Primary Residence is an Income-Producing Property

Answered by:

Question:

If you are lending funds (second mortgage) secured by a 1-4 family residential primary residence that is also "income-producing property"...can this be considered agricultural, making it exempt from RESPA and right of rescission? The funds were used to purchase a second home in another state.

Answer:

You have a loan for a consumer purpose. The collateral used does not change the loan's purpose which drives Reg. Z.

"Income-producing property" can mean a lot of different things. You'll need to review 226.3 and its Commentary to see if it qualifies for the rental exemption, but in my opinion it will not because the loan's purpose has nothing to do with acquiring, improving or maintaining rental property. You have a consumer purpose loan subject to all the provisions of Reg. Z.

First published on BankersOnline.com 1/9/06