[Federal Register Volume 60, Number 38 (Monday, February 27, 1995)]
[Rules and Regulations]
[Page 10762]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-4744]




[[Page 10761]]

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Part IX





Department of Housing and Urban Development





_______________________________________________________________________



Office of the Assistant Secretary for Housing--Federal Housing 
Commissioner



_______________________________________________________________________



24 CFR Part 3500



Real Estate Settlement Procedures Act; Business Purpose Loans; 
Interpretive Rule

  Federal Register / Vol. 60, No. 38 / Monday, February 27, 1995 / 
Rules and Regulations   
[[Page 10762]] 

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Office of the Assistant Secretary for Housing--Federal Housing 
Commissioner

24 CFR Part 3500

[Docket No. R-95-1774:FR-3805-I-01]


Real Estate Settlement Procedures Act; Business Purpose Loans; 
RESPA Interpretive Rule 1995-1

AGENCY: Office of the Assistant Secretary for Housing--Federal Housing 
Commissioner, HUD.

ACTION: Interpretive rule 1995-1.

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SUMMARY: This interpretive rule sets forth the Department's 
interpretation regarding Section 312 of the Riegle Community 
Development and Regulatory Reform Act of 1994 which amended the Real 
Estate Settlement Procedures Act (RESPA) by adding a new Section 7.

EFFECTIVE DATE: February 27, 1995.

FOR FURTHER INFORMATION CONTACT: David R. Williamson, Director, RESPA 
Enforcement Staff, Room 5241, Department of Housing and Urban 
Development, 451 Seventh Street, SW., Washington, DC 20410-8000, 
telephone (202) 708-4560. Hearing or speech-impaired individuals may 
call (202) 708-9300 (TDD) or 1-800-877-8339 (Federal Information Relay 
Service TDD). (Other than the ``800'' number, these telephone numbers 
are not toll-free.)

SUPPLEMENTARY INFORMATION: Section 312 of the Riegle Community 
Development and Regulatory Reform Act of 1994 (Pub. L. 103-324, 108 
Stat. 2160, approved September 23, 1994) (the 1994 Act) added a new 
Section 7 to the Real Estate Settlement Procedures Act (RESPA) (12 
U.S.C. 2601 et seq.) which states in relevant part: ``This Act [RESPA] 
does not apply to credit transactions involving extensions of credit--
(1) primarily for business, commercial, or agricultural purposes. * * * 
*''

    The legislative background of the amendment states:
    The language of the amendment is modeled after Sec. 226.3 of 
Regulation Z, the Truth in Lending Act regulation. The Conferees 
intend the Department of Housing and Urban Development, the agency 
responsible for RESPA regulation, to use the Truth in Lending Act as 
a basis for its regulations but also to retain discretion to define 
what constitutes a transaction ``primarily for a business, 
commercial or agriculture purpose.'' House Report 103-652, to 
accompany H.R. 3474, August 2, 1994, at page 172.

    On February 10, 1994, the Department published an amendment to 
Regulation X (59 FR 6505, revised on March 30, 1994, 59 FR 14748) (the 
1994 amendments) which implemented the Housing and Community 
Development Act of1992, and also created certain exemptions from 
coverage of RESPA. Under Sec. 3500.5 of that rule the exemption for 
business purpose loans is described as follows:

    (2) An extension of credit primarily for a business, commercial, 
or agricultural purpose. The definition of such an extension of 
credit for purposes of this exemption generally parallels Regulation 
Z, 12 CFR 226.3(a)(l), and persons may rely on Regulation Z in 
determining whether the exemption applies. Notwithstanding the 
foregoing, the exemption in this section for business purpose loans 
does not include any loan to one or more persons acting in an 
individual capacity (natural persons) to acquire, refinance, 
improve, or maintain 1- to 4-family residential property used, or to 
be used, to rent to other persons. An individual who voluntarily 
chooses to act as a sole proprietorship is not considered to be 
acting in an individual capacity for purposes of this part.

    Thus, the Department has already adopted the business, commercial 
and agricultural exemptions of RESPA as required by the new Section 7, 
with the exception of an ``individual'' undertaking financing 
transactions regarding 1-4 family residential rental properties. The 
RESPA statute and regulations had always covered 1 to 4 family 
residential properties, and presumably the second, third or fourth 
units were predominately used for rental purposes. In revising the 
RESPA rule in February 1994, the Department concluded that all 1 to 4 
family investment transactions by individuals, whether or not for 
owner-occupied properties, were substantially similar in character to 
the purchase or refinance transactions of individuals for occupancy 
purposes. Therefore, the Department determined that the RESPA 
protections ordinarily should be afforded to individual consumers 
(natural persons) in transactions involving 1 to 4 family residential 
mortgage loans. However, if an individual applies for the loan in the 
name of a sole proprietorship, and the lender will allow the loan to be 
closed in such name, the transaction is a business purpose loan and 
exempt from RESPA coverage.
    Accordingly, the Department is issuing Interpretive Rule-1995-1, to 
read as follows:

Section 3500.5(b)(2)  Coverage of RESPA

    After consideration of Section 312 of the Riegle Community 
Development and Regulatory Reform Act of 1994 (September 23, 1994), the 
Department reaffirms the determination set forth in its RESPA rule 
published on February 10, 1994, and amended on March 30, 1994, 
effective August 9, 1994, that transactions by individuals involving 1-
4 family residential rental properties are covered by RESPA. The 
Department concludes that this position as set forth in 
Sec. 3500.5(b)(2) is consistent with Section 7 of RESPA and its 
legislative history.

    Authority: 42 U.S.C. 3535(d).

    Dated: February 14, 1995.
Nicolas Retsinas,
Assistant Secretary for Housing, Federal Housing Commissioner.
[FR Doc. 95-4744 Filed 2-24-95; 8:45 am]
BILLING CODE 4210-27-P