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#2042105 - 10/02/15 02:24 PM Comm Loan secured by Guarantor's Primary Res.
Libby M. Offline
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Mississippi, USA
Does TRID apply to a business purpose loan in a business name and the guarantor's primary residence is used for collateral?
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Lela Purvis, CRCM/CCBCO/CBAP


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TRID - TILA/RESPA Integrated Disclosures Rule
#2042108 - 10/02/15 02:25 PM Re: Comm Loan secured by Guarantor's Primary Res. Libby M.
Kathleen O. Blanchard Offline

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No. The very first hurdle to get to TRID is if the loan is consumer purpose. If it is not, then Reg Z and therefore the integrated disclosures do not apply.
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#2042126 - 10/02/15 02:52 PM Re: Comm Loan secured by Guarantor's Primary Res. Libby M.
Libby M. Offline
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Mississippi, USA
What about the "Special Rule for Commercial Purpose Loans” that TRID applies when commercial purpose loan and owner occupies property for more than 14 days…
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Lela Purvis, CRCM/CCBCO/CBAP


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#2042135 - 10/02/15 03:04 PM Re: Comm Loan secured by Guarantor's Primary Res. Libby M.
Red Raiders Offline
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I think what you are talking about is in the commentary to 1026.3(a) and is in regards to specifically whether a property can be considered a non-owner occupied rental property or not.

Your example above would not be subject to Reg Z for two reasons. 1. It is business purpose and 2. because it is to a business



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.
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#2042141 - 10/02/15 03:10 PM Re: Comm Loan secured by Guarantor's Primary Res. Libby M.
Libby M. Offline
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Mississippi, USA
So, if I have a business purpose loan made to a consumer secured by a 1-4 family dwelling (primary, secondary, rental, condo, etc.) that is occupied by the owner more than 14 days in the coming year, TRID applies?
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Lela Purvis, CRCM/CCBCO/CBAP


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#2042143 - 10/02/15 03:11 PM Re: Comm Loan secured by Guarantor's Primary Res. Libby M.
Kathleen O. Blanchard Offline

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NO! TRID and any part of Z or RESPA or other consumer purpose only rules will never apply to a business purpose loan. (That leaves out flood, Reg B, etc. because I said consumer purpose only.)

That rule relates to whether a property can be considered a non-owner occupied rental property and therefore a loan for a purpose related to that property is automatically considered business purpose. If the owners will occupy it for more than 14 days, the treatment under IRS rules changes and potentially changes under Z unless it is exempt under other exemption tests.

Do not confuse loan purpose with that exemption rule.

If the bank makes a business purpose loan, it does not matter what the collateral is...it could be their house, a rental property, or kitty litter. The loan remains business purpose and is not subject to Regulation Z and thus not subject to the integrated disclosures or to any part of Z or RESPA.

Start with determining if the loan is business or consumer purpose.

I did a webinar in July on just that topic.

https://www.bankersonline.com/bankerstor...56dg0ag1rnrabf7
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#2042177 - 10/02/15 04:15 PM Re: Comm Loan secured by Guarantor's Primary Res. Libby M.
Libby M. Offline
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Joined: Sep 2007
Posts: 576
Mississippi, USA
I am so sorry that this is not clicking!

In one of our MANY training classes for TRID we were given the example of a business purchasing a condo and the owners (natural persons) occupied it for more than 14 days would cause the loan to be considered a consumer loan.

1026.3 -- Exempt transactions.
(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.

Official Interpretation
4. Non-owner-occupied rental property. Credit extended to acquire, improve, or maintain rental property (regardless of the number of housing units) that is not owner-occupied is deemed to be for business purposes. This includes, for example, the acquisition of a warehouse that will be leased or a single-family house that will be rented to another person to live in. If the owner expects to occupy the property for more than 14 days during the coming year, the property cannot be considered non-owner-occupied and this special rule will not apply. For example, a beach house that the owner will occupy for a month in the coming summer and rent out the rest of the year is owner occupied and is not governed by this special rule. ( See comment 3(a)–5, however, for rules relating to owner-occupied rental property.)
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Lela Purvis, CRCM/CCBCO/CBAP


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#2042179 - 10/02/15 04:20 PM Re: Comm Loan secured by Guarantor's Primary Res. Libby M.
Kathleen O. Blanchard Offline

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And that would be because in that particular case it was determined that the loan was not for a business purpose!

If there was no other circumstances that caused the bank to declare the loan to be business purpose, and the owners were going to use the property for more than 14 days a year, it is consumer purpose.

