Am I correct that a loan to purchase vacant land would only be exempt from Respa and Reg Z as long as we didn't take any additional real estate as collateral? I have found out that we have done lot loans secured by the vacant land and also by the borrowers principal dwelling. I am telling them all lending rules apply since they have added the dwelling. Can anyone help confirm that I am correct or if I am incorrect explain why?

There's no 'bare land' exemption from Reg. Z. RESPA applies to any loan secured by dirt and a dwelling, so long as it doesn't meet any of the stated exemptions in 1024.5(b). Reg. Z applies if the loan is for consumer purpose and made to a natural person.

In plain English, you are correct. If disclosures weren't given on these loans, you've got a boatload of uncurable violations. Document the error and the training you're going to do to correct it. Then when examiners find these, you'll have addressed the situation already. That goes a long way to mitigate the situation.

Ok - so now I need to convince the staff that "the way we've always done this" is not the right way. The question was originally posed to me as they were trying to determine if Ability to Repay applied to the loan. Thanks for the information!

It sounds like your staff is seperating the dirt from the dwelling and thinking that negates the need for compliance with Reg Z and RESPA. There's dirt under the dwelling that is being taken too. So you actually have 2 dirts and 1 dwelling = need to comply.
Or, the staff might be considering the primary dwelling as Abundance of Caution and thinking that means it doesn't trigger RESPA or Z.

In both these scenarios, your staff is wrong.

btw, my staff knows that 'the way we've always done it' is fighting words with me. Nobody will even say it in my presence anymore. Good luck!

It still depends on exemptions as well......can't tell from the original post if these lot purchases are consumer purpose or not.

Yes - consumer purpose lot loan. In order to have sufficient collateral to finance 100% purchase of the lot they are taking the current dwelling as additional collateral. They are telling me it is a lot loan but I keep telling them they took a dwelling and need to follow that set of rules now. I guess I will tell them they can't take a dwelling as extra collateral on a lot loan and offer interest only with a baloon payment unless they can prove to me an every examiner that the customer had the ability to repay the loan.

It goes way further than that, Beth. You have RESPA loans with tolerance and early disclosure requirements, along with waiting periods before you can close.

I don't envy you at the moment... It appears you'll be having some fun conversations in the near future.

Sounds like after you prove you are right (print this thread for help) you're going to have to look back at all these loans and, as Joker alluded to, cure for tolerance violations. I'd make sure each of these loans has a thorough audit review that is well documented so when examiners find one of these and then call for all the rest like it, you'll have already identified the problem, corrected the violations and have the fix in operation.

If you really have not treated these loans as covered under Reg. Z and RESPA, I would be informing management and the board pronto. Depending on the number of these loans the bank has completed since the last regulatory examination, the RESPA tolerance cures and the Reg. Z restitution could be substantial.

The FRB published 2 articles on Reg Z reimbursements that will help those unfamiliar with this topic. The 1st article was published in the 4th quarter of 2006 Compliance Outlook and the 2nd was in the 1st quarter 2007 of the same publication.

http://www.phil.frb.org/bank-resources/p...er/q4cc1_06.cfm

http://www.phil.frb.org/bank-resources/p...er/q1cc1_07.cfm

There are time frames within which the bank must act to protect from liability so a clear understanding of the rules is needed.

They are telling me it is a lot loan but I keep telling them they took a dwelling and need to follow that set of rules now.

RESPA

Show them the definiiton of a Federally Related Mortgage Loan found in 1024.2. Be sure to point out the word Any.

ATR

Show them the definition of a covered transaction in 1026.43(b).

I'm working on a loan request with a lender that is somewhat similar to this and I'm really struggling with the RESPA aspect. The loan request is consumer--the borrower wants a loan to add a mother in law suite to his current home. Rather than securing the loan with his home, he wants to secure it with some land he owns. The lender initally said he was just taking the land as collateral, but we found out there is a "dwelling" on the land. The dwelling was not and is not the principal dwelling. It is not inhabited and the borrower does not have insurance on it and has not done and does not intend to do any sort of maintenance to it. Pictures of the dwelling show it to be in disrepair--the borrower says they have used it as a hunting cabin in the past. He does not want to go to the expense of tearing it down and said when he sells the land, the new owner can do that. As the loan is consumer purpose and is secured by a "dwelling", it would appear it meets the definition of a federally related mortgage loan and would be subject to RESPA. I'm really struggling with this as it would seem the intent of RESPA was not to cover this sort of scenario (servicing, escrow, etc.). The borrower is not interested in a mortgage on this dwelling. I don't find any other sort of exemptions around dwellings under RESPA. Other than finding some other type of collateral, are there any other options? Thank you.

Just received a second inquiry similar to this one. The dwelling is a mobile home that is just sitting on the land the borrower wants to purchase and borrower plans to remove it after purchase. The lender wants to call this a "lot loan". Does "intent" play a role in whether the dwelling is actually subject to RESPA? Appreciate any thoughts/suggestions....

Are you taking title to the mobile home or has the mobile home been made part of the real property??

Here's a new one. Borrower owns 5 acres with a dilapidated home. He wants to mortgage this 5 acres to purchase a mobile home to place on his daughter's property. The LO wants to take both the 5 acres and the mobile home as collateral. Reg Z applies (including ATR and HPML) but RESPA doesn't because the mobile home is not on the land taken as collateral?