Common Land Trust Closing Procedures for Lenders


  1. Verify that the documents have correct vesting.
    Note:Verify that the mortgage document does not include the name of the borrower.

  2. Verify that there is a signed
    Letter of Direction TO MAKE FORM COMPLETION EASIER:
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    from the appropriate parties and that it lists all the documents that the trustee is to execute.

  3. Collateral Assignments
    1. Must be signed by all beneficiaries

    2. Must be signed by the lender

Key Concepts For Lenders


Beneficiary(ies) or Beneficial Owner(s):

This refers to the property owner or owners and will typically be the borrowers.

Power of Direction:

The holder of the power of direction is the person authorized to direct the trustee to execute documents, including loan documents.

Letter of Direction:

This letter, signed by the holder of the power of direction, authorizes the trustee to execute the document(s) contained in the letter of direction.

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. Most significantly, it gives the lender a power of direction in the land trust and may allow foreclosure outside the court-monitored foreclosure process through a UCC Article 9 personal property foreclosure.

Release of Collateral Assignment of Beneficial Interest:

This releases the collateral assignment, and it should be executed contemporaneously with the release of the mortgage.


BENEFITS OF A LAND TRUST TO LENDERS

Control and Protection of Collateral for Loan

When property is in an Indiana land trust, the lender can take a Collateral Assignment of Beneficial Interest (CABI) in the trust property. This security arrangement benefits the lender two ways:

  1. The lender will be notified by the trustee of any activity regarding the property.

  2. The lender will have signing authority on all matters involving the trust; most significantly, the lender with a CABI has absolute control over secondary financing.

REO Properties/Privacy of Ownership

Properties acquired by foreclosure often come with special challenges, including various types of liens, code violations and/or environmental issues. Having REO properties in a land trust will keep the bank’s name off record title for these properties.


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