Skip to content
BOL Conferences
Thread Options
#2266677 - 02/22/22 05:11 PM Joint business/individual applicants
MAFCCons Offline
100 Club
Joined: Nov 2014
Posts: 112
We periodically get consumer applications where there are individuals applying but also need a business applicant to qualify for repayment purposes. These are consumer purpose loan requests, not business purpose. The business is not treated as a guarantor. The business signers obligate the entity on the note.

If there is a mix of applicants (individuals and business), does TRID apply if it is a consumer purpose loan tied to real estate? All our applicants are jointly and severably liable on the note. Does it matter is the business is the primary applicant vs a co-applicant?

Return to Top
TRID - TILA/RESPA Integrated Disclosures Rule
#2266679 - 02/22/22 05:17 PM Re: Joint business/individual applicants MAFCCons
rlcarey Online
10K Club
rlcarey
Joined: Jul 2001
Posts: 83,227
Galveston, TX
How do you meet the ATR requirements, as whatever you are doing, a business would be a guarantor on a consumer purpose loan? How could they possibly be an applicant from an accounting perspective, as this would be nothing but a contingent liability for the business.
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

Return to Top
#2266681 - 02/22/22 05:32 PM Re: Joint business/individual applicants MAFCCons
MAFCCons Offline
100 Club
Joined: Nov 2014
Posts: 112
We have a lot more agriculture lending than consumer lending and mixed applicants happen all the time in that world. Usually there is a small, closely held company that has been created for farming purposes and farm income but individuals also have income.

Example: married couple owns poultry farm and has a LLC for the poultry operation. Both individuals also have W2 income jobs. We have existing loans against the poultry facilities and now they want to build a house. In order to qualify for all the debt they have outstanding + new request, we need individuals and LLC to sign the note and be fully obligated on the loan. Individuals/business + Consumer purpose + real estate = ??

Return to Top
#2266682 - 02/22/22 05:37 PM Re: Joint business/individual applicants MAFCCons
rlcarey Online
10K Club
rlcarey
Joined: Jul 2001
Posts: 83,227
Galveston, TX
Who owns the property?
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

Return to Top
#2266683 - 02/22/22 05:40 PM Re: Joint business/individual applicants MAFCCons
MAFCCons Offline
100 Club
Joined: Nov 2014
Posts: 112
Could be the business or the individuals. It depends

Return to Top
#2266685 - 02/22/22 05:50 PM Re: Joint business/individual applicants MAFCCons
rlcarey Online
10K Club
rlcarey
Joined: Jul 2001
Posts: 83,227
Galveston, TX
OK - Let us say it is the business. Then the house becomes an asset of the LLC. So, who is building the house then - it would be the LLC, unless the individuals were doing it through some sort of leasehold arrangement? That would mean the individuals are guarantying the loan for the LLC. Are the individuals going to rent the house from the LLC or are they going to take the equivalent of the cost of the rents as taxable income, if they plan on living there? It cannot be both ways. If it is, I would hate to be their accountant. If you consider the loan is made to the LLC but it is a consumer purpose loan, then the loan would be exempt from Regulation Z, but not from RESPA and a GFE and HUD-1 Statement.

If the property is owned by the individuals and they are building a house, then that would be an individual asset and since the LLC receives no benefit, they are nothing more than a guarantor and TRID would apply.
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

Return to Top
#2266729 - 02/23/22 03:05 AM Re: Joint business/individual applicants MAFCCons
MAFCCons Offline
100 Club
Joined: Nov 2014
Posts: 112
We generally don't dictate borrowing structure on our credit department. We service our own loans and certainly offer a lot of flexible options. While the credit decisions may not work the best for the borrower's tax accountants, these are the types of loans we make. I do want to make sure I understand what you are saying - even though they sign on the note (not a guaranty agreement), they are considered guarantors if they don't own the property? Is that something that you have seen auditors accept, since there are other regulations that differentiate between applicants and guarantors?

At the time of application, we may not know ownership structure of the property. We have been conservative and given TRID if there are mixed applicants. In my mind, an individual applicant requesting a consumer purpose loan tied to real estate is required to receive TRID disclosures if we have the 6 pieces of information, even if there are other applicants. However, there has been a question raised that if a business is "an" applicant, not just sole applicant, then TRID wouldn't apply either - specifically if we make the business the primary applicant. I don't see anything in the regulations one way or the other but do you think there would be more compliance risk in not calling it TRID and maybe being applicable, or giving TRID and it not be applicable?

Return to Top
#2266731 - 02/23/22 12:09 PM Re: Joint business/individual applicants MAFCCons
rlcarey Online
10K Club
rlcarey
Joined: Jul 2001
Posts: 83,227
Galveston, TX
Official Interpretation
3(a) Business, Commercial, Agricultural, or Organizational Credit
1. Primary purposes. A creditor must determine in each case if the transaction is primarily for an exempt purpose. If some question exists as to the primary purpose for a credit extension, the creditor is, of course, free to make the disclosures, and the fact that disclosures are made under such circumstances is not controlling on the question of whether the transaction was exempt. (See comment 3(a)–2, however, with respect to credit cards.)
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

Return to Top