Q&A: Lender Considerations In Perfecting Security Interests in Illinois Land Trusts
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Q: What steps should a lender take to properly perfect lender’s security interest where the collateral for the loan is held in an Illinois land trust?
A: In order to properly perfect a lender’s security interest in collateral held in an Illinois land trust, a lender should take a “collateral assignment” of the beneficial interest in the land trust (“ABI”). Since the beneficial interest in an Illinois land trust is personal property, the Illinois Uniform Commercial Code (“UCC”), 810 ILCS 5/9-314, provides that a security interest in the beneficial interest in an Illinois land trust may be perfected by control of the collateral pursuant to 810 ILCS 5/9-107.1, which control is accomplished by service of a Notice of Collateral Assignment on the land trustee and obtaining a written receipt from the land trustee. Many trustees of Illinois land trusts have a standard form for lender’s use in securing the collateral assignment of the beneficial interest in the land trust, and the land trustee will sign the completed collateral assignment form to acknowledge lender’s collateral assignment of the beneficial interest in the land trust.
Q: Should a lender file a UCC-1 financing statement to perfect its security interest in an ABI?
A: 810 ILCS 5/9-312 provides that perfection of a security interest in an ABI may be perfected by filing a UCC-1 financing statement, but filing a UCC-1 financing statement is not necessary to perfect a security interest in a collateral assignment of a beneficial interest in a land trust. Although 810 ILCS 5/9-312 does not require a lender to file a UCC-1 financing statement in order to perfect the lender’s security interest in the beneficial interest in an Illinois land trust, by filing a UCC-1 financing statement, a lender puts third parties on notice of lender’s security interest and better protects lender’s security interest against other parties which may claim a security interest down the road.
Q: What is the benefit of having a collateral assignment?
A: With a collateral assignment in place, the trustee of the land trust is not able to transfer title to the property held in the land trust or otherwise mortgage or encumber the property held in the land trust without the written consent of lender, as collateral assignee.
In addition, the Illinois Mortgage Foreclosure Law (“IMFL”), 735 ILCS 5/15-1106(a)(3) provides that any collateral ABI may be foreclosed under the provisions of the IMFL; and 735 ILCS 5/15-1106(b) provides that a secured party under Article 9 of the UCC may elect to enforce its security interest in a foreclosure under the IMFL if the security interest was created by a collateral assignment of a beneficial interest in a land trust.
Q: What can a lender do to enhance security?
A: As belt and suspenders, lenders should also require the land trustee to execute and deliver an original signed and notarized mortgage to be recorded against the real property in the county where the real property is located in order to put third parties on notice of lender’s security interest and to allow lender to foreclose out any subsequent liens on the real property.
This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.
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§ 33:53. Collateral assignment of beneficial interest | Secondary Sources | Westlaw
§ 33:53. Collateral assignment of beneficial interest
Ilrps § 33:53 illinois real property service land trusts (approx. 4 pages).
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Document Updates: IL Security Assignment of Beneficial Interest in Land Trust (Cx4936)
As previously announced, FHLMC published Bulletin 2017-28 announcing new guidance concerning land trusts (see https://compliance.docutech.com/2017/12/15/compliance-news-fhlmc-bulletin-2017-28-updates-land-trusts-texas-home-equity-loans/ ). Among these changes included ones permitting lenders to use FHLMC Form 50 as a collateral assignment for land trust mortgages. We created this form and have assigned it to print for loans which will be sold to FHLMC, while still retaining our generic “IL Security Assignment of Beneficial Interest in Land Trust” (Cx4936) for use with loans not sold to FHLMC (see https://compliance.docutech.com/2018/03/19/new-document-il-collateral-assignment-of-beneficial-interest-in-land-trust-cx22151/ for details).
