Older Mother owns and lives alone in 1-4 family dwelling.

Mother's adult children want to borrow money to improve mother's home. They do not want mother to be obligated on loan as they want to pay for the HI project for her.

Lender wants loan secured by mother's home.

Can we have a home improvement loan to a set of borrwer's secured by somebody's else's home with proceeds to used to improve that other person's home?

Any concerns with this?

I don't see why not. As long as the borrower's meet your credit standards and the collateral meet your LTV limitations I think this could be a do-able thing. Of course if they don't pay it do you want to put mom out on the street?

I agree with Duchess. What I question is - why would mom be out on the street if the kids do not repay their debt. The lien would be against their home not mom's. Or did I miss something?

I re-read the post and I think I did misunderstand.....if mom's property is being used to secure someone else's loan the Mom and anyone else on title to her home will need to enter into a Right of Recission. If the borrowers are not putting their own homes up for collateral they will only need to sign the note and not be entered into right of recission.

Ditto. I can take a loan out on your house as long as you sign off on the mortgage.

I think it's great that the kids want to do this for mom. They probably stand to inherit so it's a good bet they'll pay and keep the roof over her head.

Thanks for the responses!

So ROR would apply to the Mom? Even though she is not obligated on the loan, the fact that she has an ownership interest (principal dwelling) in the home securing the loan and new money is being provided (for home improvement), this triggers ROR?

Yes. Mom is in title and therefore has to have the cooling off period to cancel the transaction if she so desires.

Kids do NOT get the ROR unless they are on title and live with her.

Being from Texas, I would run this situation by an attorney as well. I don't think there is anything in the constitution that would actually prohibit this (referring to Article 16 Section 50), however Texas statute does define "home loan" as "secured by the borrower's principal dwelling", which in this case it is not.

Just to be on the safe side....

Thanks again for your responses!

Interestingly, if utilizing the R/E Loan Matrix (I believe it's the one provided in the toolbox here in this site) to identify what regulations are triggered/applicable, it doesn't show ROR to be triggered.

According to the the matrix (from Banker's Compliance Consulting), the following items are applicable: RESPA, TIL Disclosure, HMDA, Flood, Appraisal Disclosure.

Early TIL and TIL ROR are not shown to be applicable.

Nonetheless, despite what the matrix provides on this particular loan scenario, I can see how/why ROR would apply to the mother.

Again, thanks for the responses!

You can find the Real Estate matrix Glutes is referring to here:
http://www.bankerscompliance.com/compliance-resources/freedownloads.htm

What row are you referring to Glutes? Since the mother is pledging her home, I would use the 3rd row from the top [1-4 dwelling (less than 25 acres)/ Primary Residence/ Home Improvement]. This DOES show to give a RofR.

Thanks for the response David.

It looks like we are referring to different rows which is why I am not getting ROR. I am not using the row you are referring to.

In utilizing the matrix (nice matrix by the way, I've found it to be a very useful tool), I was in the same security type segment you're in (1-4 dwelling less than 25 acres) but under "use of security" I chose differently. In determining which "use of security" segment to choose, I've always done so from the perspective of the borrower's use. Since the borrower's are the children and they do not own or live in the house, I did not choose "Primary Residence" since they do not use the dwelling as their primary residence (even though momma does). Since the borrower's do not rent out the house, I didn't choose "Rental House". As a result, I was left with the "Other" in "Secondary or Other Residence". From this segment I chose "Purchase, Refinance, or Improvement" for the use of loan proceeds segment.

Have I been selecting the "use of security" segment incorrectly when choosing based on how the borrower uses the security?

The "use of security" should be based on how the owner uses it.

In this case the owner of the property meets the definition of a consumer for ROR purposes. It's her primary residence and you are taking a security interest in it. She not only gets the ROR but she also gets a copy of the material disclosures (TIL).

Dan's right. I designed the matrix with the following motto: "bump up". IOW, if you have 2 homes as collateral - one primary and one vacation home, BUMP UP, to the highest row. In your scenario, you have an owner occupied dwelling (Mom's) that is above the row you would have choses. So BUMP UP to the most conservative answer.

I hope that helps.

Yes it does help David.

Again, I was selecting the "use of security" segment based on "borrower's" use and not "owner's" use.

Fortunately, as it relates to RE secured loans, all our "borrower's" have been the "owners" of the security so even if I was incorrectly selecting "use of security" based on borrower's use, the borrower has always been the owner as well. This is the first loan here that I've come across where the borrower is NOT the owner of the property securing the loan, thus exposing my incorrect basis for selecting "use of security" when using the matrix.

Thanks again gentlemen as always for the responses and the clarification.