[Mary Frances]

If you have borrowers getting a loan in their individual names but the property is deeded in a Trust who would sign the rescission? Would the Trustees of the Trust or would the individuals sign the rescission? The borrowers live in the house and the interest for the house is shown on their individual tax return not the Trust tax return. We definitely think there is rescission and think that since the house is deeded in the Trust then the Trustees would sign the rescission. We cannot find anything in the regulation about this.

Topic

[jholzknecht]

The answer to this this question can vary depending on the nature of the trust agreement, and the answer today may differ from the answer after August 1, 2015. Section 1026.3 of Regulation Z provides exemptions from coverage.

Comment 10 states, effective August 1, 2015, “10. Trusts. Credit extended for consumer purposes to certain trusts is considered to be credit extended to a natural person rather than credit extended to an organization. Specifically:

i. Trusts for tax or estate planning purposes. In some instances, a creditor may extend credit for consumer purposes to a trust that a consumer has created for tax or estate planning purposes (or both). Consumers sometimes place their assets in trust, with themselves or themselves and their families or other prospective heirs as beneficiaries, to obtain certain tax benefits and to facilitate the future administration of their estates. During their lifetimes, however, such consumers may continue to use the assets and/or income of such trusts as their property. A creditor extending credit to finance the acquisition of, for example, a consumer’s dwelling that is held in such a trust, or to refinance existing debt secured by such a dwelling, may prepare the note, security instrument, and similar loan documents for execution by a trustee, rather than the beneficiaries of the trust. Regardless of the capacity or capacities in which the loan documents are executed, assuming the transaction is primarily for personal, family, or household purposes, the transaction is subject to the regulation because in substance (if not form) consumer credit is being extended.

ii. Land trusts. In some jurisdictions, a financial institution financing a residential real estate transaction for an individual uses a land trust mechanism. Title to the property is conveyed to the land trust for which the financial institution itself is trustee. The underlying installment note is executed by the financial institution in its capacity as trustee and payment is secured by a trust deed, reflecting title in the financial institution as trustee. In some instances, the consumer executes a personal guaranty of the indebtedness. The note provides that it is payable only out of the property specifically described in the trust deed and that the trustee has no personal liability on the note. Assuming the transactions are primarily for personal, family, or household purposes, these transactions are subject to the regulation because in substance (if not form) consumer credit is being extended.”

For either of two types of trusts mentioned above you treat the transaction as a consume transaction. In other types of trusts the result may be different.

Unless otherwise exempt, for the two types of trusts it appears that the consumer has the right to rescind, but who actually signs the rescission form is not clear. Remember the rescission notice does not have to be signed by anyone, but many get the signature as evidence that the rescission notice was received.If you are getting the form signed, the safe course of action may be to have both the consumer and the trustee sign it.

The Commentary quoted above indicates that the transaction should be treated as a covered transaction with the consumer rather than am exempt transaction to the trust. That supports having the consumer sign the documents. Since the trust does not occupy the residence as a principal dwelling it would not make sense to have the trust sign the document.

[Republic1]

Hello all – I would like to open this question back up for discussion as it seems we weren’t as clear how to treat Trusts in regard to rescission back in 2015.

From the CMG M2M discussion earlier this month, it was agreed that since Trusts are natural persons under Reg Z, then they can have primary dwellings, and thus can also have rescission rights.

Specific questions we have are:

1. How is it determined that a Trust has a primary dwelling? Is it based off of whether the Trustee lives at that home? Or whether the person from the name of the Trust lives in that home?
Example 1: Jane Doe Trust owns the home. Jane Doe is the Trustee. Jane Doe lives in the home as her primary residence. This is the Trust’s primary dwelling. The Trust would get rescission.
Example 2: (harder concept) Jane Doe Trust owns the home. Sue Doe is the Trustee. Jane Doe lives in the home as her primary residence. Sue Doe does NOT live in the home. Is this the Trust’s primary dwelling?

2. If a Trust does get rescission, is this just for the Trust (provided to the Trustee(s)) [note: our ROR forms have signature lines, so this would show “Jane Doe, Trustee for the xx Trust in the sig line]? Or would any individuals also living primarily in that home also get the rescission individually? (ex: the Trust/Trustee would get the ROR form, and also Jane as an individual would get/sign the ROR form).

Thank you all!

[Author]

Replies