We are currently dealing with a situation where person A is the trustee of a trust that owns a property. Both person A and person B live in the property as their primary residence. The trust owns the title and person B is the borrower. In this scenario, do either person A or B have the right to rescind?

What type of trust?

irrevocable family trust with rights of survivorship on this property but held in the trust's name until that time.

Under Title 24 a trust is included in the definition of an organization. Reg. Z does not apply to organizational credit.

However, with that said I would advise you to speak with your attorney.

We treat all revocable trusts as "individuals", we treat irrevocable trusts as organizations.

Interesting, Dan - thanks. Out of curiosity, if it was a revocable trust, would the trustee then have the right to rescind since the title is in the trust's name?

Like Dan said, check with your attorney. In some jurisdictions, courts have ruled that a revocable trust basically doesn't impact true ownership as the trust can be revoked at any time and rescission would apply. Whereas an irrevocable trust is etched in stone.

Out of curiosity, if it was a revocable trust, would the trustee then have the right to rescind since the title is in the trust's name?

That's how we would treat it. We would also require the trustees to sign the note as individuals.

My situation is the property is ownedy by the Jane Doe Living Trust dated blah blah. We did give the right to rescind, but our compliance audit that we just finished yesterday said we are not to as the trust owns the property not the customer. Could this pose a UDAAP problem, as we made the borrower wait 3 days to received their monies when in fact, we didn't need to? Thanks for any assistance.

JWills, I'm not sure if anyone responded to you and I'm faced with similar right now. I am assuming that it would depend on the revocable versus irrevocable. I really do know what assumptions mean...but?

Any thoughts?

My mortgage dept just did another loan where the trust is the owner of the property. They did not give the ROR. Hopefully it is all good.

but our compliance audit that we just finished yesterday said we are not to as the trust owns the property not the customer.

Your compliance auditors should not be dispensing legal advice. They are most likely practicing law without a license.

I posted a very long post with citations to various court rulings on lawsuits involving living trusts. Somehow it all disappeared and I don't feel like recreating it. There is any number of court precedents on this where courts have issued rulings such as:

"the court held the settlors of a revocable living trust had a reversionary interest in the subject property which was sufficient to claim a homestead exemption, which can be claimed only by natural persons. It appears the current regulations under the Act take a similar view that "natural person" includes persons whose ownership interest in their dwelling will be subject to a security interest."

Additionally, the Federal Reserve proposed changes to Regulation Z in 2010 (before the involvement of the CFPB) to include living trusts within the definition of a consumer, mainly due to these lawsuits.

You need to ask your legal counsel regarding similar findings within your jurisdiction. Additionally, giving a RofR when not required by regulation is just a contractual issue that you establish. As long as you don't violate that contractual agreement (i.e., refuse to allow them to rescind), then there is no harm and no foul.

This is really a question for legal counsel and you should not be acting on the advice of a compliance consultant on this issue (even me ).

Thank you rlcarey. This wasn't the first time we had done a loan with property held by a trust, so we were surprised when it was an issue this time.

I appreciate your information

Just to add a capstone to this discussion. The CFPB recently amended the Commentary to Reg Z, effective August 1, 2015, to clarify that trusts like the one you are describing -- those set up for tax or estate planning purposes -- are not covered by the "organizational credit" exemption, or won't be beginning next August, at least. [Amended Comment 3(a)-10].

I'd consider that a strong signal that even before that date you should consider loans to this sort of trust a loan to the trustees as individuals.