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#2254834 - 06/03/21 11:57 PM Co-Borrowers: Individual and an Irrevocable Trust
Tarhe Offline
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Joined: Nov 2006
Posts: 1,160
California
We are doing a mortgage refinance loan where the co-borrowers are an individual and an Irrevocable Trust fbo the individual. The individual lives in the home, but the SFR is vested in the irrevocable trust. Due to the individual being a co-borrower, would we treat this as a consumer transaction and subject to Reg Z (including TRID)? (Reg Z has the organizational exemption but I don't think it would apply in this case.) Lender wants to treat it as a commercial loan because of the irrevocable trust. Our mortgage department does not make loans to irrevocable trusts (due to FNMA issues as they won't purchase them.) Seems it would be subject to consumer requirements.

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#2254835 - 06/04/21 12:06 AM Re: Co-Borrowers: Individual and an Irrevocable Trust Tarhe
rlcarey Offline
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rlcarey
Joined: Jul 2001
Posts: 76,360
Galveston, TX
I would error on the side of conservatism. You need to consult your legal counsel as I would be surprised if the irrevocable trust is written in a manner to be a borrower in that manner.
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com

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#2254852 - 06/04/21 03:41 PM Re: Co-Borrowers: Individual and an Irrevocable Trust Tarhe
Tarhe Offline
Diamond Poster
Joined: Nov 2006
Posts: 1,160
California
I agree - thank you!

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#2254860 - 06/04/21 04:24 PM Re: Co-Borrowers: Individual and an Irrevocable Trust Tarhe
Tarhe Offline
Diamond Poster
Joined: Nov 2006
Posts: 1,160
California
One more question: if we were to have the irrevocable trust be the sole borrower (and the consumer becomes a guarantor), could we then treat it as a commercial loan?

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#2254861 - 06/04/21 04:28 PM Re: Co-Borrowers: Individual and an Irrevocable Trust Tarhe
rlcarey Offline
10K Club
rlcarey
Joined: Jul 2001
Posts: 76,360
Galveston, TX
If the trust is not solely for taxes and estate planning purposes then a loan to the trust would be organization credit and exempt from Regulation Z. However, if it was still deemed to be for consumer purposes it would be subject to RESPA as there is no organization credit exemption in RESPA.
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

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#2254862 - 06/04/21 04:32 PM Re: Co-Borrowers: Individual and an Irrevocable Trust Tarhe
Tarhe Offline
Diamond Poster
Joined: Nov 2006
Posts: 1,160
California
Thanks again!

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