From what you have told us, it is likely that RESPA will apply to this loan, and Regulation Z will not. Because Regulation Z applies only to natural persons, we believe that Regulation Z would not apply to a loan where the borrower is a limited liability company (LLC). However, RESPA would likely apply to the loan (since it is not likely to qualify as a business loan) — RESPA does not have a similar exemption for loans made to LLCs and other entities that are not natural persons.
Truth in Lending Act (TILA) — Regulation Z
Extensions of credit that are not made to natural persons are exempt from Regulation Z. 12 CFR 1026.3(a)(2). The staff commentary to the rule states that this Regulation Z exemption applies “regardless of the purpose of the credit extension . . . .” Official Interpretations, 12 CFR 1026, Paragraph 3(a), Comment 9. Because the borrower here is an LLC, and not a natural person, Regulation Z would not apply.
Real Estate Settlement Procedures Act (RESPA) — Regulation X
Unless there are circumstances beyond the facts that you have given us to suggest that the loan is for a business purpose, we believe that RESPA likely applies to this loan.
RESPA does not have a similar exemption from coverage for loans that are not made to natural persons. It does exempt business loans — those made “primarily for business, commercial or agricultural purposes.” To define “business, commercial, or agricultural purposes,” the RESPA regulations refer to Regulation Z’s definition of business-purpose credit in 12 CFR 1026.3(a)(1) (but without reference to the exclusion based on whether the borrower is a natural person in 12 CFR 1026.3(a)(2)). 12 CFR 1024.5(b).
To determine whether the loan is for “business, commercial, or agricultural purposes,” the official comments to Regulation Z require you to examine several factors. Official Interpretations, 12 CFR 1026, Paragraph 3(a), Comment 3. If the LLC’s owner is purchasing the home as a primary residence, we do not believe that any of these factors would point towards treating the loan as a business purpose loan:
“A. The relationship of the borrower’s primary occupation to the acquisition. The more closely related, the more likely it is to be business purpose.
“B. The degree to which the borrower will personally manage the acquisition. The more personal involvement there is, the more likely it is to be business purpose.
“C. The ratio of income from the acquisition to the total income of the borrower. The higher the ratio, the more likely it is to be business purpose.
“D. The size of the transaction. The larger the transaction, the more likely it is to be business purpose.
“E. The borrower's statement of purpose for the loan.”