IBA Compliance Connection

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We have a loan secured by a first mortgage on a commercial property and a second mortgage on the borrowers’ primary residence. The second mortgage on the residence was added to the transaction as an abundance of caution. The proceeds of this loan will be used to pay off the borrowers’ personal debt. Do the TILA-RESPA integrated disclosure (TRID) disclosure requirements and the right of rescission apply in this case?

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Yes, we believe the TILA-RESPA disclosure requirements and right of rescission would apply in this case, as discussed in more detail below.

The TRID rules apply to most closed-end consumer credit transactions secured by real property. Regulation Z defines the phrase “consumer credit” to mean credit offered or extended to a consumer primarily for personal, family, or household purposes.

Certain transactions are not covered by the TRID rules, such as commercial purpose loans, HELOC, reverse mortgages, loans made by creditors making five or fewer loans per year, mobile home loans and no-interest second mortgages made for down payment assistance, or for energy efficiency or foreclosure avoidance. However, we are not aware of an exemption for a covered consumer transaction that is secured by both a residential and a commercial property. As this is a covered consumer loan secured by the consumer’s primary residence, we believe the TRID disclosure requirements would apply in this case.

Regarding the right to rescission, while there are certain exceptions, Regulation Z generally provides a right to rescind a credit transaction when a consumer’s ownership interest in a principal dwelling will be subject to a security interest. Again, based on the facts provided, none of the exceptions would apply. Therefore, we believe your borrower also would have Regulation Z’s right of rescission.

For resources related to our guidance, please see:

  • 12 CFR 1026.2(a)(11) (“Consumer means a cardholder or natural person to whom consumer credit is offered or extended. However, for purposes of rescission under §§ 1026.15 and 1026.23, the term also includes a natural person in whose principal dwelling a security interest is or will be retained or acquired, if that person's ownership interest in the dwelling is or will be subject to the security interest.”)
  • 12 CFR 1026.2(a)(12) (“Consumer credit means credit offered or extended to a consumer primarily for personal, family, or household purposes.”)
  • 12 CFR 1026.23(a) (“In a credit transaction in which a security interest is or will be retained or acquired in a consumer's principal dwelling, each consumer whose ownership interest is or will be subject to the security interest shall have the right to rescind the transaction, except for transactions described in paragraph (f) of this section.”)