Truth In Lending Disclosure-Private Lender

[Sandy Blanton]

Bill Gulley Does anyone know if a private individual who funds mortgages is required to provide a TIL? If so, and they failed to do so, what are the penalties? Thanks.

[Bill Gulley]

A private individuak is an individual and if they are in the business of making loans, yes they could be coverd, if not in business, say your sister makes you a loan, no, as there are exemptions under the TIL and you is covered. Not sure today of exemptions, but I believe that's where it falls, I always provided the disclosure. IMO, it would be good to do so aside from family loans. :)

[Hans Restuccia]

Very good question- I can never get a firm answer to such questions but I am told that if it is a commercial loan for business purposes you are exempt from the TILA Act and you do not have to provide the TIL- However, I always do in the abundance of caution- anybody else have a comment on this????

[Joffrey Long]

Hans,

For TILA, it applies to the following:

1) It applies to extensions of credit where the borrower is a CONSUMER.

A consumer has to be a "natural person" which eliminates LLC's and other entities, except for trusts that are family trusts or merely a legal extension of a consumer's person that primarily functions in the same manner as the consumer.

2) It applies to extensions of credit for CONSUMER purposes. So, where I personally qualify as a consumer when I'm buying a house to live in, for example, if I'm buying an investment property, even if I buy as an individual, it's not a consumer transaction.

3) It only applies to lenders who are CREDITORS. Ok, what's a creditor? I do not agree that it just applies to individuals who "are in the business of making loans." The definitions get more complex here, and some individuals who are not in the business of making loans may still be found to be creditors. You will have to look this one up. Google "Truth in Lending Act" and the look for "Definitions" and read the definition for "Creditor."

Hans, don't believe a word I say or take action on what I recommend, except for this recommendation that you seek qualified legal counsel on this, before making any decision.

I will also advise that you cover yourself against (untrue) claims that a loan was NOT for business purpose and was for consumer purpose, even though something in your lender paperwork said it was for non-consumer purpose.

Hope all this helps. Again, check with people who are qualified to give you advice. This is all just to provoke questions and get you doing your homework.

And by the way, you ask many really good questions, in my humble opinion.

Joffrey Long

P.S. To Sandy Blanton's earlier questions, I gave my opinion of part 1, but part 2 of your question, "what are the penalties?"

The answer is, that there is first the penalty of rescission. Rescission is where, even 2.5 years after the loan is made, the borrower simply pays back the principal only and all interest, points and other finance charges are refunded to borrower.

There are conditions to rescind, ( whew, spelled that right) so you have to look those up, and there are other penalties too, for failing to provide the TILA disclosures.

One interesting thing in the HUGE world of borrower litigation, many borrowers do not raise TILA claims as much any more, due to the fact they prefer to stay in State Courts (TILA being Federal) where the atmosphere may be more friendly to anti-lender litigation.

[Hans Restuccia]

Joffrey Long-

brilliant- thank you very much!

[Joffrey Long]

And one more thing: I forgot.

I would also recommend against giving TILA disclosures in cases where the loan isn't really a TILA loan. The theory of "giving the TILA disclosures as a precaution and for good measure" could backfire. (No good deed goes unpunished.) But here's why:

In this world of Consumer Financial Protection Bureau and and the fight against "Unfair and Deceptive Activities and Practices (UDAP), giving the TILA disclosures could lead you into a confusing and hard to defend situation. I'd only give them when they're due. If a loan is confusing, dig deeper and find out if it's a dog or a cat, a TILA loan or a non-TILA loan.

[Hans Restuccia]

Joffrey,

Do you know the answer to the following question?

- do you wait 3 business days after the GFE to close for a business loan to a business entity or is that loan exempt?

[Joffrey Long]

Again, check this out with qualified counsel, but purely to provoke thought and questions on your part:

RESPA, the law that mandates the whole GFE procedures, applies to "consumer loans secured by 1-4 family residences."

A business loan is not a consumer loan.

Also, a loan to a business entity, by it's nature, can't be a consumer loan, since consumer loans can only be made to consumers.

So in my book, your described loan transaction "fails" to need a GFE for not one, but two reasons.

Again, check with those who are truly qualified to answer this.

Joffrey

[Hans Restuccia]

Thank you Joffrey- that was my understanding as well but you hear different things and that is why I wanted to get feedback from those in the profession.