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The credit agreement/note is the actual contract between you and the borrower. You are required to provide the applicant a disclosure that reflects the term of the loan for which they applied. It appears that the application disclosure is not consistent with the actual terms of the disclosure. If, at application, you tell the applicant that, “under no circumstances will your annual percentage rate exceed X% per annum, or go below X% per annum” and then the actual APR is outside of those parameters you have engaged in a deceptive act or practice.
You need to modify your application disclosure to be consistent with the terms actually offered to the borrower.
This will be an interesting conversation. We need to determine who is borrowing the money, who owns the mobile homes, and if the mobile homes are even considered dwellings.
Let’s start by gathering some information. Your topic is mobile homes to house workers. Who is borrowing the money – the employee, the employer or a third party? Are the mobile homes actually manufactured homes built according the HUD’s standards after June 15, 1976?
This will be an interesting conversation. We need to determine who is borrowing the money, who owns the mobile homes, and if the mobile homes are even considered dwellings.
Let’s start by gathering some information. Your topic is mobile homes to house workers. Who is borrowing the money – the employee, the employer or a third party? Are the mobile homes actually manufactured homes built according the HUD’s standards after June 15, 1976?
Flood insurance is not required for any structure that is a part of any residential property but is detached from the primary residential structure of such property and does not serve as a residence. The question is does your “bunk house” qualify as a residence. A residence is a structure that is intended for use or actually used as a residence, which generally includes sleeping, bathroom, or kitchen facilities. The definition does not require all three elements. It the structure contains sleeping, bathroom, OR kitchen facilities it is a residence.
Sandy,
You have asked a very reasonable question, but the answer gets complicated.
The information about the credit score is contained in Part II of the adverse action form. That section is governed by the Fair Credit Reporting Act (FCRA). The first checkbox in Part II is required by Section 615(a)(1) if a credit report is obtained and if the credit decision is based in whole or in part on information obtained in the report. According to the information you provided Section 615 (a)(1) is not needed since the credit decision was not based on the information in the report.
The following explains the special handling required for finance charges paid from the first draw. Comment 7(a)(6)(i) 8 states, “Start-up fees. Points, loan fees, and similar finance charges relating to the opening of the account that are paid prior to the issuance of the first periodic statement need not be disclosed on the periodic statement. If, however, these charges are financed as part of the plan, including charges that are paid out of the first advance, the charges must be disclosed as part of the finance charge on the first periodic statement. However, they need not be factored into the annual percentage rate. (See § 1026.14(c)(3).)”
However, document prep fees are generally excluded from the finance charge. Comment 4(c)(7) states that, “in a transaction secured by real property or in a residential mortgage transaction” certain fees can be excluded from the finance charge if the fees are bona fide and reasonable in amount. Excluded fees include:
(i) Fees for title examination, abstract of title, title insurance, property survey, and similar purposes.
(ii) FEES FOR PREPARING LOAN-RELATED DOCUMENTS, such as deeds, mortgages, and reconveyance or settlement documents.
(iii) Notary and credit-report fees.
(iv) PROPERTY APPRAISAL FEES OR FEES FOR INSPECTIONS TO ASSESS THE VALUE OR CONDITION OF THE PROPERTY IF THE SERVICE IS PERFORMED PRIOR TO CLOSING, INCLUDING FEES RELATED TO PEST-INFESTATION OR FLOOD-HAZARD DETERMINATIONS.
(v) Amounts required to be paid into escrow or trustee accounts if the amounts would not otherwise be included in the finance charge.I have heard a lot of complaints about 2.0 issues, but this is the first I have heard of this issue. I hope we hear from someone who has been through this.
Regulation Z requires new disclosures when an existing loan is refinanced. A refinancing occurs when an existing obligation is satisfied and replaced by a new obligation undertaken by the same consumer. Using a modification agreement changes the terms of the agreement, but does not satisfy and replace the existing obligation. For something as complicated as what you are proposing, we suggest handing the transaction as a refinance using a new note and providing new disclosures. However, the change can be handling as a modification. While new disclosures are not required in a modification, we suggest that the borrower receive a 10/1 ARM Disclosure, a loan Estimate, an a closing disclosure along with the modification.
First let me explain the difference between the 30- and 60-day periods.
If during the 30-day period following consummation an event occurs that causes the CD to become inaccurate, and results in a change to an amount actually paid by the consumer from that amount disclosed in the CD then deliver or place in the mail corrected disclosures not later than 30 days after receiving information sufficient to establish that such event has occurred.
If during the 30-day period following consummation an event occurs that causes non-numeric clerical errors then deliver or place in the mail corrected disclosures not later than 60 days after consummation.
An error is considered clerical if it does not affect a numerical disclosure and does not affect requirements imposed by § 1026.19(e) or (f).
• For example, if the disclosure identifies the incorrect settlement service provider as the recipient of a payment, then § 1026.19(f)(2)(iv) requires the creditor to deliver or place in the mail corrected disclosures reflecting the corrected non-numeric disclosure no later than 60 days after consummation.
• However, if, for example, the disclosure lists the wrong property address, which affects the delivery requirement imposed by § 1026.19(e) or (f), the error would not be considered clerical.The above rules apply to changes that occur after consummation, such as recording fees.
In your case, it appears that incorrect numbers appear on the borrower’s CD prepared by the bank. Those numbers are different than the numbers that appear on the CD prepared by the settlement agent and provided to the seller. For such an error you should correct the disclosure before consummation.
This problem is eliminated if the lender, as required by Regulation Z, prepares the CD and delivers it to the borrower at least three business days before consummation and to the settlement agent for delivery to the seller at closing. Then there is a single CD.
I suspect that you have two separate dwellings. You will need a policy on each dwelling. Your agent should be able to confirm after reviewing pictures of the buildings.
FEMA’s maximum amount of coverage is $250,000 for each residential structure, or a total of $500,000 in this case.
You should redisclose the Closing Disclosure showing the correct numbers on page one in the projected payments section and on page two in the other costs section (initial deposit). You should also provide the initial escrow disclosure required by RESPA.
The borrower was offered a set of terms, then the deal changes. If the initial terms were changed because the borrower didn’t qualify, so then different terms were offered and accepted you have a typical counteroffer. If the lender just changed his/her mind about the terms you may have a UDAAP problem – bait and switch.
The detached structure exemption is only available for a structure used primarily for personal, family, or household purposes. It appears that you have already determined the loan purpose is business. If you can show that the garage is not available for renters, it is only used for owner storage, for example, then you might be able to justify the detached structure exemption.
More information is needed. If the borrower rejected the initial terms and then was offered new terms, the action is a counteroffer. If the borrower was offered one set of terms, but based on underwriting a different set of terms is offered, then the lender’s counter offer may be adverse action. If the terms were changed without cause, the action may be a UDAAP violation.
Everything in Regulation B is about avoiding illegal discrimination. While most discrimination cases involve consumer transactions, discrimination can occur in a business transaction. For example, a minority individual may be borrowing money to start a business and is providing property (primary dwelling or rental property) as collateral for the loan. The property is appraised at a value that is less than market value and the loan is denied. The borrower receives a copy of the appraisal and can evaluate whether the apprised value is appropriate or not. If the appraisal is not supported by appropriate comps the borrower can request re-evaluation.
