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Primary Residence Secured By Business-Owned Vacant Land

Question: 
What compliance regulations apply to a loan to purchase a primary residence secured by vacant land titled in a business name?
Answer: 

Answer by Mary Beth Guard: The applicability of some regulations is driven by collateral. Others depend upon type of borrower or purpose of loan.

In the question you have asked, you haven't said who the borrower is -- whether it is an individual or a business.

Assuming it is an individual, then you look to the purpose of the loan (which would be personal, since it is to purchase a primary residence). A loan to an individual primarily for a personal, family, or household purpose will be subject to TISA/Reg Z (unless it falls within one of the exemptions, which this would not appear to do.) Since it's not covered by Reg Z, the right of rescission would not come into play.

It would not be subject to RESPA because the institution is not going to have a mortgage on a 1 to 4 family dwelling.

It would not be subject to the flood hazard requirements, because the collateral is vacant land -- not improved real property.

This would not be considered a home purchase loan under HMDA because that must be a loan made for the purpose of purchasing a residential dwelling for one to four families, where the loan is to be secured by the dwelling being purchased or by another dwelling.

Answer: 

Answer by Lucy Griffin:As Mary Beth points out, the key factor to look to is the security property. Taking security triggers certain rules. Taking security in a dwelling, however, is what triggers the most complicated rules for both Truth in Lending and RESPA. Unimproved land, regardless of ownership, doesn't trigger these protections. Also, unimproved land doesn't bring in the flood hazard rules. If the loan is to a consumer, you would have the basic Truth in Lending disclosures to make, however, not those triggered by a residential mortgage transaction. You would be able to follow the special rules for real estate transactions in 226.4(c)(7) which exempt certain fees from the finance charge.Whether the loan is to a consumer or to a business, Regulation B (Equal Credit Opportunity) would apply to the transaction. The key issue here would be signatures. Reg B would prohibit requiring signatures or guarantees based on marital status or other prohibited basis.Finally, Fair Credit Reporting, as interpreted and recently reinterpreted by the FTC, would apply to the transaction.

First published on BankersOnline.com 8/6/01

First published on 08/06/2001

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