That DOES NOT MEAN that any time a residence is used as collateral on a loan that IS business purpose that the loan is subject to TRID.
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Kathleen O. Blanchard, CRCM "Kaybee"
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The HMDA Academy
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#2042180 - 10/02/15 04:21 PM Re: Comm Loan secured by Guarantor's Primary Res. Libby M.
Kathleen O. Blanchard Offline

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The entire differentiating factor is business versus consumer purpose, not the type of collateral.
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Kathleen O. Blanchard, CRCM "Kaybee"
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The HMDA Academy
www.kaybeescomplianceinsights.com

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#2042215 - 10/02/15 05:40 PM Re: Comm Loan secured by Guarantor's Primary Res. Libby M.
Libby M. Offline
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Joined: Sep 2007
Posts: 576
Mississippi, USA
Final question...does anything change if the loan is made to an individual, not a business, but the purpose is a business purpose?
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Lela Purvis, CRCM/CCBCO/CBAP


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#2042221 - 10/02/15 06:01 PM Re: Comm Loan secured by Guarantor's Primary Res. Libby M.
John Burnett Offline
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Business purpose trumps Regulation Z regardless of who the borrower is. But you have to analyze what the money is to be used for to determine whether it's business or personal purpose.
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#2042227 - 10/02/15 06:07 PM Re: Comm Loan secured by Guarantor's Primary Res. Libby M.
John Burnett Offline
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TRID and Right of Rescission and HPML and ATR/QM are all parts of Regulation Z. If a loan is not covered by Reg Z because of an exemption in section 1026.3, it's exempt from TRID and Right of Rescission and HPML and .......

This is not new. It has been that way since Reg Z was a baby, way back in the middle of the 20th century.

That's why you ALWAYS start with determining the purpose and the borrower. Once you have them under control, you check for Reg Z applicability. And if you determine it's not subject to Reg Z, you don't have to worry about primary vs. vacation homes, whether it's a dwelling, and all that other splitting of hairs and pigeon-holing you need to comply with all the moving parts in Reg Z.

But PLEASE don't start your analysis with any reference to "investment property."
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#2042269 - 10/02/15 07:19 PM Re: Comm Loan secured by Guarantor's Primary Res. Libby M.
Kathleen O. Blanchard Offline

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Thanks, John. I had to go out for an appointment!
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Kathleen O. Blanchard, CRCM "Kaybee"
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#2043428 - 10/08/15 07:40 PM Re: Comm Loan secured by Guarantor's Primary Res. Libby M.
MyKidsMom Offline
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A slightly different twist. A consumer purpose loan: repay CD secured loan that was used to purchase principal residence. Secured by the principal residence that is now in the name of "Family" Limited Partnership. Consumer lives in the house and owns no other property. Loan will be in name of "Family" LP. Consumer purpose, yes. To a natural person, no. Help!

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#2043433 - 10/08/15 07:54 PM Re: Comm Loan secured by Guarantor's Primary Res. Libby M.
Dan Persfull Offline
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Bloomington, IN
Loans to non-natural persons are exempt from Reg. Z. See 1026.3(a)(2).
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#2043882 - 10/13/15 03:36 PM Re: Comm Loan secured by Guarantor's Primary Res. Libby M.
lucyc Offline
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What about a loan to a business entity ABC Holdings LP and the owners are going to guarantors. The loan will be secured by a multipurpose building and the purpose is to buy their daughter a home.

1. My initial answer would be that it is not applicable to TRID since the borrower is a business entity not a natural person. Is that correct?
2. If not, then I still think it would not be applicable to TRID since the owners do not live in the multipurpose building and do not intend to live in their daughter's house. Is this correct?
Last edited by lucyc; 10/13/15 03:49 PM.
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#2043895 - 10/13/15 04:08 PM Re: Comm Loan secured by Guarantor's Primary Res. Libby M.
John Burnett Offline
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If the primary borrower is a partnership, the organizational credit exemption under 1026.3 makes it exempt from Reg Z, notwithstanding the consumer purpose of the loan.

If the organizational credit exemption did not apply, the consumer purpose would make it subject to Reg Z. And TRID doesn't concern itself with the nature of the real estate that secures the loan. It doesn't care that the owners don't live in it or whether anyone lives there. Re-read the following. If the loan is subject to Reg Z, the words in red determine whether TRID applies.

(i).... In a closed-end consumer credit transaction secured by real property, other than a reverse mortgage subject to § 1026.33, the creditor shall provide the consumer with good faith estimates of the disclosures in § 1026.37.

1, Is it a consumer credit transaction?
2. Is it closed-end credit?
3. Is it secured by real estate (of any kind)?

If the answer is YES to those three questions, it is a TRID loan.
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#2043896 - 10/13/15 04:09 PM Re: Comm Loan secured by Guarantor's Primary Res. Libby M.
Dan Persfull Offline
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Bloomington, IN
See 1026.2(a)(11) and its Commentary for the definition of a consumer.
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#2043906 - 10/13/15 04:37 PM Re: Comm Loan secured by Guarantor's Primary Res. Libby M.
lucyc Offline
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Thank you for the responses. I also found the following which this transaction meets the criteria and is therefore exempt in my opinion:

"9. Organizational credit. The exemption for transactions in which the borrower is not a natural person applies, for example, to loans to corporations, partnerships, associations, churches, unions, and fraternal organizations. The exemption applies regardless of the purpose of the credit extension and regardless of the fact that a natural person may guarantee or provide security for the credit. But see comment 3(a)-10 concerning credit extended to trusts."

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#2043907 - 10/13/15 04:37 PM Re: Comm Loan secured by Guarantor's Primary Res. Libby M.
Kathleen O. Blanchard Offline

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Despite the terrible structure of the loan, as the others have said, the loan is to an entity and not subject to Z. A business really cannot conduct a consumer purpose transaction and has to be accounting for this transaction someway on the business's books. I leave it to the bank to wonder if it is a legitimate use of the business. The daughter may be paying rent, the business may treat this as a loan to the daughter, she may work for the LLC and this is compensation, etc.
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