Question, we originated a 1-4 owner occupied loan to a single woman. Loan was 5 year balloon. Loan is now coming due and woman want's to renew and extend the note, but is now married and wants to add husband to note.

Can we execute this via a renewal modification and extention agreement or do we have to do this as a refinance with a new note and deed of trust to add husband?

If we are able to do this, what are the Reg Z/RESPA disclosure requirements if any?

Thanks.

When we renew and extend a loan we use a Change in Terms to amend the Note and record a Modification Agreement to amend the DOT. Unfortunately you can not add a borrower to the Note in this fashion but in Texas the spouse would have to join her on the Modification Agreement. He would be added to title but not obligated to the repayment of the Note this way.

The only way to actually add him to the financial obligation would be to do a full blown refinance with new Note and DOT and this would require full disclosures.

If you add a obligor to the debt then the new "joint" obligation will satisfy and replace the "single" obligation. Also under Reg. Z the added obligor would be assuming the debt and therefore the transaction could possibly be a residential mortgage transaction.

My advice is to treat it as a refinancing or talk to your attorney for guidance.

Thank you both for your quick responses.

Here is what we have received from attorney to accomodate borrower's request to renew note while adding husband to obligation:

- Modification, Renewal & Extension Agreement - between Bank and John Married and Jane Married, formally Jane Single) referencing the Lender as the holder of promissory note to Jane Single with Note secured by Deed of Trust executed by Jane Single. Further states that Note and Lien were assumed by John Married with Assumption Provision executed by Jane Married, formally Jane Single.

- Warranty Deed (With Assumption Provision) - Grantor is Jane Married, formally Jane Single. Grantee is John Married. Grantee as part of consideration for conveyance assumes and agrees to pay the balance owing on the first lien note executed by Jane Single.

Is this still considered a "new" note replacing and satisfying a previous note or is this enough to get it out of being treated as a "refinance" requiring/triggering the various Reg Z/RESPA requirements?

Again, thanks for your help!

"Further states that Note and Lien were assumed by John Married with Assumption Provision executed by Jane Married, formally Jane Single."

Based on the language you presented, sounds like an assumption to me:


(b) Assumptions. An assumption occurs when a creditor expressly agrees in writing with a subsequent consumer to accept that consumer as a primary obligor on an existing residential mortgage transaction. Before the assumption occurs, the creditor shall make new disclosures to the subsequent consumer, based on the remaining obligation.

I'm with Dan, I would be disclosing this all the way.

I most definitely agree. That one statement (clause) makes it an assumption under the regulation's definition which requires new disclosures.

This is why one should be familiar with the definitions. Regardless of what contract language is added or deleted that language cannot contradict law.

When you add an obligor there will always be a written agreement between the bank and the new obligor, therefore IMHO there is no way to legally add an obligor and bypass the disclosure requirements of the regulations.

Thanks Randy and Dan! Knew you guys would clear this up for me!

What you've communicated is helpful! To be clear, there is no attempt to try to avoid providing disclosures, but rather I was uncertain as to whether disclosures were required in this scenario? Felt like they were, but couldn't prove up why. We don't deal with "assumptions" much so it's an unusual transaction for us. Thanks for pointing out the definition of "assumption" which states clearly that new disclosures are required.

Just so I understand this correctly, which document is reflecting the "assumption"? The "Warranty Deed with Assumption Provision" or the "Modification, Renewal & Extension Agreement"?
And since it's clear that an assumption is taking place requiring that new disclosures be provided to the new obligor based on the remaining obligation, does this mean Early TIL's too or just final TIL?

Also, while new disclosures are required, does this also trigger HPML testing as well or is this still not triggered?

Thanks!

The mortgage is your security agreement. The modification agreement/note would be your written legal agreement/obligation between you and the consumer.

The assumption triggers all applicable disclosures and restrictions such as MDIA, HPML, etc.

BTW, since the original obligor will remain as such under the written agreement I would treat this as a refincancing and provide them disclosures also.

Thanks again for your time and responses Dan! As always, very helpful.