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HELOCs and Kentucky law don’t mix well. Whoever told you that fees are a matter of state law was correct. The question is which state law. Rates and fees on a loan are usury issues. Lenders in Kentucky can choose to make a HELOC under a number of statues. Many choose to lend under the Credit Union statute, which sound unusual, but is very common. That statute allows charges not exceeded 2% per month. The issue that is not clear is whether the 2% rate is limited to interest or does it include other charges, such as those your bank plans to impose. The safe interpretation is to include all charges in the total.
You need to determine which lending statute your bank has chosen to lend under. You may need to research minutes back to the 1980s to make that determination. Once you identified the statute you need to research the rate and fee limits under the statute and make sure your bank is operating safely within those limits.
Where property taxes are shown on the HUD-1 is an old question that has been much debated.
Property taxes that are apportioned at closing are generally disclosed on page in the 100/400 series or the 200/500 series. Property taxes that are escrowed for the next year go in the 1000 series on page 2. Past due property taxes do not appear on the form since they are not a settlement charge.
The treatment of past due taxes changes in August 2015 since everything that impacts cash due at closing has to appear on the form.
The answer to this this question can vary depending on the nature of the trust agreement, and the answer today may differ from the answer after August 1, 2015. Section 1026.3 of Regulation Z provides exemptions from coverage.
Comment 10 states, effective August 1, 2015, “10. Trusts. Credit extended for consumer purposes to certain trusts is considered to be credit extended to a natural person rather than credit extended to an organization. Specifically:
i. Trusts for tax or estate planning purposes. In some instances, a creditor may extend credit for consumer purposes to a trust that a consumer has created for tax or estate planning purposes (or both). Consumers sometimes place their assets in trust, with themselves or themselves and their families or other prospective heirs as beneficiaries, to obtain certain tax benefits and to facilitate the future administration of their estates. During their lifetimes, however, such consumers may continue to use the assets and/or income of such trusts as their property. A creditor extending credit to finance the acquisition of, for example, a consumer’s dwelling that is held in such a trust, or to refinance existing debt secured by such a dwelling, may prepare the note, security instrument, and similar loan documents for execution by a trustee, rather than the beneficiaries of the trust. Regardless of the capacity or capacities in which the loan documents are executed, assuming the transaction is primarily for personal, family, or household purposes, the transaction is subject to the regulation because in substance (if not form) consumer credit is being extended.
ii. Land trusts. In some jurisdictions, a financial institution financing a residential real estate transaction for an individual uses a land trust mechanism. Title to the property is conveyed to the land trust for which the financial institution itself is trustee. The underlying installment note is executed by the financial institution in its capacity as trustee and payment is secured by a trust deed, reflecting title in the financial institution as trustee. In some instances, the consumer executes a personal guaranty of the indebtedness. The note provides that it is payable only out of the property specifically described in the trust deed and that the trustee has no personal liability on the note. Assuming the transactions are primarily for personal, family, or household purposes, these transactions are subject to the regulation because in substance (if not form) consumer credit is being extended.”
For either of two types of trusts mentioned above you treat the transaction as a consume transaction. In other types of trusts the result may be different.
Unless otherwise exempt, for the two types of trusts it appears that the consumer has the right to rescind, but who actually signs the rescission form is not clear. Remember the rescission notice does not have to be signed by anyone, but many get the signature as evidence that the rescission notice was received.If you are getting the form signed, the safe course of action may be to have both the consumer and the trustee sign it.
The Commentary quoted above indicates that the transaction should be treated as a covered transaction with the consumer rather than am exempt transaction to the trust. That supports having the consumer sign the documents. Since the trust does not occupy the residence as a principal dwelling it would not make sense to have the trust sign the document.
The reg states, “For a consumer credit transaction secured by a dwelling, a loan originator organization must include on the loan documents described in paragraph (g)(2) of this section, whenever each such loan document is provided to a consumer or presented to a consumer for signature…” In your transaction Since the existing mortgage is not “provided to a consumer or presented to the consumer for signature” it appears the LO’s name and number is not needed. Different facts might result in a different answer.
Most note forms contain language that allow the creditor to add certain charges to a loan, after consummation; a typical example would be unpaid premiums due for required property insurance. Check the language of your note form. Determine what charges may be added to the loan under the language of your note. It would be unusual to have language so broad that it allows for unpaid charges related to another loan to be added to the vehicle secured loan.
