Land Trust Cases

A. Trustee Liability for Environmental Matters.

A constant concern of those who serve as land trustee is the specter of being held liable under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C. 9601 et seq.

1. A decision of a U.S. District Court (Illinois), held that a land trustee is not an "owner" under CERCLA. That case is United States v. Peterson Sand & Gravel, Inc., 806 F.Supp. 1346 (N.D. Ill. 1992), which involved an operator of a hazardous waste site who had been held liable for an $800,000.00 remedial investigation, and who filed a third party complaint for contribution from several defendants. The complaint included Northern Trust Bank, the trustee of an Illinois land trust, which had held legal title to the site during the period of contamination. The bank sought summary judgment claiming that it was not an owner under CERCLA. The bank argued that a land trust is little more than a form of title registration; therefore, there was no policy reason to hold the bank liable as an "owner".

In its decision, the court noted that an Illinois land trust is "an odd legal creature". Under Illinois law, the land trustee holds both the legal and equitable title, and the beneficiary has only a personal property interest. The land trustee, however, may take no action with respect to the property without written direction from the beneficiary of the land trust. Illinois courts have, therefore, made a distinction between the legal concepts of title and ownership. Title refers to a legal relationship to the land, while ownership is comparable to control of the land, and denotes an interest in the land other than holding title. Because of the control of the trust property enjoyed by the land trust beneficiary, Illinois courts have placed the burden of ownership on the beneficiary of the land trust in other areas, such as responsibility for the payment of property taxes.

The court concluded that CERCLA policy would not be furthered by holding land trustees liable. Congress enacted the statute to impose liability upon those who have benefited from, and those who were responsible for, the environmental damage. Although Congress may have attempted to make "owners" strictly liable under the theory that "owners" are ultimately responsible for the condition of their property, simple paper title is unrelated to responsibility. Holding land trustees liable under CERCLA would have little deterrent value since they have no control of the property. Because the trustee had no further involvement with the property beyond holding the title as land trustee, the court granted its motion for summary judgment and ruled that Illinois land trustees are not "owners" under CERCLA.

2. In another federal decision in the Northern District of Illinois United States v. N.L. Industries, 1992 WL 359986 (S.D. Ill. April 23, 1992), the court held: "The definition of owner, although broad, requires some indication of control... Furthermore, because the trustee of an Illinois land trust has no ownership or control interest which would implicate the policies behind CERCLA, the court concludes the trustee cannot be liable under CERCLA."

In Peterson Sand and Gravel, the court states at page 1359 of its opinion: "Taking into account the implications of being a trustee under Illinois law, the concepts of ownership under federal and Illinois law, and the legislative purposes of CERCLA, the court concludes that being an Illinois land trustee is not 'owning' land under 42 U.S.C. 9607(a)(2)."

While this case is an encouraging one for land trustees, it must be pointed out that there are some conflicts with other courts. For example, in Phoenix v. Garbage Service Company, 1991 WL 294636 (D. Ariz.) the U.S. District Court in Arizona held that a testamentary trustee was a CERCLA "owner" regardless of the lack of control given under the trust agreement. The Phoenix case is contrary to the decision of the U.S. District Court in Illinois. In a footnote however, the court in the Phoenix case stated it would hold the land trustee to be an "owner," but because of the trustee's lack of control, would not impose personal liability upon it, thereby achieving the same practical result as the Illinois courts.

B. Land Trust as an Instrument in the Nature of a Mortgage.

Kirkland vs. Miller, 702 So.2d 620 (Fla. App. 4 Dist. 1997) involved a situation in which the purpose of the conveyance of real property into the land trust was to secure payment of money pursuant to an assignment of beneficial interest. The secured party foreclosed on the beneficial interest under Article 9 of the UCC rather than foreclosing the property as a real estate foreclosure. The trial court held that since the interest of Miller constituted personal property and that the rights of the secured party, Kirkland, were governed by Article 9 and Florida Statutes Section 679.01 was not applicable. Testimony at the trial indicated that the purpose of the transaction was to avoid a real estate foreclosure in the event of a default. The court held:

If the conveyance into a land trust has, as its sole purpose, the avoidance of a real estate foreclosure, Florida Statutes Section 697.01 will apply.

C. In re Saber 233 B.R. 547 (Bkrtcy. S.D. Fla 1999)

Involved a series of transfers of beneficial interest and appointment of a trustee who was also a 100% beneficial owner. Court held that the Doctrine of merger applied in Florida and that subsequent attempted transfers of trust interest were mere nullities. The 2006 revisions to the land trust act addressed, and countered, the decision in Saber by providing that " [a] trustee may be a beneficiary of the land trust in which such trustee serves as trustee." Section 689.071(2)(b), F.S.