When is a Bridge Loan Exempt from RESPA?

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Question:

When is a bridge loan exempt from RESPA? I know the standard answer is "bridge or swing loans where a lender takes a security interest in property that would otherwise be covered are exempt". I'm looking for guidelines. Is there a max term? Does it have to be secured by both the property being purchased and the property they are trying to sell? I have a loan that is for twelve months and is secured only by the property being purchased. Would this be covered or exempt?

Answer:

Answer by David Dickinson:RESPA doesn't give us any guidance other than to say "A bridge loan . . . . is not covered by RESPA and this part." [Section 3500.5(b)(3)] It is commonly understood that a bridge loan is the gap financing between the purchase of the new home and the sell of the current home. Since this term is not defined, you don't have to say "it must be secured by the current dwelling or both dwellings." I believe you have an exempt loan.

Answer:

Answer by Lucy Griffin:A bridge loan is generally understood to mean financing that bridges the gap between sale and purchase. Since RESPA only applies to loans that are secured by dwellings, any other type of security would never trigger RESPA. When the security is taken in a dwelling, usually the one being sold, the financing is understood to be temporary, pending the sale, to enable the purchase, so bridge loans are exempted along with other temporary financing while RESPA focuses on the long-term or real mortgage.

First published on BankersOnline.com 3/22/10