# Amendments to Regulation X, the Real Estate Settlement Procedures Act Regulation (Subordinate Liens), Final Rule; Correction > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A94-7490 ## Record - **Collection:** Federal Register - **Document type:** Uncategorized Document - **Published:** March 30, 1994 ## Text DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT Office of the Assistant Secretary for Housing-Federal Housing Commissioner 24 CFR Part 3500 [Docket No. R-94-1653; FR-3382-C-04] RIN 2502-AG13 Amendments to Regulation X, the Real Estate Settlement Procedures Act Regulation (Subordinate Liens), Final Rule; Correction AGENCY: Office of the Assistant Secretary for Housing-Federal Housing Commissioner, HUD. ACTION: Final rule; correction. ----------------------------------------------------------------------- SUMMARY: The Department is publishing corrections to the final rule on Amendments to Regulation X, the Real Estate Settlement Procedures Act Regulation (Subordinate Liens), published February 10, 1994 (59 FR 6505). DATES: Effective date: August 9, 1994, except that the corrections and clarifications in Sec. 3500.5(b) are effective upon publication. FOR FURTHER INFORMATION CONTACT: Grant E. Mitchell, Senior Attorney for RESPA, Office of General Counsel, room 10252 (202) 708-1550, Department of Housing and Urban Development, 451 Seventh Street, SW., Washington, DC 20410-0500. The TDD number is (202) 708-4594. (These are not toll- free numbers.) SUPPLEMENTARY INFORMATION: Background On February 10, 1994, the Department issued amendments to its regulations to implement sections 908 and 951 of the Housing and Community Development Act of 1992 (Pub. L. 102-550, approved October 28, 1992) (Act). That Act expanded the coverage of RESPA to include mortgages secured by subordinate liens, and restated the Department's authority over refinancing transactions. The Department's final rule of February 10, 1994 adopted certain definitions and disclosure requirements of the Truth in Lending Act (TILA) and its implementing regulation, Regulation Z, to minimize the burden on lenders and others in complying with different or conflicting definitions and disclosure requirements for transactions also covered by the TILA. Need for Correction As published, the preamble and the final rule contain material that may be misleading and is in need of correction or clarification. For example, some readers have erroneously interpreted a provision in the preamble (at the end of the first column of 59 FR 6508) that was intended to clarify treatment of certain specific owner-occupied programs of the Federal Housing Administration (FHA) as modifying the entire business purpose exemption. With one exception, the business purpose exemption of Regulation X extends to all business purpose transactions exempted under Regulation Z, and persons may rely on Regulation Z in determining whether the exemption applies. The one exception is loans to individuals to acquire, refinance, improve, or maintain 1- to 4-family residential properties used, or to be used, for rental purposes; these transactions have been determined by the Department to be covered by RESPA. An individual who has voluntarily chosen to act as a sole proprietorship is not considered an individual under the exception to the business purpose exemption; however, a lender may not require sole proprietorship status as a condition for making the loan. The preamble has been amended by isolating the FHA- related language, and clarifying language is included in Sec. 3500.5(b)(2) of the rule. Questions have also been raised regarding the title of the HUD-1A form--Optional Form for Transactions without Sellers. It is called ``optional,'' which is synonymous with ``alternative'' in this context, because the HUD-1 can be used for all transactions, using the borrower's side of the form where there is no seller, or the HUD-1A can be used for borrower-only transactions. As clarified in this correction, pursuant to Sec. 3500.8, one or the other of these forms must be used, except for open-end lines of credit (home equity plans) under the Truth in Lending Act and Regulation Z, for which neither form is required. On the HUD-1A, unlike the HUD-1, there is no reference to assumption fees, because no such fees are contemplated in refinance or subordinate lien transactions. By this document, however, the