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#2076755 - 05/03/16 04:34 PM TRID Unique Scenario Purpose??
iheartcompliance Offline
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Joined: Jan 2016
Posts: 239
I have an interesting scenario that I would appreciate feedback on:

Two brothers (and their LLC) are currently borrowers. They have a land note with us for a ranch in the name of their LLC. One brother has requested to take a second behind our land note to purchase a home. The dwelling will not be collateral, only the equity in the ranch. He has plans to live in the house in the future, but if he rents it out for now, would this be a business purpose or still a consumer purpose subject to TRID?

I have never received a request similar to this. Thanks for the help.

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TRID - TILA/RESPA Integrated Disclosures Rule
#2076776 - 05/03/16 06:15 PM Re: TRID Unique Scenario Purpose?? iheartcompliance
Loynograd Offline
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Hypothetically, if the LLC was the only borrower and the brothers were guarantors your institution would not have a consumer purpose loan for purposes of Regulation Z.

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#2076789 - 05/03/16 06:52 PM Re: TRID Unique Scenario Purpose?? iheartcompliance
RebekahL CRCM Offline
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RebekahL CRCM
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Posts: 879
Big Sky Country
Yes, who is the borrower? That could make quick work of it. If an LLC is a borrower, it is exempt from Reg Z, period.

However, if Brother is the only borrower, then more work is in order. How soon does he plan to live in it?

Here's an analysis I provided to a lender pre-TRID, but I think it may be helpful to you now as well:

The way Reg Z works is this: Every loan must be treated as subject to the rule (i.e. consumer credit offered or extended to a consumer primarily for personal, family, or household purposes) UNLESS it is exempted from coverage. The big exemption is the business purpose test:

“1026.3(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.”

That’s the basic question, then… is the loan request for personal, family, or household purposes, or for business, commercial or agricultural purposes? When a borrower comes in asking for money, they must have a core reason for wanting it. Is that core reason personal or business? Reg Z says a creditor must make that determination for every case.

In your case, I believed the answer was personal. BUT!!! What is mucking everything up is the presence of the rental on that property. Here’s why:

The commentary to Reg Z (written to offer clarification to the issue) says “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.”

This special rule appears to trump everything else. I don’t know how else to read it…. A plain reading simply says: If the credit acquires non-occupied rental property, the credit is business purpose. Period.

Hopefully this helps. It would be worth your time to go on and read commentary 5 and 6 to 1026.3(a) as well. Good luck! smile
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Me, Type A? Maybe - I'm not done analyzing it yet.

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#2076792 - 05/03/16 06:57 PM Re: TRID Unique Scenario Purpose?? iheartcompliance
Jen J Offline
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Posts: 144
See the commentary to 1026.3(a) for guidance on rental properties (emphasis mine):

1026.3(a) - 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.)

1026.3(a) - 5. Owner-occupied rental property. If credit is extended to acquire, improve, or maintain rental property that is or will be owner-occupied within the coming year, different rules apply:
i. Credit extended to acquire the rental property is deemed to be for business purposes if it contains more than 2 housing units.
ii. Credit extended to improve or maintain the rental property is deemed to be for business purposes if it contains more than 4 housing units. Since the amended statute defines dwelling to include 1 to 4 housing units, this rule preserves the right of rescission for credit extended for purposes other than acquisition. Neither of these rules means that an extension of credit for property containing fewer than the requisite number of units is necessarily consumer credit. In such cases, the determination of whether it is business or consumer credit should be made by considering the factors listed in comment 3(a)–3.


If the brother is the borrower (not the LLC), I would determine how soon he plans to occupy the home and use this guidance to decide whether or not it is subject to Reg Z.

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#2076794 - 05/03/16 07:00 PM Re: TRID Unique Scenario Purpose?? iheartcompliance
RebekahL CRCM Offline
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RebekahL CRCM
Joined: Feb 2003
Posts: 879
Big Sky Country
Jen, I love it when great minds think alike!! smile
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Me, Type A? Maybe - I'm not done analyzing it yet.

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#2076798 - 05/03/16 07:12 PM Re: TRID Unique Scenario Purpose?? iheartcompliance
Jen J Offline
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Me too! grin

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#2076824 - 05/03/16 08:26 PM Re: TRID Unique Scenario Purpose?? iheartcompliance
iheartcompliance Offline
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Joined: Jan 2016
Posts: 239
Thank you all so much. So basically, if the loan is made in the name of the LLC, then it is exempt. However, if the loan is only made to one brother, then it will depend on when and how long he intends to occupy the dwelling.

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#2076846 - 05/03/16 08:58 PM Re: TRID Unique Scenario Purpose?? iheartcompliance
RebekahL CRCM Offline
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RebekahL CRCM
Joined: Feb 2003
Posts: 879
Big Sky Country
Yep! laugh
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Me, Type A? Maybe - I'm not done analyzing it yet.

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