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:
â€œ1026.3(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.â€
Thatâ€™s the basic question, thenâ€¦ 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. Hereâ€™s why:
The commentary to Reg Z (written to offer clarification to the issue) says â€œ4. 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.â€
This special rule appears to trump everything else. I donâ€™t know how else to read itâ€¦. 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!