I am completely stumped on this scenario and really need some help. We are lending a customer $400,000 and funds are going directly into their checking account. The customer is then going to a closing and paying 'all cash' for a vacation home in AZ; approx. $900,000 sale price. Our DOT is not being recorded until after the closing has taken place. We are funding our loan prior to the purchase to give the customer the funds.

I have waffled over the TRID purpose, purchase or HE. We are in no way involved in the closing and I have explicit instructions that our DOT is only to be recorded after our customer has purchased the home. Customer is a director of our bank; we are a commercial bank; bank is taking DOT as abundance of caution meaning no title insurance or appraisal (yes to flood). We do not sell our loans so no investor issues there. Would this be a purchase or Home Equity? If a purchase, we would get the buyer/seller CD and there is nothing to put on it as there are no closing fees associated with this loan; I am struggling with how to complete the CD. I flung in Home Equity because our DOT is being recorded after the customer owns the r/e. Help! Thank you.

I'm stumped too......how are you making a $400,000 loan and calling the collateral abundance of caution?

Abundance of caution means nothing to me in the doc prep world; it is an underwriting term. The loan is underwritten as not relying on the collateral value but in my camp, we are still recording a DOT; just after the closing has taken place in AZ. I consider it as still being secured by r/e.

Director of the bank? You should know how to handle this then, as it must happen all the time for it not be favorable treatment of an insider and a violation of Regulation O.

But you are correct - abundance of caution means nothing with it comes to Regulation Z, flood, Regulation B, HMDA, etc.

If I'm reading things correctly this bank just made a director a $400,000 unsecured loan.

I don't know then, from a TRID perspective, how you'd get away from:

(i) Purchase. If the credit is to finance the acquisition of the property identified in paragraph (a)(6) of this section, the creditor shall disclose that the loan is for a “Purchase.”

and the OSC:

i. Purchase. The consumer intends to use the proceeds from the transaction to purchase the property that will secure the extension of credit.

Those were my exact thoughts Dan.

crcmnot - I would use raitchjay's post and say this was a purchase. The funds are being used to purchase the 2nd home - just not directly.

When you say you're a 'commercial bank' - -do you not do any consumer lender, or just very little?

Well, there is nothing in Regulation Z that talks about perfection of the lien or when that occurs. The bank knows the intent and an abundance of caution means absolutely nothing.

Why is the abundance of caution being done? Unless you are in the habit of making $400,000 unsecured loans to similar borrowers, Regulation O is going to be a real issue. Disclosure and credit issue are totally separate issues.

very little; commercial loan officers can get creative and we don't have the option of saying 'no' go somewhere else.

This one will more than likely come back to bite your bank in the future - but realize that isn't under your control.

Thanks all

Well - someone needs to speak up unless this has been fully vetted for preferential treatment . The last thing management needs is the regulators issuing a bunch of prohibition orders to officers and directors for insider abuse.

Done - and that has been passed on to the appropriate personnel but I am trying to figure out how to fit it in the 'TRID' box.

The purpose of the money is purchase.

Just shaking my head. That's all.