I have an ag lender making a loan to a customer for home remodeling. The note will be secured by the home and several hundred acres of ranchland. The note is being made to an individual, but the house and acreage is owned by the ranching corporation. The thing I'm sure about is that RESPA does not apply. I think TIL does apply and he needs to give TIL disclosures, the CHARM booklet and the variable rate program disclosure. He will have to collect monitoring information for HMDA, and do a flood cert, but what about ROR? The borrower lives in the house which is owned by the corporation. The borrower has ownership in the corporation along with many other family members.

This is similar to the Trust issue. I assume that the ag lender made a loan to the corporation that owns the home. If so, no consumer regulations apply (TIL, CHARMS, ARM, RofR). Flood Insurance rules still apply.

And the appraisal rules in Regulation B (which I have stopped calling a consumer regulation) will also apply because a dwelling is involved.

As usual, John is correct. If you are subject to HMDA, this is also reported as a home improvement loan (assuming you classify it as such). In summary, no TIL or RESPA, but the appraisal disclosure (or copy of the appraisal), flood and HMDA apply. Have fun!

I've been out of town, so am slow in responding. What is confusing to me is that the loan was not made to corporation. It was made to the individual living in the house. I guess since the other owners of the corp. don't live in the house, they really don't care what condition it is in and don't want the burden of paying for the remodeling.

This looks like a loan to a consumer for a consumer purpose. The only clear exemption is RESPA because of the acreage. Unless you could classify this as a business purpose loan, you are covered by TIL and friends.

If the collateral is truely owned by the corporation, I have a hard time seeing where ROR would apply, even if the consumer was an owner of the corporation. The corporation that owns the property is not a "natural person whose ownership interest in his or her principal dwelling is subject to the risk". Am I seeing this wrong?

Oh gosh! I get so upset with TIL I never thought it could really have what one would consider friends. I always thought of them more as coworkers that had trouble getting along - never able to agree on definitions of every day things such as dwellings. Though, it was weak before, now my concentration is really shot. Think I'll go on vacation!

For what it's worth, I also voted no on ROR.

I would decide the ROR based on the percentage of ownership the borrower has in the corporation. If the borrower is a small percentage owner, than there probably is no ROR. However, if the borrower is the primary owner, then I'd give ROR. Somewhere in between is where I'd draw the line, but I'm not sure where.

Lucy,
I disagree with you on that. A corporation is LEGALLY a separate entity that is NOT the same as the owners. I would look at it no differently than if Mom & Dad own the dwelling that Junior is living in. Mom & Dad have a primary residence somewhere else, so no one has the right of rescission.

I don't believe that a corporation can HAVE a primary residence, so how could anyone get an ROR?

I would side with Lucy based upon my rendering of "Consumer" under the definitions of Reg Z "for purposes of rescission under §§ 226.15 and 226.23, the term also includes a natural person in whose principal dwelling a security interest is or will be retained or acquired, if that person's ownership interest in the dwelling is or will be subject to the security interest". I too would want to know the overall ownership interest of my customer.

In the original post, it also says that the note is being issued to the individual and secured by a house that is owned by the corporation. This then would be credit extended as consumer credit and subject to TIL - (12) Consumer credit means credit offered or extended to a consumer primarily for personal, family, or household purposes."

Under both definitions, I would be conservative to impose the ROR period rather than take the chance of the customer being able to rescind three years from now if ever challenged and proven wrong.

Excellent analysis. And I fully agree with leaning to the cautious side. Missing a right of rescission is clearly risky.

My reason for saying this could be rescindable is both the regulatory language ("... a security interest is or will be obtained in a consumer's principle dwelling ... ") and the commentary which advises that the consumer having the right to rescind must have an ownership interest but need not be on the credit instrument. (23(a)(1)-2. Based on the facts given in the original question, it is possible that this transaction is rescindable. When in doubt, give the ROR. Otherwise you have a three-year risk exposure.

I guess I must respectfully disagree, and I would fight this one if it went to court. The moment we start conferring CONSUMER PROTECTION to something with CORPORATE ownership is the moment we will end up with a regulatory quagmire that would make OFAC compliance seem simple!

Reg Z was intended to give the average "unsophisticated" consumer the tools necessary to compare differences between financing options. ROR was intended to give a defense to the hapless, unsophisticated consumer from being taken advantage of by a slick salesperson and endangering their home.

When someone has enough sophistication to place a home under CORPORATE ownership, it would seem they've gone beyond the "poor average Joe" that the Regulation was intended to protect.

I agree that if the loan is to a consumer and secured by real property, then Reg Z disclosures are triggered. I would still maintain that ROR does not apply.

This is the difference between what is technically correct and a best practice to manage risk.

Bonnie, I agree that technically, you are correct. Presuming the title to the property is in the name of the corporation and no one else, the borrower does not have a direct ownership interest in the dwelling, and ROR should not apply. The section of Commentary Lucy cited supports that point of view.

However, Lucy and Jeff have a point from a risk mangement perspective. The possibility that the courts will rule that the consumer has the Right to Rescind in this transaction leads one to think that providing the right to cancel is the prudent thing to do.

When you look at the litigation history around Reg Z for the last ten years, including Rodash, Polk v. Crown Auto, and Pfennig v. Household, the consumer's chance of finding a sympathetic judge and/or jury seem pretty good. Not to mention the 9th Circuit Court of Appeals.

While you may be correct, my vote is to provide the disclosure. The cost of doing so is outweighed by the risk I incur if I do not provide the disclosure.