Topic: Land Trusts
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We have several land trusts for which the bank is trustee. We charge nominal annual service fees, which many of the beneficiaries fail to pay. Can we exercise a right of setoff against the trust accounts? Or do you have any other suggestions for paying these fees? Our land trust agreements provide for an unsecured lien for unpaid annual trust fees. The land trusts do not hold any deposits at our bank.
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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…
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We are foreclosing on a collateral assignment of interest in a land trust, which secures a business loan. The land trust owns several 1-4 family homes, which currently are vacant, for purposes of fixing them up and selling them. All of the homes are located in Cook County; some may be located in Chicago. Are these properties covered by Cook County or Chicago’s vacant property ordinances, and what are the costs of registration?
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We believe that both the Chicago and Cook County registration and maintenance requirements would apply to a lender holding a collateral assignment of interest in a land trust, given that the land trust owns vacant residential properties subject to the ordinances. Both Chicago and Cook County’s ordinances impose registration and maintenance responsibilities on holders of…
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We are making a loan to an Illinois land trust. The loan will be secured by a money market deposit account issued by our bank and pledged as collateral on the loan (in addition to the real estate held in the land trust). Is this permitted? Since it’s our own deposit account, do we have automatic control over the deposit account? Or is other action required to perfect our lien?
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Yes, you are permitted to take a security interest in a deposit account held by your bank as collateral for a loan. To perfect your security interest, you need only have “control” over the deposit account, which you do; no further action is necessary. Note that if the deposit account was being held at another…
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Our trust department acts as trustee for several land trusts, all of which have a term of twenty years, with an option for an extension. In some cases, the twenty years have passed, but we have been unable to make contact with the trust beneficiaries to execute an extension. We also have some land trusts where the beneficiaries have neglected to pay their annual fee. Do you have any guidance for how to address these situations?
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First, we recommend that you check the land trust instruments in question (and any other agreements that your bank may have entered into with these trusts, their settlors, and their beneficiaries, if any). Typically, the land trust instrument provides that if the land trust beneficiaries fail to pay the trustee’s annual fee or fail to…
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For a residential mortgage loan made to an Illinois land trust that is secured by residential property held in the trust (where our collateral is a first lien on the assignment of the beneficial interest in the land trust), does Regulation B require us to provide an appraisal notice and copy of the appraisal?
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Yes, we believe that you should provide a copy of the appraisal and appraisal notice to the land trustee for a loan secured by an assignment of the beneficial interest in the land trust, provided that the property held in the land trust is a dwelling (defined in Regulation B as a residential structure with…
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We are getting ready to book a new loan where the borrower is a land trust. Two of the three beneficiaries of the land trust will serve as guarantors on the loan, and are existing customers of the Bank. How can we complete a CIP on the land trust, which has no tax ID number? Do we have to require the land trust to obtain a tax ID number for banking purposes? Is there any other way around that?
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We believe that you must obtain a tax ID number for a land trust, as you would for any other type of trust. The Customer Identification Program (CIP) rules require that you obtain a tax ID number from all customers, including trusts. Whether that tax ID should be a social security number or a separate…
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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.
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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…
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We have heard the Illinois Supreme Court recently ruled that a land trustee that executes a mortgage is entitled to receive the TILA disclosures, including the notice of right to rescind for refinancings. Is this correct? Also, should these loans to trusts be reported on our Home Mortgage Disclosure Act loan application register (HMDA LAR) based on this decision?
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Yes, the Illinois Supreme Court held that the trustee of a land trust for residential property is covered by the Truth in Lending Act (TILA) and is entitled to receive TILA’s mandated disclosures and the right of rescission. The Court observed that Regulation Z expands TILA’s right of rescission to “a natural person in whose…
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How should we title a deposit account for a land trust that rents out the property held in the trust under a d/b/a name?
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We are not aware of any specific account titling requirements for a land trust operating under a d/b/a name. One possible way to title the account is John Doe Land Trust, by [Corporate Fiduciary] as Trustee, D/B/A John Doe Rental Properties. Also, we recommend obtaining the land trust’s assumed name certificate issued by a county…
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How do we title a checking/deposit account for beneficiaries of a land trust and who would be the authorized signer? Also, do we actually need to obtain a Tax Identification Number for a land trust?
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We are not aware of any specific legal restrictions regarding titling deposit accounts for land trusts. The IRS has requirements for name controls, which require banks to establish name controls using the first four letters of a customer’s name. The IRS has stated that “[t]he name control for a trust or fiduciary account is developed…