Department also clarifies that it has no objection if form or software companies leave line 807 blank on the HUD-1A and use line 808 for mortgage broker fees, so that the treatment of disclosure in the HUD-1 and HUD-1A is more parallel. Correction of Publication Accordingly, FR Doc. 94-3035, the final rule (FR-3382) on Amendments to Regulation X, the Real Estate Settlement Procedures Act Regulation (Subordinate Liens), published on February 10, 1994 (59 FR 6505), is corrected as follows: 1. On page 6508, in the first column, in the preamble, at the end of the first paragraph under Item 7, the following two sentences are added: The exemptions requested in comments (a), (c), and (d) were effectively adopted as part of the business purpose exemption. Comment (b) was not adopted in its entirety, because the Department chose not to exempt loans to individuals (natural persons) to acquire, refinance, improve, or maintain 1- to 4-family residential rental properties. 2. On page 6508, in the second paragraph under Item 7 in the preamble, the first sentence is removed and the following sentence is substituted in its place: The Department decided generally to adopt the ``business purpose'' exemption of Regulation Z, but does not include in the business purpose exemption a loan to one or more natural persons to acquire, refinance, improve or maintain 1- to 4-family residential properties used or to be used for rental purposes. An individual choosing to act as a sole proprietorship is not an individual under this rule. 3. On page 6508, in the first column and continuing in the second column, in the third paragraph under Item 7 in the preamble, the last two sentences in the paragraph are removed and a new Item 7A is added in their place, to include the following heading and text: 7A. FHA-Related Transactions Questions have arisen under the eligibility standards of certain FHA owner-occupancy programs where both an individual and a living trust (or a corporation, association, or partnership) are named on the note or deed. For purposes of the relevant FHA programs, this dual denomination on the note or deed continues to satisfy the owner- occupied program definitions. These transactions are covered by RESPA. Sec. 3500.2 [Corrected] 4. On page 6511, in the third column, in the definition in Sec. 3500.2 of ``federally related mortgage loan'', the last sentence in paragraph (2) is removed from paragraph (2) and is redesignated as a separate paragraph (3). Sec. 3500.5 [Corrected] 5. On page 6512, in the third column, in Sec. 3500.5, paragraph (b)(1)(ii) is corrected by removing the word ``and'' at the end of the paragraph and adding the word ``or'' in its place. 6. On page 6512, in the third column, and continuing on page 6513, in the first column, in Sec. 3500.5, paragraph (b)(2) is clarified by removing the period before the last sentence and adding a comma in its place, and by removing the last sentence and by adding the following clause and two sentences in its place: (b) * * * (2) * * * * * * 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. * * * * * Sec. 3500.7 [Corrected] 7. On page 6514, in the second column, in Sec. 3500.7, paragraph (f) is corrected by removing the parentheses in the citation ``12 CFR 226.5(b)'', to read ``12 CFR 226.5b''. Sec. 3500.8 [Corrected] 8. On page 6514, in the second column, in Sec. 3500.8, the last sentence of paragraph (a) is removed and the following two sentences are added in its place: (a) * * * Either the HUD-1 or the HUD-1A, as appropriate, shall be used for every RESPA-covered transaction, unless its use is specifically exempted, but the HUD-1 or HUD-1A may be modified as permitted under this part. The use of the HUD-1 or HUD-1A is exempted for open-end lines of credit (home-equity plans) covered by the Truth in Lending Act and Regulation Z. * * * * * Sec. 3500.9 [Corrected] 9. On page 6515, in the first column, in Sec. 3500.9, paragraph (b) is corrected by removing the clause ``paragraphs (a)(3), (6), and (11)'' at the end of the section and adding in its place the clause ``paragraphs (a)(3) and (6)''. Authority: 12 U.S.C. 2601 et seq. Dated: March 24, 1994. Nicolas P. Retsinas, Assistant Secretary for Housing-Federal Housing Commissioner. [FR Doc. 94-7490 Filed 3-29-94; 8:45 am] BILLING CODE 4210-27-P --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A94-7490. Public record. Not legal advice.