Just double checked with processing, definitely consumer purpose. Buying a third home (Wyoming Ranch) and refi'ing condo in Hawaii. Dan, you almost hit it right on. I am very impressed

Bec...I still think you can work around this on this particular loan since the borrower is a trust. (as described above)

You have to be careful with revocable trusts. Some courts have treated them basically as disregarded entities when it comes to Reg. Z. They really need legal counsel involved in this $5MM transaction.

Then I would bet that it's just a set-up issue. I'm not sure what software you are using but I know LaserPro would allow it, and Dan is using ARTA. Your vendor should be able to tell you what change needs to be made in order to enter the correct payment stream.

Thanks all for your input.

RLcarey, we do have legal council working on this with us, just trying to work out the particulars but can I ask what you mean by "disregarded entities".

I didn't think that this could be a bug in how we set things up. I will relay that concern to loan ops.

Thanks again all, you have really helped me through this!

You need to read some of the court cases on this issue, such as this one and others cited in this document:

http://www.gfrlaw.com/files/upload/SFX45F.pdf

You will find the view that the courts are leaning toward regarding these revocable living trusts, such as this statement:

"These cases rely on the particular nature of a revocable living (or intervivos ) trust as a modern method of estate planning to hold property. Because a settlor of a revocable living trust retains an unlimited right to revoke any conveyance to the revocable living trust, it has an unfettered ownership interest even though title is legally held by the trust. See id. Because Paul retained a right of revocation, he was free to revoke the trust at any point in time. Accordingly, he maintained an ownership interest in his residence, even though a revocable trust held title to the property. ") (emphasis in original). "A revocable trust is a unique type of transfer. . . . (When a settlor sets up a revocable trust, he or she has the right to recall or end the trust at any time, and thereby regain absolute ownership of the trust property. This retention of control over property distinguishes a revocable trust from the other types of conveyances."

Plus, most banks will not make a loan solely to a revocable trust, as if the trust is revoked, who are you going to collect from? So, the settlors of the trust are also usually placed on the hook, as in this court case. Also notice this court case is from Hawaii.

I had the same concern as Randy above, but a quick search justified a loan made only to the Rev Trust would still be exempt from Z based on this comment to proposed changes to that rule:

http://www.federalreserve.gov/SECRS/2011...835515795_1.pdf

Having said that...court cases going against that is mighty scary!

RR - you might want to read the proposal and not a comment letter:

"As discussed in detail below, under Sec. 226.3(a), the Board is proposing to clarify that credit extensions to revocable living trusts for a consumer purpose are consumer credit, even though a trust is not a natural person."

The FED was trying in 2010 to get the regulation inline with the court rulings as they must agree with the court's reasonings. I can only imagine the CFPB will eventually go the same route.

Agree, RL...as mentioned, something was niggling my brain re: natural persons...couldn't find a reference in the reg, so did a quick search "revocable trust and Reg Z" and that's what I found.

I agree they were trying to change that at that time. I didn't see any court rulings, so I found nothing to say Revocable, Irrevocable, etc., trusts deemed to be natural persons...yet.

Did you click on the court case that I linked? It also contains a number of references to other cases.

Yes, thank you for the reference, Randy.

We are having the trustees sign as individuals as well which is why we have to do cover this loan with the consumer regs. Which is fine by me since I totally see your point on the fact that they can revoke the trust at any time and we're left holding the bag is it were.

I suppose it is "easier" to call it just a trust and not have to jump through the reg z/RESPA hoops but it is better for the bank?

For many years common legal advice has been to treat loans to revocable trusts as consumer purpose (assuming the purpose would otherwise be consumer of course).

I suppose it is "easier" to call it just a trust and not have to jump through the reg z/RESPA hoops but it is better for the bank?

Easier yes. However, if your courts follow these other courts, if you end up in court over the loan, you are going to lose. Easier is not better in this case. You cannot turn a blind eye to how the courts and the regulators (through their proposed changes) actually view this situation. The legal arguments that the consumer retains an ownership interest in the property when a revokable trust is involved would be very hard to beat.