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#59243 - 02/05/03 03:12 PM Loan to a Trust
swiggles Offline
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swiggles
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I'm stumped on this one. I searched for a thread which would provide an answer, but came up empty handed.

One of our lenders is loaning money to a trust for the purchase of a residence. The beneficiary of the trust (who is also the trustee) will be residing there.

Do RESPA and TIL apply? TIL 226.3 exempts credit other than to a natural person and "Consumer" is defined in the regulation as a natural person to whom credit is extended. RESPA exempts "business purpose loans" and further states that a bank may rely on Reg Z's definition of business purpose.....3500.5(b)(2).

Help me pleez......
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#59244 - 02/05/03 03:48 PM Re: Loan to a Trust
Dan Persfull Online
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Dan Persfull
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Bloomington, IN
No, they do not apply as long as the loan is made to the Trust only.
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#59245 - 02/05/03 03:52 PM Re: Loan to a Trust
Ted Dreyer Offline
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Ted Dreyer
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Shirley: Look at comment 8 in the Reg Z commentary to 226.3(a). If this is a "land trust" and credit is extended for consumer purposes then this is considered to be made to a natural person. Land trusts are sometimes used to get property out of the name of an individual. Is there any business purpose for this loan?

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#59246 - 02/05/03 03:56 PM Re: Loan to a Trust
David Dickinson Offline
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David Dickinson
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Central City, NE
Ted: Can you define a "land trust" for me? Thanks.
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#59247 - 02/05/03 04:19 PM Re: Loan to a Trust
SteveG Offline
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Joined: Jul 2001
Posts: 58
Our approach is to treat it as if it were a natural person, especially in the revocable trust (which are even considered eligible borrowers by FannieMae)setting where the grantor, trustee and beneficiary are all the same and the social security number of the individual is being used. This really sounds like, and substantially is, credit for a personal, family or household purpose.

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#59248 - 02/05/03 04:24 PM Re: Loan to a Trust
swiggles Offline
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swiggles
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The trust was set up as a result of an inheritance. Does that matter?

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#59249 - 02/05/03 05:03 PM Re: Loan to a Trust
Ted Dreyer Offline
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Ted Dreyer
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In reply to:

Can you define a "land trust" for me?




I don't think that there is just one definition. Some states have statutes regarding land trusts and in other states they may be allowed by common law. In general they are trusts that hold title to land, and clearly the drafters of the Reg Z Commentary considered them to be worthy of being treated the same as if the loan were made to the individual(s) involved. I just wanted to give a "heads-up" to anyone considering the issue that you may want to get input from your institution's legal counsel on whether your state may recognize land trusts, either by statute or common law.

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#59250 - 02/05/03 06:45 PM Re: Loan to a Trust
David Dickinson Offline
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David Dickinson
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Central City, NE
I appreciate your "heads up" Ted. And I agree that Reg Z does say that Land Trusts are covered, but Reg Z also says that loans to non-natural persons is NOT covered.

I think Ted's advise that you contact legal counsel about Land Trusts is perfect. Thanks Ted.
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