[Chris]

We occasionally have loans with collateral that is pledged by a grantor who is not a borrower (for example, a son takes out a loan and the son’s parents pledge their house as collateral). In these cases, we have operated under the presumption that the grantor’s information should be on the “Protect My Kentucky Home” disclosure, since it is the grantor’s home that secures the loan, and the grantor’s home that would be foreclosed on in the event of default. Our loan software has not always accommodated this method, and would instead print the borrower’s information on the disclosure. Our method to overcome this was to simply draft our own version of the disclosure with the grantor’s information, manually (outside of the loan software). Based on the information from our loan software, would our interpretation be incorrect? (I.e. should we continue to operate the way we are currently doing, or should we just rely on our loan software and assume that whatever it prints is accurate?)

Here is the information for how our loan software has documented this in their customer resource center:

Problem – You are documenting a loan secured by 1-4 family real estate or a mobile home located in Kentucky. The Kentucky Homeownership Protection Center Notification to Homeowners is Printing for the Borrowers, but not the Grantors.

Solution:
This is by design based on Kentucky Revised Statute Section 2:9 Closing Practices, which states:
“Lenders are required to disclose to borrowers the availability of the Kentucky Homeownership Protection Center by providing at the time of closing and with the final signed loan documents ay brochure or other document prepared or approved by the Kentucky Housing Corporation.” [Ky. Rev. Stat. Ann. ~286.2-020.]

The Kentucky Department of Financial Institution also states:
“This (notice) shall be provided at the time of closing and together with the final signed loan documents – one copy to the borrower and one copy maintained in the lender’s files.”

However, we are tracking Change Request ### to enhance the program to print Grantor information on the document, rather than Borrower information. Please submit a case through Case Management to increment Change Request ###.”

[rcooper]

The issue is that the KRS, 286 or 198A, does not define borrower or homeowner for purposes of this requirement and further confuses the issue by assuming that the borrower is always the owner of the collateral (i.e. the homeowner). See KRS 198A.400.

Based on the required disclosure language below, my understanding and I think the safe approach is to provide the disclosure to any homeowner, even if he/she/they are not the borrower.

286.2-020 Required disclosure of services provided by Kentucky Homeownership
Protection Center.
(1) “Kentucky Homeownership Protection Center” means the center established in KRS
198A.400.
(2) At the time of closing and together with the final signed loan documents, if the
Kentucky Homeownership Protection Center is operational as provided in KRS
198A.400, a mortgagee shall provide to the homeowner any brochure, pamphlet, or other brief document prepared or approved by the Kentucky Housing Corporation that describes the services provided by the Kentucky Homeownership Protection Center.
Effective: April 24, 2008
History: Created 2008 Ky. Acts ch. 175, sec. 2, effective April 24, 2008.

[Author]

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