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#2036168 - 08/28/15 12:33 PM Trusts - Confused
Carter's Mom Offline
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So I understand the commentary to the regulation that discusses how to determine if the trust is "in" for Reg Z, etc. What I am confused on, is the role that beneficiaries play in the regulatory change. Our software is telling us that after Oct 1, we must provide disclosures to the beneficiaries as well as the trustees - I'm thinking that means (TIL & rescission). Why would the transaction still not be solely between the bank and the trustees? I would think we would actually have privacy concerns for disclosing to beneficiaries?

I know I must be missing something here! :-)

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TRID - TILA/RESPA Integrated Disclosures Rule
#2036183 - 08/28/15 01:38 PM Re: Trusts - Confused Carter's Mom
rlcarey Online
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In the preamble, the CFPB stated:

The proposed comments are intended to clarify that the benefits of the disclosures required by § 1026.19(e), (f), and (g) extend to any consumer involved in a transaction that in substance extends consumer credit, regardless of whether that consumer is the direct mortgage obligor or a beneficiary of a trust to which such credit has been extended. With that rationale in mind, the Bureau believes that the intent of the comment is to clarify that those provisions of Regulation Z that apply to consumers will also apply to trust beneficiaries who are in essence acting as consumers.

It still comes down to who's primary residence the house might be.
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#2036207 - 08/28/15 02:16 PM Re: Trusts - Confused Carter's Mom
Carter's Mom Offline
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I know I am most likely making this harder than it is - sorry!... but a beneficiary might be a minor... and it could be their primary residence.

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#2036216 - 08/28/15 02:42 PM Re: Trusts - Confused Carter's Mom
rlcarey Online
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That is something that may represent unintended consequences from the new rule. You would not be able to do the transaction if a minor was involved. Why don't you blast off an e-mail to the CFPB and see what they have to say and please report back.
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#2036227 - 08/28/15 03:02 PM Re: Trusts - Confused Carter's Mom
Truffle Royale Offline

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This permutation hadn't occurred to me yet so thank you for bringing it up. Please do let us know if you contact the CFPB and what their response is.

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#2036253 - 08/28/15 03:48 PM Re: Trusts - Confused Carter's Mom
Carter's Mom Offline
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I have emailed the CFPB. I will let you know what I hear back.

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#2037413 - 09/04/15 06:39 PM Re: Trusts - Confused Carter's Mom
SJB Offline
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Commentary has been updated effective 10/3/15:

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.

If the individuals are your borrowers but the property is vested in the trust, the borrowers sign individually and the trustee(s) get the notice of ROR. No need to mess with beneficiaries.
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#2037424 - 09/04/15 07:09 PM Re: Trusts - Confused Carter's Mom
rlcarey Online
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Really. You read this carefully?

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,......

That doesn't say you ignore the beneficiaries. It says you ignore the trustee.
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#2037497 - 09/08/15 03:16 PM Re: Trusts - Confused Carter's Mom
John Burnett Online
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The trust owns the real estate, so the trustees have to sign the mortgage deed or deed of trust. The borrowers may be the individuals who happen to be the grantors/trustees as individuals (they, after all, are the parties with income), or it could be the trust (in which case the note would be signed by the trustees, with the individuals as co-borrowers or guarantors. Frankly, it makes sense to have the individuals as the borrowers, with the mortgage granted by the trust, since it will be the income from the borrowers you will use in your underwriting.

If you DO make the trust the primary borrower, however, you ignore that fact for the purpose of the "business or organizational credit" exemption from Regulation Z. If the purpose of the loan is a consumer purpose, the loan will not be exempt from Regulation Z.
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#2038035 - 09/11/15 02:28 PM Re: Trusts - Confused John Burnett
Carter'sMom Offline
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Just got off of the phone with Joel from the CFPB. After going through his formal disclosure that “our conversation was informal and not to be taken as legal advice or a firm position from the Bureau” he stated the following:

• If you look to the actual wording in the regulation, all it actually says about trust is that they may be now included as a TRID transaction.
• The only place it actually talks about trust beneficiaries, is in the preamble. He is interpreting the preamble included below to mean that “consumers” are those that can be legally liable for the credit transaction. Thus when you read the highlighted part below, a minor beneficiary could never be a “consumer”.
• State law dictates who must sign and receive disclosures on behalf of a trust.

In the preamble, the CFPB stated:

The proposed comments are intended to clarify that the benefits of the disclosures required by § 1026.19(e), (f), and (g) extend to any consumer involved in a transaction that in substance extends consumer credit, regardless of whether that consumer is the direct mortgage obligor or a beneficiary of a trust to which such credit has been extended. With that rationale in mind, the Bureau believes that the intent of the comment is to clarify that those provisions of Regulation Z that apply to consumers will also apply to trust beneficiaries who are in essence acting as consumers.

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#2038135 - 09/11/15 07:09 PM Re: Trusts - Confused Carter's Mom
John Burnett Online
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Thanks, Carter's Mom, and welcome to Bankers' Threads!
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#2038925 - 09/16/15 06:45 PM Re: Trusts - Confused Carter's Mom
CM2014 Offline
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This has been a helpful string. If I'm reading it correctly in the instances where a Trust is the primary borrower on a consumer purpose loan, the trustees would sign on behalf of the trust and you would disclose to the trustees not to the trust itself. Is that a correct interpretation?

To carry the example further, if the trustees lived in the house, the transaction would be rescindable resulting in the trustees receiving the closing disclosure, correct? In a situation where only one of multiple trustees lived in the house, would the transaction be rescindable by the trustee living in the house? Would the other trustees receive a copy of the CD?

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