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Disclose TIL if Loan to Natural Person and Trust?

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We have a loan to construct a primary residence to two individuals and their trust. The two individuals are also the beneficiaries of the trust that is liable. The land is owned by the trust. Since the loan is to a natural person and a trust should a TIL be disclosed?

If the consumers are to be primary obligors, it will be subject to Regulation Z, since you have indicated the loan is for a consumer purpose. If the trust is the primary obligor and the consumers are co-signers, it could be argued that the loan would fit the "organizational credit" exception to Regulation Z coverage. However, many, if not most, lenders would agree that it's wiser to comply with Regulation Z and make the disclosures, since you can't get burned for doing so even if they might not be technically required under the current rule. It will be subject to RESPA requirements, regardless of whether the consumers are primary obligors.

Also note that, beginning August 1, 2015, the Official Staff Interpretations of Regulation Z will change to make it clear that trusts used by individuals for estate planning purposes will generally not be considered "organizational credit" exempt from the regulation.

First published on 01/20/2014

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