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

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.

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 speechimpaired 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 tollfree.)

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 § 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 § 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 § 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