We are having a bit of an internal disagreement on this subject. We don't do much lending in the way of paying off a contract to purchase real estate, but when we do, we have mixed opinions on how this should be handled. Some say this should be a purchase since the property is titled in the seller's name until the contract buyer pays off the contract. Others, (including an examiner, at least as it applies to HMDA) say this is a refinance. The determination of which way to go makes a big difference as it relates to HUD1 vs HUD1A, and rescission.

I lean towards a purchase although I don't have anything to back it up.

How are others handling this?

I see it as both. It requires a HUD-1 (not a HUD-1A) as you have a title transfer, just like a purchase. Under the RofR it looks like a refinance and needs to have rescission notice given to the borrowers, like a refinance [see the Commentary to §226.23(a)(1)#3].

I agree with David. It's both. Don't forget the flood determination too.

I also agree with David and Steve.

Supplement I, 226.2: Definitions and Rules of Construction (01/01/01)

2(a)(24) Residential mortgage transaction.

5. Acquisition. i. A residential mortgage transaction finances the acquisition of a consumer’s principal dwelling. The term does not include a transaction involving a consumer’s principal dwelling if the consumer had previously purchased and acquired some interest to the dwelling, even though the consumer had not acquired full legal title .

ii. Examples of new transactions involving a previously acquired dwelling include the financing of a balloon payment due under a land sale contract and an extension of credit made to a joint owner of property to buy out the other joint owner’s interest . In these instances, disclosures are not required under §226.18(q) or §226.19(a) (assumability policies and early disclosures for residential mortgage transactions). However, the rescission rules of §§226.15 and 226.23 do apply to these new transactions.

Thanks everyone, for your responses. I'm glad we don't do many of these.