So, I have a question regarding the detached structure notice. What if the loan secured by the residential property is not subject to RESPA? We make commercial loans secured by 1-4 family residential property regularly. Are we required to provide this notice when RESPA doesn't apply?

The law mandates that the director of the CFPB add this disclosure to the Settlement Booklet. This portion of the law has no impact on banks.

Thanks Randy. I just want to make sure I understand. So since this is not directed at banks, there is no reqirement for us to provide the disclosure on loans not subject to RESPA, right?

You will notice that these amendments are made to 12 U.S. Code § 2604 - Home buying information booklets. If you read that section of the law, there are no burdens place on individual financial institutions to provide this notification (or the private insurance notification that was contained in the original BW Act). This is solely a CFPB issue and they have five years to make the changes.


12 U.S. Code § 2604 (a) Preparation and distribution
The Director of the Bureau of Consumer Financial Protection (hereafter in this section referred to as the “Director”) shall prepare, at least once every 5 years, a booklet to help consumers applying for federally related mortgage loans to understand the nature and costs of real estate settlement services. The Director shall prepare the booklet in various languages and cultural styles, as the Director determines to be appropriate, so that the booklet is understandable and accessible to homebuyers of different ethnic and cultural backgrounds. The Director shall distribute such booklets to all lenders that make federally related mortgage loans. The Director shall also distribute to such lenders lists, organized by location, of homeownership counselors certified under section 1701x (e) of this title for use in complying with the requirement under subsection (c) of this section.

We have a situation where dwelling is not in flood zone but storage shed was. Customer purchased flood insurance for shed at origination. Customer did not renew and so we had to force-place flood (this was prior to change)... now force-placed policy is expiring.... I am thinking we should not force-place this insurance again since it is no longer required. Am I thinking correctly?

It's not required by law but the law does not prohibit you from requiring flood insurance if you feel it is necessary to protect your collateral. So requiring flood insurance on this building now would be your call.

Going back to what Dan said in post #1933097 at the begining of this thread, is any land with a residence "residential property"?

We are an ag based community bank and often have barns and grain bins and all kinds of ag structures on the same piece of land as the home. Where do you draw the line?

What about additional strutures on the same land as a mobile home park or an apartment building? Are these "residential properties" as refered to by this exclusion?

I hope you included these sorts of questions and presented possible solutions in your comment letter to your regulator in response to their proposed rule making on this subject.

The answer is "we don't know". The regulators issued a proposal in October asking if they needed to define "residential property". My reply (not in writing) is DUH!

We have, but in the mean time we have a few of these situations popping up and I was just hoping someone had something more.

I would be hesitant to go out on a limb on anything that could be considered a business (like an ag business).

Until we have something in writing, I would stick with a house, a garage and a shed.

Yeah that is the road we're taking for now.

It hasn't come up yet, but I am hesitant to apply the exemption to a 1-4 family rental property at this point, simply because the proposed rule discusses residential purpose.

We were told at a conference in October that although the rule was passed there were parts that were not effective for banks because it hadn't yet been written into the regulations of how to comply. They stated that for structures Freddie had passed their rules for multiple structures but that the rule for banks was not yet so that we should be very careful and disclose very clearly if we don't require additional coverage / binder for additional structures.

When I read this post it sounds like that rule is effective. Can anyone clarify what we should be doing?

The LAW is effective 3/21/14. What we don't have is a regulation clarifying what the law says.

If the law re exemption of detached structures was effective 3/21/2014, what's the difference between that and what becomes in effect on 10/1/2015?

We finally have a regulatory definition of what constitutes a detached structure.

Correct. There's also clarification on what detached structures qualify (must be used for consumer purposes and can't be used for residential purposes).

Can someone please clarify as this thread is a few years old...

Purchase a house (not in a flood zone) and barn (in flood zone) located on 6 acres. The barn can be exempted from flood coverage under the detached structure exemption because it does not serve as a residence, yes or no?

Barn? What is the barn used for? is it used primarily for personal, family, or household purposes, and not used primarily for agricultural, commercial, industrial, or other business purposes?

As Randy pointed out, we need to know the purpose of the structure to determine if the exemption can be used.

Here is an excerpt from article I recently wrote on this topic:

"Test 2: Used For Personal, Family, or Household Purposes
The second test embedded in this rule requires that a structure be used for personal, family, or household purposes and not for agricultural, commercial, industrial, or other business purposes. This means that if I have a house with an outbuilding where I store my wife’s junk, this structure would be used for personal, family, or household purposes. Or, if I have a barn where I keep horses I ride for fun on the weekend, then this would also be for personal, family, or household purposes. On the other hand, if an Amish customer has a chicken barn where they raise chicken and sell them to a meat company (like Tyson), then the structure would be used for agricultural or commercial purposes.

The key with this test is to look at what is being done with the structure. For example, if an outbuilding is used as a workshop for a hobby car collector, the exemption could apply. On the other hand, if the same shop is used to fix up and sell cars, it would be considered used for commercial purposes and the exemption would not apply. The bottom line is that we must look at the use of the structure and determine whether it is used for personal, family, or household purposes."

On another thread this week, we have been having a great conversation about agricultural purpose under Reg Z, which could impact the through process on a barn for the flood insurance exemption: https://www.bankersonline.com/forum/ubbt...est#Post2168648

The barn is not used for ag or business purposes. The borrower is not a farmer.

Then it is a detached structure, which does not require insurance.

I agree.