Because it is possible for clients to not know for sure at closing whether their loan will be sold to FHLMC, Cx4936 may still be used for loans which ultimately are sold to FHLMC. If Form 50 is not used, FHLMC does require a collateral assignment to contain the following elements:
“Each beneficiary of the Land Trust who is a Borrower must execute a Collateral Assignment under which the beneficiary:
- Grants the lender named in the Security Instrument and the Note and the lender’s successors and assigns (the ‘Lender’) a security interest in all of the beneficiary’s rights, title, powers and interest in, under and to the Land Trust, the property held in the Land Trust (including any rights to earnings or proceeds from that property), and the Land Trust agreement (including any powers of direction or control over the trustee of the Land Trust or the property) (collectively, the ‘Collateral’);
- Certifies that no prior security interest in the Collateral has been granted;
- Agrees not to make any further assignment or take any other action by which all or any part of the Collateral is transferred in any way without the written approval of the Lender; and
- Agrees that the Collateral Assignment is for collateral security only, that no liability under the Land Trust agreement accrues to the Lender by virtue of the Collateral Assignment, and that signing the Collateral Agreement does not relieve the beneficiary of any responsibility or liability under the Land Trust agreement.” (FHLMC Single-Family Seller/Servicer Guide ch. 5103.7[b][ii][A])
To meet these elements, we will be modifying Cx4936 in the following ways:
- Because the trustee of the land trust is not required to sign the promissory note under FHLMC requirements, we will be revising the recitals to the document to only reference the beneficiary(ies) as being the signatories to the promissory note, when new field “Exclude Land Trust Signature Lines from Note” (FI 121714) equals “Yes.” If this field equals “No”, the current language of the recitals will print.
- Revising the last clause of the first sentence of the first paragraph, revising the last sentence of said paragraph, and revising the second paragraph to expand upon what interests are being conveyed by the collateral and what the beneficiary(ies) liability is under the terms of the Security Agreement as a result of the assignment.
- Adding a new, third paragraph wherein the beneficiary(ies) certify that there is no prior lien on the collateral. This paragraph will only appear when “Lien Position” (FI 1041) equals “First Lien”.
- Adding another sentence to the (current) third paragraph specifying that the undersigned beneficiary(ies) will not make any assignment, or transfer, the collateral without the written approval of the lender.
These changes will take effect immediately to complement the recent land trust signature software changes. If you have any questions or concerns about these changes, please contact Client Support at 1.800.497.3584.
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What is a Land Trust?
Buying property is a big investment and Buyers are confronted with a variety of concerns such as privacy of ownership, probate, and asset protection. A land trust is a legal entity with the same constituents of a traditional trust – Grantor, Trustee and Beneficiary – and can help ease a Purchasers’ concerns.
A land trust is a simple and inexpensive method for handling the ownership of real estate. The recorded deed to the real estate is held by a trustee, but all the rights and conveniences of ownership are exercised by the beneficiary.
Uses and Benefits of the Land Trust :
- Anonymity/ Privacy of Ownership – Under a land trust, the identity of the true owner is not made public through the County Recorder of Deeds, meaning that the owner will not be searchable through public record.
- Probate Avoidance – Succession in ownership provided for in the trust agreement will become effective upon death without the expense of probate court proceedings.
- Litigation & Liens – When property is held in a land trust, a recorded judgement against one of the beneficiaries does not automatically constitute a lien upon the real estate held in the trust. Therefore, holding property in a land trust can be an important part of an asset protection strategy.
- Disposing of Part Interest – Beneficial interest under a land trust can be transferred by assignment. The assignment of the beneficial interest eliminates the necessity of transferring ownership by recording a deed.
Ownership and Control Roles within a Land Trust?
Trustees manage the trust, Grantors are the ones who typically buy the property, and Beneficiaries benefit from the trust. Seeing how Grantors are typically the ones living in property, they often are both the Beneficiary and Grantor. It’s important to note that the Trustee has no responsibility nor direct use of the property, but they do hold title of the property. Trustees can be a named individual or an entity, but typically show up as the trust’s number through property searches. Therefore, the Grantors and Beneficiaries remain anonymous through public record. Although the Trustee has no responsibility or use of the land, it is very important a diligent choice is made as Trustees are in charge of orchestrating the trust upon the death of the Grantor.
How do I establish a Land Trust? It’s Easy as One-Two-Three…
- First, the beneficiary must sign a Land Trust Agreement formulated by the Grantor. This agreement will specify who will serve as the Trustee along with important terms such as who has control and management of the property and who will be granted ownership if the Grantor/Beneficiary dies.
