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#2254992 - 06/08/21 03:45 PM Trusts and TRID/HMDA - who is the borrower?
Banker K, CRCM Offline
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Joined: Jan 2010
Posts: 293
Oklahoma
Hello. For years I have had compliance concerns regarding loans involving Trusts in the Secondary Market arena. I am unsure if others face this and if they have any similar concerns or solid guidance.

Common example:
Jane Doe (individual/natural person) applies for a loan in her name. It only shows her on the 1003 (except that the title of the home will be in the trust), the Demographic Info is collected on her, the loan is underwritten based on her personal income, the TRID docs (LEs and CloDs) are issued to her (individually) as the borrower.
HOWEVER, the Note and Mortgage are prepared showing the borrower is the DOE TRUST (simply because the trust owns the home).
This makes no sense to me, yet over the years, and at various FIs, I am told by the Secondary Market that "this is how the investors require it". (I am still in the court that: investors don't trump federal regulations...).

In my opinion, the individual/natural person JANE DOE applied for the loan and the only borrower is JANE DOE.
The GRANTOR of the collateral is the DOE TRUST, signed by its Trustee(s) (likely Jane Doe).
Therefore, all docs including the NOTE should be signed individually by natural person JANE DOE.
Only the Mortgage (and any other security docs) would be signed by the DOE TRUST and would be signed in the capacity of GRANTOR of the collateral to our borrower JANE DOE.

I'm thinking either: (1) the Note/Mortgage are in legal trouble; or (2) the 1003/ECOA, DI/HMDA, and LEs and CloDs/TRID all contain violations for disclosing and reporting the wrong borrower.

Please help.
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Compliance - A Painful Addiction

All comments are mine & should not be taken as legal advice.

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#2254995 - 06/08/21 03:56 PM Re: Trusts and TRID/HMDA - who is the borrower? Banker K, CRCM
rlcarey Online
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rlcarey
Joined: Jul 2001
Posts: 83,881
Galveston, TX
Considering that the secondary market has been operating in this manner for many years and not once has this been challenged, I think you can rest assured that it is not really a concern.

If it bothers you, then add the following:

Whenever the trustee of an inter vivos revocable trust is required to execute the note on behalf of such trust, in accordance with B8-5-02, Inter Vivos Revocable Trust Mortgage Documentation and Signature Requirements (10/31/2017), language substantially similar to the following may be added to such trustee’s signature:

...but solely for the limited purpose of supporting the Trust’s granting of a lien in the property pursuant to the Security Instrument. The foregoing Trust has no personal obligation hereunder for payment of any sums secured by the Security Instrument.
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com

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#2254998 - 06/08/21 04:03 PM Re: Trusts and TRID/HMDA - who is the borrower? Banker K, CRCM
Banker K, CRCM Offline
Gold Star
Joined: Jan 2010
Posts: 293
Oklahoma
So are people reporting these under HMDA as if the borrower is the Trust (evidenced by the Note) or as an individual person (most other docs)?
_________________________
Compliance - A Painful Addiction

All comments are mine & should not be taken as legal advice.

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#2254999 - 06/08/21 04:09 PM Re: Trusts and TRID/HMDA - who is the borrower? Banker K, CRCM
rlcarey Online
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rlcarey
Joined: Jul 2001
Posts: 83,881
Galveston, TX
The trust is not a borrower since the trust did not apply for the loan. The signature of the trust on the note is required only to ensure access to the collateral. That does not make them a credit applicant.
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

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#2255001 - 06/08/21 04:13 PM Re: Trusts and TRID/HMDA - who is the borrower? Banker K, CRCM
Banker K, CRCM Offline
Gold Star
Joined: Jan 2010
Posts: 293
Oklahoma
So then to make the loan enforceable, wouldn't the Note need to be signed by the actual borrower in their own individual capacity?
_________________________
Compliance - A Painful Addiction

All comments are mine & should not be taken as legal advice.

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#2255005 - 06/08/21 04:51 PM Re: Trusts and TRID/HMDA - who is the borrower? Banker K, CRCM
rlcarey Online
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rlcarey
Joined: Jul 2001
Posts: 83,881
Galveston, TX
Yes - a settlor that is also a credit applicant would sign as follows:

Each individual trustee of the inter vivos revocable trust who is both a settlor and a credit applicant must sign the mortgage note (and any necessary addendum), using a signature block substantially similar to the following, inserted in the Borrower’s Signature lines:

_________________________________________, individually and as Trustee of the _________ [Complete Legal Name of Trust] Trust under trust instrument dated _____________, __________.
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

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