We are extending a bridge loan that will be secured by the borrowers’ current home and a new home that is being purchased. The borrowers’ current home is owned by three people — two borrowers who reside there and a third individual who does not reside there and is not a borrower on the bridge loan. Our loan documentation system (LaserPro) added the third person to the Closing Disclosure. However, we do not believe the third individual is entitled to receive the Closing Disclosure since they are not a borrower and are not entitled to rescind the transaction. Can you confirm that this is correct, and that Illinois law does not require the third person in this scenario to receive the Closing Disclosure?

Sep 9, 2019

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Yes, we agree that the third individual in this scenario should not be included in the Closing Disclosure, since they are not a borrower on the bridge loan and a security interest is not being taken in their principal dwelling. While this individual may need to sign certain documents to perfect your bank’s lien on their ownership interest in the loan collateral (the exact documents would depend on how your loan documentation system structures the mortgage and note), we do not believe that the Closing Disclosure is required.

Regulation Z requires that a Closing Disclosure be provided to a “consumer,” which is defined as a person to whom credit is offered or extended. Regulation Z also requires that a Closing Disclosure be provided to each consumer who has a right to rescind the transaction. For the purposes of the right of rescission, the term “consumer” also includes a person whose principal dwelling is or will be security for a loan, and who has an ownership interest in their principal dwelling.

Here, although the third person has an ownership interest in one of the properties securing the bridge loan, they do not use the property as their principal dwelling, and they are not a borrower on the loan. Consequently, the third person is not entitled to receive the Closing Disclosure or to rescind the transaction.

We also are not aware of any Illinois law that would require you to provide the third person with a copy of the Closing Disclosure, and in fact, in this case providing the non-customer with your customers’ Closing Disclosure actually might be a prohibited disclosure of their non-public personal financial information under both federal and Illinois law (unless they consent to the disclosure). As such, if you are not able to remove the third person from the Closing Disclosure, you may wish to contact your customer service representative at LaserPro to discuss this matter further.

For resources related to our guidance, please see:

Regulation Z, Official Interpretations, Paragraph 38(a)(4), Comment 4 (“Section 1026.38(a)(4)(i) requires disclosure of the consumer’s name and mailing address, labeled ‘Borrower.’ For purposes of § 1026.38(a)(4)(i), the term ‘consumer’ is limited to persons to whom the credit is offered or extended.”)

Regulation Z, 12 CFR 1026.17(d) (“If there is more than one consumer, the disclosures may be made to any consumer who is primarily liable on the obligation. If the transaction is rescindable under § 1026.23, however, the disclosures shall be made to each consumer who has the right to rescind.”)

Regulation Z, 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.”)

Regulation Z, 12 CFR 1026.23(a)(1) (“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.”)

Regulation Z, Official Interpretations, Paragraph 23(a)(1), Comment 2 (“To be a consumer within the meaning of § 1026.2, that person must at least have an ownership interest in the dwelling that is encumbered by the creditor's security interest, although that person need not be a signatory to the credit agreement. For example, if only one spouse signs a credit contract, the other spouse is a consumer if the ownership interest of that spouse is subject to the security interest.”)

Regulation P, 12 CFR 1016.10(a) (“Except as otherwise authorized in this part, you may not, directly or through any affiliate, disclose any nonpublic personal information about a consumer to a nonaffiliated third party unless: . . .”)

Illinois Banking Act, 205 ILCS 5/48.1(c) (“Except as otherwise provided by this Act, a bank may not disclose to any person, except to the customer or his duly authorized agent, any financial records or financial information obtained from financial records relating to that customer of that bank unless: . . .”)