[Sandy]

We are doing a consumer home loan and are unsure for what Purpose for the loan to use. We had an applicant that is purchasing her mother’s house. The mother has an outstanding mortgage with our Bank. This payoff will be the amount of payoff of the loan. She came in on September 1st to apply for the loan. The next day we found out the property was transferred by deed to the applicant the next day September 2nd but it was transferred from the applicants brother to to the applicant. (At some point in time the mother transferred the property by deed to her son even though there was an outstanding mortgage with our Bank.) The LE was given with a Purchase Purpose. Since the applicant is now owner of the deed (but has proceeds have not been given to the seller) do we treat the loan as a Purchase on the LE and CD? Or do we say it is now Home Equity, using the equity in the property to payoff the loan? Do we give Right of Recission?

[jholzknecht]

Since the consumer already has title to the property, the purpose does not appear to be “purchase”. It appears that the proceeds of the loan will be used to pay the mother’s existing debt. This scenario appears consistent with a “refinance,” except that the old debt and the new debt don’t involve the same consumer. By default the purpose should be “home equity.”

You appear to have a changed circumstance, so a revised LE is appropriate. Both the revised LE and the CD should indicate the purpose is “home equity.”

Since the new loan is secured by property the consumer already owns, the transaction is subject to the right of rescission if the house is the consumer’s principal dwelling.

[Author]

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