficial ownership requirements apply only to “legal entity customers,” defined to include corporations, limited liability companies, general partnerships and any “other entity that is created by the filing of a public document with a Secretary of State or similar office.”…
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We have a business purpose loan that we are going to refinance, with cash out to improve the business (a restaurant). The collateral for the existing loan and the refinance is an assignment of beneficial interest in a land trust, which contains two restaurants and a single-family dwelling. Is this reportable under the Home Mortgage Disclosure Act (HMDA) in 2018?
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Yes, we believe that this dwelling-secured loan is reportable under the new HMDA rules that became effective in 2018. We believe that a loan secured by an assignment of a beneficial interest in a land trust should be treated as secured by a dwelling, provided that the land trust holds a dwelling. Under the new…
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Does FinCEN’s beneficial ownership rule apply to land trusts? Are land trusts considered a “legal entity”?
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No, we do not believe that FinCEN’s beneficial ownership requirements apply to land trusts. FinCEN’s beneficial ownership requirements apply only to “legal entity customers,” defined to include corporations, limited liability companies, general partnerships and any “other entity that is created by the filing of a public document with a Secretary of State or similar office.”…