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.
Locations in Illinois & Wisconsin
Chicago : 216 S Jefferson St, Suite 303, Chicago, IL 60661 • (312) 382-1600
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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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IMAGES
COMMENTS
Rev. 12/2016. CHICAGO TITLE LAND TRUST COMPANY. 10 South LaSalle Street, Suite 2750, Chicago, IL 60603 · (312) 223-4110 · Fax (312) 223-4139. ALL NEW TRUST BENEFICIARIES. For IRS and U.S. Patriot Act compliance, we are required to obtain proper identification of our customers.
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.
Cook County is the only county that requires the Facsimile Assignment of Beneficial Interest to be recorded for all outright and collateral assignments. Transactions with consideration of $100 or more require recording in all counties.
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”).
“Each beneficiary of the Land Trust who is a Borrower must execute a Collateral Assignment . . . . . . Form 50 is a sample form of Collateral Assignment for Land Trust Mortgages secured by Mortgaged Premises located in Illinois.
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.
Collateral assignment of beneficial interest, Legal Forms ... ILRPS § 33:53 Illinois Real Property Service Land Trusts ... Trust Property Transactions.
"Collateral assignment of beneficial interest" means any pledge or assignment of the beneficial interest in a land trust to any person to secure a debt or other obligation. 735 ILCS 5/15-1202. P.A. 84-1462.
A secured party has control of the beneficial interest in an Illinois land trust if: (1) the secured party shall have transmitted to the 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
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. First, the beneficiary or beneficiaries must complete and sign the land trust agreement.