Rescission - Trust

An individual is using their primary residence as collateral on a consumer loan. The house owned entirely by the person's living trust. Does rescission apply? Would it make any difference if the trust was also a coborrower on the loan?

A trust is not a natural person, therefore not subject to the provisions of Reg. Z.

If this loan is to the individuals, Regulation Z does apply. The situation where the property is owned by the family trust presents a question on rescission. Staff of the FRB has opined (not in writing, of course)that in this situation (e.g., loan to individual so the transaction falls under Reg Z, property in the name of the trust), that beneficiaries of the trust who live in the home have the rescission right. As I am conservative in this respect, I advise my lenders to give rescission notices.

Berico, you may certainly provide the ROR if you wish and I respect your conservativeness on this issue. However, don't you just love howevers, a trust is not a natural person and the beneficiaries do not have ownership, therefore they are not subject to the ROR unless a state law prevails. Reg. Z, to the best of my knowledge, only addresses the beneficial rights when the trust is a Land Trust. And in the 30+ years I've been around in financing I've never seen a Land Trust.

I would venture a guess this is why you don't have a written opinion from the FRB.

These are the sort of discussions that make what little hair I have turn grey. I agree that rescission should apply for essentially the same reasons as berico states. The Trustee(s) lives in the house. It's an interpretation of exactly how seperate the relationship is or has been made by the establishment of the Trust. It goes back, in my opinion, to the intent and not so much the "absolute" letter of the Reg. Push come to shove, I'd give them the ROR.

We provide ROR for our living trust customers only because the mortgage and note are signed by the borrower as trustee and individually.

Dan is correct. Everyone is conservatively over-providing disclosures. Reg Z is very clear that it does not apply to this type of loan.

This is no different than a sole proprietor is not a consumer, per Reg Z. Likewise, if I buy a house on 25 acres, you don't have to provide any RESPA documents. Why? Because that's where the FRB (of HUD) drew the line in the sand.

I'm of the same opinion as Dan. If the trust owned other non-real estate collateral, I wouldn't have the beneficiary personally sign the security agreement, just the trustee for the trust.

We have treated a sole proprietor as a consumer under the theory that the business has no separate life apart from the person. However, we do not see this form of business ownership as often as we did 10 years ago.