- Second, a Deed of Trust, when properly recorded with the County Recorder of Deeds, will transfer the property from the current owner to the name of the land trust.
- Finally, the land trust is born, legal title of the property is held by the Trustee and the Beneficiary can enjoy the land.
Land Trust Key Facts
- Any person or entity that is capable of entering into a contract may establish a land trust– an individual, a group of individuals, a partnership, joint venture, corporation, or limited liability company; or a personal trust.
- Under a land trust agreement, the Beneficiary retains complete control of the real estate in the same manner as if the recorded deed were in his or her name. The Beneficiary may terminate the trust whenever desired and may add additional property to the trust at any time.
- The Trustee executes deeds and mortgages and deals with the property only when directed in writing by the Beneficiary.
Although land trusts were simplified in this article, it takes a knowledgeable and skilled attorney to guide clients through the process. It is imperative attorneys connect with their client to form appropriate trust agreements and follow legal restrictions and guidelines.
In sum, land trusts can be uniquely curated to match a homeowner’s specific needs and protections. It’s important that your attorney has knowledge to provide you with in order to achieve your goals and protection. Contact Tannehill Law LLC to discuss if a land trust is right for you.
Co-Authors: Breanna Raspopovich and Melissa Tannehill
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2010 Illinois Code CHAPTER 765 PROPERTY 765 ILCS 405/ Land Trust Beneficial Interest Disclosure Act.
Disclaimer: These codes may not be the most recent version. Illinois may have more current or accurate information. We make no warranties or guarantees about the accuracy, completeness, or adequacy of the information contained on this site or the information linked to on the state site. Please check official sources.
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IMAGES
VIDEO
COMMENTS
Collateral Assignment of Beneficial Interest: This is the agreement that secures the lenders interest in the beneficial interest of the trust and puts a lien on the beneficial interest in the trust. It is the land trust equivalent of the mortgage. However, since it is not recorded, it does not show up as a lien on record title.
Acceptance of Transfer of Beneficial Interest and Ratification (W-9) TO COMPLETE THIS FORM: SAVE the blank form to your computer BEFORE entering your information and then SAVE AGAIN after completing the form. When the primary beneficiary dies, changes beneficial interest in the trust from the deceased to the contingent beneficiary (s).
Many trustees of Illinois land trusts have a standard form for lender's use in securing the collateral assignment of the beneficial interest in the land trust, and the land trustee will sign the completed collateral assignment form to acknowledge lender's collateral assignment of the beneficial interest in the land trust.
trustee for the trust a record authenticated by the debtor that contains a collateral assignment by the debtor of, or the grant of a security interest in, a beneficial interest in the trust; and (2) in an authenticated record, the trustee for the trust has accepted the collateral assignment or security agreement.
Law Governing Perfection and Priority of Collateral Assignments of Beneficial Interests in Illinois Land Trusts. The local law of the State of Illinois governs perfection, the effect of perfection or nonperfection, and the priority of a collateral assignment of, or other security interest in, a beneficial interest in an Illinois land trust.
Lender shall have the unqualified right, in connection with any sale of the Collateral, to execute and deliver an assignment of the beneficial interest in the Trust to the purchaser at such sale, free of any right of redemption by Borrower, and upon the filing thereof with the Trustee, the Trustee shall recognize said assignee as the absolute ow...
Collateral assignment of beneficial interest | Secondary Sources | Westlaw ... ILRPS § 33:53 Illinois Real Property Service Land Trusts (Approx. 4 pages) ... Illinois Real Property Service | February 2022 Update. Updated by Publisher's Editorial Staff. Land Trusts. Chapter 33. Trust Property Transactions. Margaret Hartley Healy, J.D. II ...
New Document: IL Collateral Assignment of Beneficial Interest in Land Trust (Cx22151) Last December, FHLMC published Bulletin 2017-28 announcing new guidance concerning land trusts (see https://compliance.docutech.com/2017/12/15/compliance-news-fhlmc-bulletin-2017-28-updates-land-trusts-texas-home-equity-loans/ ).
