Trustee

When debt is placed on a property, a trustee is a third-party entity that holds legal title to the property until the borrower fully repays the loan. Requirements to be a trustee vary by state. Whereas a trustee must be authorized by certain law to serve in that position in some states, others have no limitations on who or what entities may serve as a trustee. Common entities that serve as trustees in real estate lending scenarios include title companies, banks, credit unions, and attorneys.

Putting ‘Trustee’ in Context

Scenario Overview

Heartland Savings & Trust, a regional bank headquartered in Nebraska, has originated a senior loan for the development of the Great Plains Logistics Hub, a 200,000-square-foot warehouse and fulfillment center located in Kearney, Nebraska. The property will serve as a key distribution facility for a growing e-commerce company.

Role of the Trustee

As part of the loan agreement, Heartland Savings & Trust acts as both the lender and the trustee. In this capacity, the bank holds legal title to the property in trust for the benefit of itself as the lender, ensuring that the borrower cannot sell or otherwise encumber the property without first satisfying the terms of the loan.

Trustee Process in This Transaction

1. The borrower, Great Plains Distribution LLC, has executed a deed of trust, transferring the legal title of the property to Heartland Savings & Trust.
2. Heartland Savings & Trust, in its role as trustee, is responsible for managing the deed of trust throughout the loan term, including foreclosure proceedings if the borrower defaults.
3. Once the borrower repays the loan in full, Heartland Savings & Trust, as trustee, will reconvey the legal title to Great Plains Distribution LLC through a deed of reconveyance.

Why a Trustee is Important

The use of a trustee in this transaction helps streamline the foreclosure process in the event of default, as Nebraska is a deed-of-trust state. This legal framework allows the trustee to foreclose on the property non-judicially, avoiding the longer and costlier judicial foreclosure process. This role provides protection to the lender while offering transparency and simplicity for the borrower.

Hypothetical Financial Summary

• Loan Amount: $12 million
• Interest Rate: 4.25 percent fixed
• Loan Term: 10 years
• Collateral: Legal title to the Great Plains Logistics Hub, held by Heartland Savings & Trust as trustee
• Estimated Property Value: $20 million upon stabilization

This hypothetical example illustrates how a trustee facilitates the lending process and underscores their critical role in securing and managing the lender’s collateral throughout the loan term.