Trust Order 

Defines a specific purpose of payment, wherein the payment is made to a trustee in favor of the third-party and the receiver of the payment guarantees the fulfilment of the purpose of payment.

You can use the trust orders for internal and external liens. Both these usages will have different influences on the respective liens.

 

Scenario for trust order on internal liens

Consider the scenario of an internal lien where the registration planned for an own lien (collateral). The following dependencies exist:

·        The registration of the own lien depends on the payment of the purchase price of the lien.

·        The purchase price payment can be made using a collateral.

·        The required collateral is not yet available for use.

 

In such a scenario, the bank can use the trust order (internal) as a temporary agreement to replace the registration certificate of the collateral. By doing this, the unregistered lien can be used as if it was registered. The loan for the collateral can be disbursed using the trust order (internal).

You must enter the value of the trust order as the assessment amount for the lien. If you assign more than one trust orders to a lien, you must enter the consolidated values of all the trust orders as the assessment amount for the lien.

 

Scenario for trust order on external liens\

Consider the scenario of a prior ranking external lien where the registration is planned for an own lien (collateral) in the register. The following dependencies exist in this scenario:

·        This registration depends on the deletion of prior ranking lien.

·        The payments that are due to the prior ranking lien must be before the deletion of the external prior ranking lien.

·        These payments can be made using an own lien. However, the own lien is not yet available for use.

 

In such scenario, the own bank can use a trust order (external) to assume the deletion of the prior ranking lien and the registration of the own lien in a better ranking order. The loan for making payments to the prior ranking lien can be disbursed.

The prior ranked right has be considered in calculation without a collateral value.

 

In the standard system, you must enter the following values for a trust order:

·        Nominal value and currency

·        Assessment amount and currency

·        Date on which the business partner signed the contract

·        Date until which the trust order is valid.

·        Bank identification details

·        Status of the trust order

·        Business partners in partner functions such as notary, borrower and collateral taker.

 

Example scenario for a trust order (internal or external):

 

Figure1: Diagrammatic representation of a trust order scenario

 

The figure illustrates the following background of a trust order:

...

       1.      The real estate owner wants to sell the real estate that is charged by bank A and repay the loan commitment to bank A from the sale proceeds. The bank however, insists on the complete repayment of the loan amount before releasing the collateral.

       2.      The buyer requires financing to make the purchase payment to the seller. The financing bank of the buyer however, insists on discharge of the prior charge on the real estate, before granting the credit.

This results in a conflict scenario and the concerned parties enter into a mutual agreement called the trust order to resolve the conflict.

       3.      Based on the trust order, Bank B provides the required financing to the buyer to make the purchase price payment to the seller, who uses the financing to repay the outstanding credit to Bank A.

       4.      Bank A deletes the prior charge after the seller makes the loan repayment.

       5.      Bank B create a new charge on the real estate.

 

Differentiation into handling of trust order on internal and external liens:

Figure2: If a trust order is available on the internal lien, you can set the lien as legally active and calculation relevant.

 

 

Figure3: If a trust order is available on the external lien, you can set the lien as inactive and not calculation relevant.

 

You can set system statuses for entity objects in the Customizing for business activities. For more details, see the Implementation Guide (IMG) documentation for business activities.