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
