At Docutech we strive to continually find solutions for issues that affect our industry. Since the introduction of the TRID rule, we have worked to provide both these solutions, as well as plain language explanations for our regulatory interpretations. One of the questions we have been repeatedly receiving concerns our decision to list trusts as borrowers on the Closing Disclosure. If you will follow what we’ve come to call the ‘bouncing referential ball’, denoted through the use of italics, you will see our reasoning.
We started with the Fannie Mae Selling Guide, https://www.fanniemae.com/content/guide/selling/b8/5/02.html, which defines the Responsible Borrower in an Inter Vivos Revocable Trust in Exhibit E-2-05, Revocable Trust Rider (Sample Language), includes sample language for a revocable trust rider. This rider (or a similar one appropriately modified to reflect the requirements of specific states) avoids ambiguities for mortgages made to inter vivos revocable trusts by clarifying who is considered to be “the borrower” with respect to any given covenant in the security instrument.
Instead of using a revocable trust rider, the lender may either:
- amend the security instrument to include appropriate definitions and language similar in substance to Fannie Mae’s sample rider, or
- use the standard security instrument without such an amendment or the rider.
The applicable language from E-2-05: Revocable Trust Rider (Sample Language) is as follows:
The term “Borrower” when used in the Security Instrument shall refer to the Revocable Trust Trustee(s), the Revocable Trust Settlor(s), and the Revocable Trust, jointly and severally.
There is also language in §1026.38(a)(4), Transaction Information, that states that under the heading ‘Borrower’ it should list the “The consumer’s name and mailing address, labeled “Borrower.”
Comment 1 of the Official Interpretation to 38(a)(4) then states that for multiple borrowers and sellers “[t]he name and address of each consumer and seller in the transaction must be provided under the heading “Transaction Information.” If the form does not provide enough space to include the required information for each consumer and seller, an additional page may be used and appended to the end of the form provided that the creditor complies with the requirements of § 1026.38(t)(3). For additional guidance on disclosing multiple borrowers, see comment 37(a)(5)-1.” [Emphasis added]
Regulation Z defines “Consumer” 12 CFR 1026.2(a)(11) as “a cardholder or natural person to whom consumer credit is offered or extended. However, for purposes of rescission under §§ 1026.15 and 1026.23, the term also includes a natural person in whose principal dwelling a security interest is or will be retained or acquired, if that person’s ownership interest in the dwelling is or will be subject to the security interest.” [Emphasis added]
“Person” is defined in 12 CFR 1026.2(a)(22) as “a natural person or an organization, including a corporation, partnership, proprietorship, association, cooperative, estate, trust, or government unit.” [Emphasis added]
In Comment 3 of the Official Interpretation to §1026.38(a)(22) it states that a “trust and its trustee are considered to be the same person for purposes of this part.”
While we believe our interpretation is a valid one, we also believe that other interpretations could be just as valid. So while we use this as a basis for our actions currently we reserve the right to reassess our position should the CFPB provide further guidance or clarification on this issue.