For both RESPA & TIL, think "purpose" first and collateral second. The purpose of the loan you describe is to purchase a duplex in which the borrowers will reside.
Here's an excerpt from our
Advanced Lending Manual concerning the coverage of Regulation Z:
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Truth in Lending applies to: [Section 226.1(c) – page 6642]
In general, this regulation applies to each individual or business that offers or extends credit when four conditions are met:
1. The credit is offered or extended to consumers;
2. The offering or extension of credit is done regularly;
3. The credit is subject to a finance charge or is payable by a written agreement in more than 4 installments; and
4. The credit is primarily for personal, family, or household purposes.
Consumer credit means credit offered or extended to a consumer primarily for personal, family, or household purposes [Section 226.2(a)(12) – page 6644]
Primary purpose:There is no precise test for what constitutes credit offered or extended for personal, family, or household purposes, nor for what constitutes the primary purpose. [Commentary to §226.2(2)(a)(12) - page 6875]. However, the discussion of business purpose exemptions listed below and on the next page provide clarification.
Exempt transactions: [Section 226.3(a) & (b) – page 6646]
This regulation does not apply to the following:
1. Business, commercial, agricultural, or organizational credit.
(a) An extension of credit primarily for a business, commercial or agricultural purpose.
(b) An extension of credit to other than a natural person, including credit to government agencies or instrumentalities.
2. (a) Credit over $25,000 not secured by real property or a dwelling. An extension of credit not secured by real property, or by personal property used or expected to be used as the principal dwelling of the consumer, in which the amount financed exceeds $25,000 or in which there is an express written commitment to extend credit in excess of $25,000. Business, commercial, agricultural, or organizational credit: [Commentary to Section 226.3(a) #1 & #2 – page 6884].
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.
2. Factors. In determining whether credit to finance an acquisition-such as securities, antiques, or art-is primarily for business or commercial purposes (as opposed to a consumer purpose), the following factors should be considered:
• The relationship of the borrower’s primary occupation to the acquisition. The more closely related, the more likely it is to be business purpose.
• The degree to which the borrower will personally manage the acquisition. The more personal involvement there is, the more likely it is to be business purpose.
• The ratio of income from the acquisition to the total income of the borrower. The higher the ratio, the more likely it is to be business purpose.
• The size of the transaction. The larger the transaction, the more likely it is to be business purpose.
• The borrower’s statement of purpose for the loan.
Examples of business-purpose credit include:• A loan to expand a business, even if it is secured by the borrower’s residence or personal property.
• A loan to improve a principal residence by putting in a business office.
• A business account used occasionally for consumer purposes.Examples of consumer-purpose credit include:• Credit extensions by a company to its employees or agents if the loans are used for personal purposes.
• A loan secured by a mechanic’s tools to pay a child’s tuition.
• A personal account used occasionally for business purposes.-----------------------------------------------------------
Hopefully you can see that the purpose is what drives Reg Z (and RESPA too, at first). Now, I'm going to add one more quote from Regulation Z to specifically answer your questions. This comes from the Commentary to §226.3(a)#4 (I bolded a few key words):
Owner-occupied rental property. If credit is extended to acquire, improve, or maintain rental property that is or will be owner-occupied within the coming year, different rules apply:
• Credit extended to acquire the rental property is deemed to be for business purposes if it contains more than 2 housing units.
• Credit extended to improve or maintain the rental property is deemed to be for business purposes if it contains more than 4 housing units. Since the amended statute defines dwelling to include 1 to 4 housing units, this rule preserves the right of rescission for credit extended for purposes other than acquisition.
Neither of these rules means that an extension of credit for property containing fewer than the requisite number of units is necessarily consumer credit. In such cases, the determination of whether it is business or consumer credit should be made by considering the factors listed in Comment 3(a)-2.As you can see, your loan will be covered by Regulation Z. Now to RESPA. RESPA applies to any CONSUMER purpose loan (refer to Reg Z, which we just discussed) that is also secured by a 1-4 family dwelling (there's your collateral test). There are several exemptions in §3500.5(b), however, from what I know, you don't meet any of them.
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