WBK Industry News - State Regulatory Developments

Delaware’s Senate Bill No. 243 Makes Amendments to its Statutory Trust Act

Mortgage companies and mortgage loan investors sometimes utilize trusts to purchase, hold and sell residential mortgage loans. Trusts can be chartered under state law as a separate legal entity, or formed under a contractual agreement without separate legal entity status. Because of its long history and predictability of business entity law, many statutory trusts are formed under Delaware law.

Over the past few years, some companies have moved to the use of common law trusts with a national bank as trustee because a common law trust is not a separate legal entity, and the thought is, with a national bank holding title to the loans as trustee, such common law trust structures would not implicate state mortgage licensing issues. Many such common law trusts are formed under New York law.

Reportedly, in response to this trend, the Delaware legislature recently amended the Delaware Statutory Trust Act (“DSTA”), making various changes, including allowing those forming trusts under the DSTA to opt out of separate legal entity status.

Amendments to Sections 3801(g) and 3810(a) of the DSTA allow practitioners the ability to opt out of separate legal entity status if so specified in the trust’s governing instrument and its certificate of trust.

Currently, DSTA’s Sections 3804(a) and 3806(b)(2) allow practitioners to create Delaware statutory trusts in a series, which essentially segregates assets and liabilities within the trust. The recent amendments to the DSTA clarify that Section 3804(a) does not prohibit a statutory trust from agreeing to be liable for the debts, obligations, liabilities and expenses incurred by the statutory trust generally, or a particular series of the statutory trust agreeing to be liable for the debts, obligations, liabilities and expenses for the statutory trust generally. Also, the amendments make clear that a statutory trust organized in series may contract, hold title to assets, grant liens, and sue and be sued, in the name of the series.

Current section 3806(i) of the DSTA grants trustees the power and authority to delegate the powers to manage and control the business affairs of the trust to other people. The amendments provide that such delegation may be made irrevocable if so stated in the governing instrument.

The amendments to the DSTA went into effect August 1, 2016.

A copy of Senate Bill No. 243, which contains the amendments to the Delaware Statutory Trust Act, can be found at: http://legis.delaware.gov/LIS/lis148.nsf/vwLegislation/SB+243/$file/legis.html?open.