Comment 37(a(10) – 3.i. states,
3. Periods not in whole years.
i. Terms of 24 months or more. For product types and features that have introductory periods or adjustment periods that do not equate to a number of whole years, if the period is a number of months that is 24 or greater and does not equate to a whole number of years, § 1026.37(a)(10) requires disclosure of the whole number of years followed by a decimal point with the remaining months rounded to two places.None of the examples in the regulation or in the Commentary and none of the sample forms include an example that contains a balloon period that is not an exact number of years. But the Comment cited above indicates that the balloon period should be stated as 5.17 for your example when the term is not a whole number of years and the term is 24 months or more.
The article included sample language from a FNMA note. Your vendor should be able to provide similar language. Check with the company or person that provides your mortgage to determine if the mortgage needs the language or not. Generally if the mortgage contains details regarding the variable-rate feature it should include language regarding the look back period. If the mortgage refers to the note for the details of the variable rate feature, then the mortgage probably does not need the look back language.
Section 1026.19(e)(4) requires delivery of the revised Loan Estimate within three business days of receiving information sufficient to establish a reason for providing the revised disclosure. The revised Loan Estimate does not have to be provided seven business days before disclosure.
Section 1026.19(e)(4)(ii) requires that the consumer must receive a revised Loan Estimate no later than four business days prior to consummation, and provides that if the revised disclosures are not provided to the consumer in person, the consumer is considered to have received the revised version of the disclosures three business days after the creditor delivers or places in the mail the revised disclosures. If, however, there are less than four business days between the time the revised version of the disclosures is required to be provided and consummation, creditors comply with the requirements if the revised disclosures are reflected in the Closing Disclosure.
Example: If the creditor is scheduled to meet with the consumer and provide the Closing Disclosure on Wednesday, and the APR becomes inaccurate on Tuesday, the creditor complies with the redisclosure requirements by providing the Closing Disclosure reflecting the revised APR on Wednesday. However, the creditor does not comply with the redisclosure requirements if it provided both a revised version of the Loan Estimate reflecting the revised APR on Wednesday, and also provides the Closing Disclosures on Wednesday.
An evaluation will not work for a loan subject to 1026.36(c), an appraisal is required. Regulation Z does not address the issue of reusing an existing appraisal. If the existing appraisal is to be used it must meet the requirements of 1026.35(c)(3). You also need to consider the Interagency Appraisal Guidelines (FIRREA) and your bank policy.
The transaction may be exempt under 1026.35(c)(2) (i.e. less than $25,000, QM, etc.) so no appraisal would be required by Regulation Z.
You must provide a written notice a reasonable time (10 days is considered reasonable) before completion of the transaction. You must obtain a record of receipt of the notice. From your description it appears that the record of receipt indicates the notice is given at closing. You record of receipt should indicate that the borrower received the notice a reasonable period before completion of the transaction.
The early TIL and GFE do not require written acknowledgement of receipt so your procedures for those forms may be adequate. The Flood Hazard Notice is one of the few forms that require written acknowledgement.
The pertinent sections of the flood regulations are listed below.
§ 339.9 Notice of special flood hazards and availability of federal disaster relief assistance.
(a) Notice requirement. When a bank makes, increases, extends, or renews a loan secured by a building or a mobile home located or to be located in a special flood hazard area, the bank shall mail or deliver a written notice to the borrower and to the servicer in all cases whether or not flood insurance is available under the Act for the collateral securing the loan.(c) Timing of notice. The bank shall provide the notice required by paragraph (a) of this section to the borrower within a reasonable time before the completion of the transaction, and to the servicer as promptly as practicable after the bank provides notice to the borrower and in any event no later than the time the bank provides other similar notices to the servicer concerning hazard insurance and taxes. Notice to the servicer may be made electronically or may take the form of a copy of the notice to the borrower.
(d) Record of receipt. The bank shall retain a record of the receipt of the notices by the borrower and the servicer for the period of time the bank owns the loan.
I agree with your analysis. Common sense would indicate that the cure amount should be applied to the loan balance, but this compliance and there is no room for commonsense in compliance. This seems to be case where the regulation is underdeveloped. It does not provide special rules for special situations.
Credit reporting is optional. The Fair Credit Reporting Act does not require you to report any loan, but establishes rules for reporting, if you decide to report a particular loan.
The Equal Credit Opportunity Act requires credit history that may be reported to reflect the participation of both spouses if the applicant’s spouse is permitted to use or is contractually liable on the account.
Please understand that a loan secured by rental property can be a consumer transaction subject to the ATR rules. Also home purchase loans, home improvement loans and refinancings are HMDA reportable even if made to a business.
It seems that your actual question is, what income is reportable for HMDA purposes? HMDA requires you report the gross annual income relied on in evaluating the creditworthiness of applicants. With your mention of depreciation it appears the borrower is a business. If the borrower or applicant is a corporation, partnership or other entity that is not a natural person the instructions for the HMDA LAR.
