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Thursday, October 9, 2014

Seller Concessions on Final TIL


QUESTION
We are a lender with a question regarding seller concessions at closing and the inclusion of seller paid fees on the final Truth-in-Lending and Itemization of Amount Financed. Perhaps the best way to ask the question is by example. 

A loan closed with $2,400.00 in seller concessions. At the time we closed the loan, in our LOS system, we marked the following fees as paid by seller: $900.00 origination fee, $800.00 lender attorney fee, $700.00 abstract fee. By marking these fees as paid by seller, the LOS system does not include those fees in the final Truth-in-Lending or Itemization of Amount Financed. 

Should those fees have been included on the final TIL and Itemization of Amount Financed?

ANSWER
The $700.00 abstract fee is not a finance charge and should not be included on the final TIL or Itemization of Amount Financed. [12 CFR 1026.4(c)(7)] With respect to the $900.00 origination fee and the $800.00 lender attorney fee, unless the lender has a written agreement with the seller obligating the seller to pay the fees on behalf of borrower, the origination and bank attorney fees should have been included on the final TIL and Itemization of Amount Financed.

Under Regulation Z, seller’s points are excluded from the finance charge. Seller’s points include any charges imposed by the creditor upon the non-creditor seller of property for providing credit to the buyer or for providing credit on certain terms. 

With respect to other seller paid amounts paid at or before consummation or settlement on behalf of the borrower by a non-creditor seller,

“The creditor should treat the payment made by the seller as seller's points and exclude it from the finance charge if, based on the seller's payment, the consumer is not legally bound to the creditor for the charge.” [Supplement I to Part 1026 – Official Interpretation at Section 1026.4, paragraph 4(c)(5)(emphasis added)]

So, only if the consumer is “not legally bound to the creditor for the charge”, can the amounts paid by seller be excluded. 

In many instances, the seller concession is provided for in the purchase agreement. However, this is an agreement between the seller and buyer/borrower, not the seller and creditor. It does not obligate the seller to the creditor nor does it absolve the buyer/borrower of his obligation to pay the charge to the creditor. As stated above, in order for the fees to be excluded from the finance charge, there would have to be a written agreement between the seller and creditor obligating the seller to pay the charges and confirming that, based upon the seller’s payment, the borrower is not legally bound to the creditor for the charge.

Joyce Wilkins Pollison
Director/Legal & Regulatory Compliance
Lenders Compliance Group