Agrees that the Collateral Assignment is for collateral security only, that no liability under the Land Trust agreement accrues to the Lender by virtue of the Collateral Assignment, and that signing the Collateral Agreement does not relieve the beneficiary of any responsibility or liability under the Land Trust agreement." (FHLMC Single-Family S...
Law Governing Perfection and Priority of Collateral Assignments of Beneficial Interests in Illinois Land Trusts. The local law of the State of Illinois governs perfection, the effect of perfection or nonperfection, and the priority of a collateral assignment of, or other security interest in, a beneficial interest in an Illinois land trust.
How Does It Work? A land trust is established through a two-step process. First, the beneficiary or beneficiaries must complete and sign the land trust agreement. Under the agreement, the owner, or beneficiary, names ChicagoTitle as the organization that will serve as trustee.
Disposing of Part Interest - Beneficial interest under a land trust can be transferred by assignment. The assignment of the beneficial interest eliminates the necessity of transferring ownership by recording a deed. ... IL 60603. Tel: 312-965-8204. Fax: 773-358-7177. Email: [email protected].
ASSIGNMENT OF THE BENEFICIAL INTEREST DATE: FOR VALUE RECEIVED, the undersigned assignor(s) hereby sell(s), assign(n), transfer(s) and set(s) over unto assignee(s), , % of the assignor's rights, power, privileges and beneficial interest in and to that certain trust agreement dated Trust Number agreement.
Sec. 1. Definitions. As used in this Act: "Beneficial interest" means any interest, regardless of how small or minimal such interest may be, in a land trust, held by a trustee for the benefit of beneficiaries of such land trust. "Beneficiary" means any person, body politic, corporate or other entity having a beneficial interest in a land trust.
Document Title. Illinois Collateral Assignment of Beneficial Interest in Land Trust. Form Name. ILCABILT.MSC. Agency/Statute. Freddie Mac. Form Updates. New Illinois form. (Date of Release to Production: 05/06/21)
The beneficiary's interest in a Land Trust offers excellent security for a loan. The beneficial interest may be pledged as collateral without the additional need and expense of obtaining a mortgage. The beneficial interest may be pledged as collateral even where there is an existing mortgage against the real estate. Avoidance of Probate
The assignment of the beneficial interest eliminates the necessity of a deed. HOW DO I ESTABLISH A LAND TRUST? The following is a basic explanation of setting up a land trust. Please contact your attorney or our office if you need assistance. A trust number should be reserved.
Assignment of Beneficial Interest form and W9 TO COMPLETE THIS FORM: SAVE the blank form to your computer BEFORE entering your information and then SAVE AGAIN after completing the form. . The current and new beneficiaries sign the assignment and the new beneficiary signs the W9. Download and complete the
Sec. 1. Definitions. As used in this Act: "Beneficial interest" means any interest, regardless of how small or minimal such interest may be, in a land trust, held by a trustee for the benefit of beneficiaries of such land trust. "Beneficiary" means any person, body politic, corporate or other entity having a beneficial interest in a land trust.
Chicago Title Land Trust Company. RELEASE OF COLLATERAL ASSIGNMENT/IRREVOCABLE RIGHT TO ... We do hereby RELEASE our Collateral Assignment/Irrevocable Right to Approve/Agreement to Notify on Land Trust No. dated . We have no further interest in said trust. Name of Lender (please note successor information if applicable) By: _____ ...
TRUSTS-ILLINOIS LAND TRUST-A BENEFICIAL INTEREST IS A "GENERAL INTANGIBLE" UNDER U.C.C. ARTICLE 9 On February 23, 1960, Jerome and Arlene Pascal contemporaneously executed both a deed in trust and a companion trust agreement naming the American National Bank as trustee, thereby placing their Highland Park home in an Illinois land trust.
Schedule of Beneficial Interests Primary Beneficiaries: Name: Phone: Address: City: State: Zip: % Interest: Note: Please check one: Tenancy by the entirety [ ] / Joint Tenancy [ ] / Tenants in Common [ ] Name: Phone: Address: City: State: Zip: % Interest: Note:
A land trust simplifies the common problem of disposing of a partial interest in a property since the beneficial interest under a land trust can be transferred by assignment. The assignment of the beneficial interest eliminates the necessity of a deed. How Does It Work? A land trust is established through a two-step process.