We have a friendly disagreement going on about personal residential 1-4 family loans made to a single member LLC. Does TRID apply?

Unless state law defines them differently LLCs are not natural persons. Credit to non natural persons is exempt from Reg. Z in 1026.3.

Here's a friendly answer (for someone): No.

Here's why: Regardless of the purpose of the loan, a loan to an LLC (single-member or multi-member) is exempt from Regulation Z coverage under section 1026.3(a)(2):

This part does not apply to the following:

(a) Business, commercial, agricultural, or organizational credit. (1) An extension of credit primarily for a business, commercial or agricultural purpose.

(2) An extension of credit to other than a natural person, including credit to government agencies or instrumentalities.

An LLC is not a natural person. Therefore, Regulation Z ("This part") doesn't apply. The TRID rules, right of rescission, and all the other parts of the regulation will therefore not apply, either.

And if anyone brings up, well the house is for the owner to live in and that is consumer....well, that is for the business to sort out with their accountant and the IRS.

The argument for complying with Reg Z and the TRID rules when you don't have to is an argument for

• dealing unnecessarily with timing rules
• huge amounts of unneeded paperwork
• providing consumer protections that aren't required
• eliminating the possibility of using many provisions found in commercial mortgage agreements
• needless delays in wrapping up the deal for the customer and moving on to the next challenge

Oh, just to repeat a fun argument that I pull off the shelf occasionally --

The loan to the LLC that you have described is arguably for a consumer purpose, right? It's exempt from Regulation Z because the borrower isn't a natural person, but there is no such exemption from Regulation X.

Why is that significant? Because, although the loan won't be subject to Regulation Z, it will be subject to the provisions of Regulation X, including the RESPA provisions that won't apply to TRID loans starting 8/1/15.

I read this string with interest as we have numerous single family home loans to an LLC. In our world, we qualify the individualfrom a financial perspective, review the LLC documents and the indivudal and LLC both execute the Promisory Note. Wouldn't the reliance on the individual trigger TRID?

Thanks

Depends on the purpose of the loan. It is a idiotic thing to do, as if the person is on the loan individually, it most likely negates any advantage of placing the property in the LLC. These people really need legal counsel assistance and most of the time are doing this based on some stupid magazine article or "free" seminar they attended at the Holiday Inn Express one weekend thinking that they are limiting their liability in some manner. If the LLC is nothing but a shell that only holds and does not actively manage the property - there would be no protection. Banks that lend under such circumstances only complicate servicing, collection and foreclosure processes.

Why'd you have to drag the Holiday Inn Express into this, Randy? LOL

It's my chain hotel of choice when given an option. Love the cinnamon rolls at breakfast!

But, yes to your comments on misguided homeowners and LLCs.

Thanks rlcarey for your input.

Some of these are primary residences and a high percentage second homes (not always rentals). The LLC's would never qualify as an entity from a financial perspective, thus the reason we require the individual to qualify and become a co-borrower. The real estate is generally only titled to the LLC.

We do not provide legal advice related to the LLC and leave that to the borrower whether or not they have any protection under a LLC structure.

I have a loan scenario where the borrowers are two individuals and an LLC (all joint). Because the LLC is a borrower, is the whole loan exempt or do we still have to follow TRID for the individuals?

Exempt as organizational credit. Highly unusual structure. Why are the individual not guarantors?

I believe it started with the individuals as borrowers (since it was consumer purpose) and adding the LLC was an afterthought of the borrowers. This structure is rare for us.

Thank you!