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We are working on a consumer application to finish constructing a shop building on a lot next to their primary residence. Our system requires a MLA if we choose “other RE” but does not if we choose “1-4 family”. It is not a home/residence, only a shop on a lot next to their home. Which would be the better way to go? Thank you!
From MLA expert, Rebekah Leonard:
Good question! Residential mortgages are fully exempt from MLA coverage, which means any dwelling-secured loan would NOT be subject to MLA requirements. See Exception #2, here: eCFR :: 32 CFR 232.3 — Definitions. :
(2) Exceptions. Notwithstanding paragraph (f)(1) of this section, consumer credit does not mean:
(i) A residential mortgage, which is any credit transaction secured by an interest in a dwelling, including a transaction to finance the purchase or initial construction of the dwelling, any refinance transaction, home equity loan or line of credit, or reverse mortgage;
Also, the CFPB has a great info sheet and handy flow chart, here: cfpb_MLA_hybrid_chart (consumerfinance.gov)
In your situation, so long as your collateral does NOT include the residence, you are exempt from MLA. You can always voluntarily choose to extend MLA rights in such a situation, but you are not required to do so.
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