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Investment property transactions are covered by the TRID rule if the transaction is primarily for a consumer purpose. The TRID rule does not eliminate the business purpose exemption from Regulation Z or RESPA. If a loan is primarily for a business purpose (eg… Z and RESPA and must comply with the TRID rule.
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We have a customer who wants to finance the construction of a barn on his homestead property. The loan officer says this is business purpose because the customer will have a horse operation in the barn and earn additional income (he has a full time job). I disagree and believe TRID applies.
To explain this, it is important to understand that the TRID purposes have a “waterfall” - or hierarchy - that determines which purpose should be listed on the Loan Estimate when multiple purposes are present. The TRID loan purpose waterfall (hierarchy) is as follows: One, purchase; two, refinance; three, construction; and four, home equity loan.
Loan purpose for TRID is not intuitive and NOT the same as HMDA. It follows a “flow” so start at the top at purchase and go in order through the categories – when you find the application’s purpose, stop! There is no need to go further – there is no “mixed purpose”.
If the loan has a business or agricultural purpose, that loan would not be subject to the TRID rule because it would exempt from Regulation Z generally. What is a TILA violation? Material violations that are grounds for damages include, but are not limited to, improper disclosure of amount financed, finance charge, payment schedule, total of payments, annual percentage rate, and security interest disclosures.
In other words, if the loan is extended to an entity as opposed to an individual, then TILA will not apply. Second, loans primarily for a business or commercial purpose are exempt.
Second, loans primarily for a business or commercial purpose are exempt. However, this exemption is more nuanced than the exemption for loans to non-natural persons. The Official Commentary to Regulation Z, the implementing regulation of TILA, sets forth guidance for determining whether a loan can be considered to be primarily for a business purpose.
consumer purpose? TRID does not apply to loans to entities. TRID does not apply to business-purpose loans. Is the applicant a natural person? REMEMBER TRID applies to construction-only loans and loans secured by vacant land or by 25 or more acres. Credit extended to certain trusts for tax or estate planning purposes are also covered by TRID.
Reg Z does not pertain since it's not a natural person, however, it is consumer purpose secured by dirt (RESPA). The loan officer considers this a business loan since the debt and property are held in the name of the company rather than the individual. January 26, 2017.
If the funds will be used for a business purpose, then the TILA-RESPA rule do not apply. As a lender, our attorney advised us to request a use of funds letter and to verify that the primary use of funds being received for the loan is going to be used for business purpose.