We have a borrower and spouse who are purchasing a new home. Loan is a bridge loan secured by the current residence. Home is considered "primary residence" of the borrowers; however, the home is owned by a trust. How does this play into whether or not rescission applies? Thank you.

A Trust is not a "natural person", I say ROR would not apply.

Ok, but Reg Z Commentary under the definition of consumer in 226.2(a)(11) paragraph 3 refers to Land Trusts and basically states that a land trust is considered a natural person for purposes of the regulation. Under 226.3(a) paragraph 8 in the Commentary (again referring to Land Trusts) it states near the end that "Assuming the transactions are for personal, family or household purposes, these transactions are subject to the regulation since in substance (if not form) consumer credit is being extended." I don't know that this is a land trust, but since the purpose is for personal use could this apply? I know sometimes we're told if in doubt, go ahead and do it, but I believe the lender doesn't want to have to do something he doesn't have to. Thanks.

What is a "Land Trust"?

I would say you don't have a land trust, but it is possible.

When in doubt, give the ROR.

I would go with the "when in doubt", but the lender may not. A land trust definition I found is:

A trust created to effectuate a real estate ownership arrangement in which the trustee holds legal and equitable title to the property subject to the provisions of a trust agreement setting out the rights of the beneficiaries whose interests in the trust are declared to be personal property
(called also Illinois land trust, naked land trust)

In Reg Z it refers to the trustee being the financial institution and the financial institution owning the title to the property and the consumer can give a personal guaranty. Again, I don't know but I probably need to go back and ask a few more questions.

Land trust or not (I'm not up on that one) - I've always gone by a one-two punch method. First of all, the person has to live in the dwelling being taken as collateral, then, they must either have an ownership interest in the dwelling or be indebted on the note, or both.

I think if this loan is to the individuals, then it is rescindable since they live in the dwelling collateral, and they'll be indebted on the note.

Sure you are free to give disclosures when in doubt, but let's try to solve this one, as it comes up often. Here's a quote from a letter I have written by the Legal Department of Laser Pro:

"On March 28, 2000, the San Francisco Regional Office of the FDIC issued a letter stating that the FDIC had been advised by the Federal Reserve Board that Regulation Z does not apply to family trusts and, therefore, that loans to family trusts are exempt from any disclosure requirements."

It goes on to say that a family trusts include living trusts but specifies that they are NOT land trusts.

David - is this letter publicly available (maybe on the FRB's/FDIC's website?) If not, is it something you can share? Thanks.

David, you're right, as always. I was reading the original question, however, to state that the property was held by the trust, but that the loan would be to the husband and wife. In that case, I still think it wouldn't really matter if Reg Z applied to the trust, because it would apply to the husband and wife - giving them the right to rescind.

What is a Land Trust?

Saw the definition later-thanks!

I don't think that this letter is publicly available - it is written by the Legal Staff of Laser Pro (owned by Concentrex at that time). I would think that the FDIC memo and/or the Federal Reserve letter would be out there somewhere. Does anyone know where we can find these on the web?

Our local attorney group has also confirmed the information verbally with the FRB. They report the letter is not available.

The even BETTER twist is that the attorney groups reports the FRB has issued a NEW opinion as follows:

If the property is owned by a trust, and you make the loan to the individuals, then the BENEFICIARIES of the trust have the right of rescission. Yeah - that's workable....