Do we have to follow the TRID requirements for a consumer loan secured by ten acres of property and a cabin with no indoor bathroom that will be vacant 95% of the time? The borrower intends to visit the property only a few times a year to get out of the city and fish and will not be using the cabin as a personal residence. However, the borrower may rent it out through Airbnb at some point in the future.

We believe you must provide the borrower with disclosures under the TILA-RESPA Integrated Disclosure (TRID) rule.

Regulation Z requires creditors to provide borrowers with a loan estimate and closing disclosure under the TRID rule for each “closed-end consumer credit transaction secured by real property or a cooperative unit, other than a reverse mortgage.” It is not necessary that borrowers use the property as their principal residence, and the property securing the loan need only qualify as real property — so the lack of an indoor bathroom would not affect this analysis.

“Consumer credit” is defined as “credit offered or extended to a consumer primarily for personal, family, or household purposes.” Regulation Z’s Official Interpretations list five factors to consider when determining whether credit is exempt from coverage due to being primarily for a business or commercial purpose: (1) the relationship of the borrower’s primary occupation to the acquisition, (2) the degree to which the borrower will personally manage the acquisition, (3) the ratio of income from the acquisition to the total income of the borrower, (4) the size of the transaction, and (5) the borrower’s statement of purpose for the loan. We do not believe that the borrower’s indeterminate plans to rent out the property at some point in the future would qualify this loan as having a primarily business or commercial purpose.

Also, the fact that your borrower plans to occupy the property just a few times a year and may use it for fishing purposes would not automatically disqualify the loan from being considered a consumer loan. Regulation Z’s Official Interpretations apply special rules to non-owner occupied rental property and, in that context, clarify that if an owner expects to occupy property for more than fourteen days, it “cannot be considered non-owner-occupied.” And, while Regulation Z exempts extensions of credit made primarily for agricultural purposes, we do not believe that the use of property for recreational fishing would qualify for this exemption. Accordingly, we believe you must treat this loan as a closed-end consumer credit transaction secured by real property and provide disclosures under the TRID rule.

Given that credit extended to acquire a “rental property” is deemed to be for business purposes if it is “non-owner-occupied” (meaning that the owner does not intend to occupy the property for more than fourteen days in the coming year), it may be worth inquiring about the owner’s plans to rent out the property and whether they intend to occupy it for more than fourteen days in the coming year.

For resources related to our guidance, please see:

Regulation Z, 12 CFR 1026.19(e)(1)(i) (“In a closed-end consumer credit transaction secured by real property or a cooperative unit, other than a reverse mortgage subject to § 1026.33, the creditor shall provide the consumer with good faith estimates of the disclosures in § 1026.37.”)

Regulation Z, 12 CFR 1026.19(f)(1)(i) (“In a transaction subject to paragraph (e)(1)(i) of this section, the creditor shall provide the consumer with the disclosures required under § 1026.38 reflecting the actual terms of the transaction.”)

Regulation Z, 12 CFR 1026.2(a)(12) (“Consumer credit means credit offered or extended to a consumer primarily for personal, family, or household purposes.”)

Regulation Z, 12 CFR 1026.3 (“The following transactions are not subject to this part or, if the exemption is limited to specified provisions of this part, are not subject to those provisions:

(a) Business, commercial, agricultural, or organizational credit.

(1) An extension of credit primarily for a business, commercial or agricultural purpose.

(2) An extension of credit to other than a natural person, including credit to government agencies or instrumentalities.”)

Regulation Z, Official Interpretations, Paragraph 3(a), Comment 3 (“In determining whether credit to finance an acquisition — such as securities, antiques, or art — is primarily for business or commercial purposes (as opposed to a consumer purpose), the following factors should be considered:

i. General.

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.”)

Regulation Z, Official Interpretations, Paragraph 3(a), Comment 4 (“Non-owner-occupied rental property. Credit extended to acquire, improve, or maintain rental property (regardless of the number of housing units) that is not owner-occupied is deemed to be for business purposes. This includes, for example, the acquisition of a warehouse that will be leased or a single-family house that will be rented to another person to live in. If the owner expects to occupy the property for more than 14 days during the coming year, the property cannot be considered non-owner-occupied and this special rule will not apply. For example, a beach house that the owner will occupy for a month in the coming summer and rent out the rest of the year is owner occupied and is not governed by this special rule. (See comment 3(a)-5, however, for rules relating to owner-occupied rental property.)”)

Regulation Z, Official Interpretations, Paragraph 3(a), Comment 8 (“An agricultural purpose includes the planting, propagating, nurturing, harvesting, catching, storing, exhibiting, marketing, transporting, processing, or manufacturing of food, beverages (including alcoholic beverages), flowers, trees, livestock, poultry, bees, wildlife, fish, or shellfish by a natural person engaged in farming, fishing, or growing crops, flowers, trees, livestock, poultry, bees, or wildlife. The exemption also applies to a transaction involving real property that includes a dwelling (for example, the purchase of a farm with a homestead) if the transaction is primarily for agricultural purposes.”)