Last December, FHLMC promulgated new requirements concerning “Land Trust Mortgages” (see https://compliance.docutech.com/2017/12/15/compliance-news-fhlmc-bulletin-2017-28-updates-land-trusts-texas-home-equity-loans/ for details). Among these requirements are the following:
“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.” (FHLMC Single-Family Seller/Servicer Guide ch. 5103.7[b][i])
This is mimicked in FHLMC’s “FAQs on Land Trust Mortgages”:
“Guide Section 4101.8 has signature requirements for the note and security instrument. Are there any additional requirements for Land Trust Mortgages?
Yes. Guide Section 5103.7(b) requires that a beneficiary of a land trust who is a borrower sign the note in that beneficiary’s individual capacity, and the trustee of the land trust execute the security instrument. For more information on Uniform Instrument signature requirements, see also Guide Section 4101.8.” (http://www.freddiemac.com/singlefamily/land_trust_mortgages_faq.html#9)
Notably, neither of these require the trustee of the land trust (“trustee”) to sign the note. This may be due to the facts that: (a) under Ibid. ch. 5103.7(a)(ii), at least one of the beneficiaries of the land trust must be a borrower; and (b) under Ibid. ch. 5103.7(a)(iii), the trustee “must be a corporation or financial institution customarily engaged in the business of acting as trustee for land trusts” and such corporation or financial institution can (but not necessarily) be the lender.
Due to these requirements, we are creating new Field Index 121714 (“Exclude Land Trust Signature Lines from Note”), the default behavior for which will be to exclude land trust trustee signature lines from our generic promissory notes. Clients who desire otherwise may set this field as desired.
Connected with this change are additional changes we will be making for TRID 2.0. The Bureau of Consumer Financial Protection (“Bureau”) provided the following clarifications regarding which individuals should receive a copy of the Loan Estimate (“LE”) and Closing Disclosure (“CD”) in connection with loans involving trusts for tax or estate planning purposes (the concepts involved apply to land trusts as well):
“Guidance as to who should receive disclosures where credit is extended to trusts established for tax or estate planning purposes can be found in current §§ 1026.2(a)(22) and 1026.17(d) and their associated commentary. Comment 2(a)(22)-3 provides that a trust and its trustee are considered to be the same person for purposes of Regulation Z, and comment 17(d)-2 provides that disclosures must be given to the principal debtor and, if two consumers are joint obligors with primary liability on an obligation, the disclosures may be given to either one of them. Thus, where credit is extended to trusts established for tax or estate planning purposes, the disclosures may simply be provided to the trustee on behalf of the trust. In rescindable transactions, however, comment 17(d)-2 provides that the disclosures required by § 1026.19(f) must be given separately to each consumer who has the right to rescind under § 1026.23.” (82 FR 37661 )
Based on this, we will be modifying the signature lines and copy print conditions of the LE and CD, so that they appear or print based on whether: (a) the land trust trustee is signing the promissory note or not; and (b) whether the loan is “rescindable” under Federal Regulation Z (12 CFR Pt. 1026) or not.
Under Federal Regulation Z, copies of the LE and CD for non-rescindable transactions are required to be provided to the “consumer”, who is defined (in part) as the “natural person to whom consumer credit is offered or extended.” (12 CFR § 1026.2[a])
While a land trust is considered a “natural person” (see 12 CFR Pt. 1026, Supp. I, Paragraph 2[a] – 3), if the trustee does not sign the note on behalf the land trust, consumer credit is not “extended” to the land trust – thus, the trustee is not entitled to a copy of the LE and CD and signature lines should not appear on the LE and CD for the trustee (see 12 CFR §§ 1026.37[n] & 1026.38[s]). Conversely, if the trustee does sign the note on behalf of the land trust, copies of the LE and CD are required to be provided to the trustee (and trustee signature lines may appear as well, if desired).
Thus, for non-rescindable transactions, our system will print a copy of the LE and CD, along with causing trustee signature lines to appear on these documents, when FI 121714 equals “No.” If it equals “Yes,” neither action will occur.
For rescindable transactions, however, a copy of the CD will need to be provided to the trustee, since the land trust is considered a “consumer whose ownership interest is or will be subject to the security interest” (see 12 CFR §§ 1026.2[a] & 1026.23[a]) and the CD contains the “material disclosures” required to be provided to such consumers (see also Fin. Freedom Acquisition, LLC v. Standard Bank & Tr. Co., 2015 IL 117950, 43 N.E.3d 911, 919 ). Thus, whether the note is signed by the trustee or not is irrelevant.
Consequently, we will print a copy of the CD for the trustee regardless of how FI 121714 is set for rescindable transactions. Nevertheless, because the LE does not contain the “material disclosures,” copies of the LE will print for rescindable transactions in the same manner as for non-rescindable transactions.
These changes will take effect with Release 4.8.3 and 1.1.3 for ConformX and Solex, respectively. If you have any questions or concerns about these changes, please contact Client Support at 1.800.497.3584.