How Does The Truth in Lending Act Effect Your 1031 Property Exchange?

Passed in 1969, the Truth in Lending Act provides consumer protection in real estate lending and credit. If you are a real estate investor, whether it be a 1031 Property Exchange or not, it is important to know your rights when dealing with a lender.

The Truth in Lending Act was created so that consumers of lending products can understand and compare different loans and credit. The businesses that are regulated by the Truth in Lending Act are any company that provides, extends or offers consumer credit in the course of their normal business.

Annual Percentage Rate:

The Annual Percentage Rate is the key disclosure in the Truth in Lending Act. It states that the interest rate disclosed to the consumer must be the nominal rate of interest discounted over the life of the loan by the amount of prepaid finance charges

Rescission:

Regulation Z states that any credit extension on a personal residence (except for new construction) is rescindable. Any borrower has three days to rescind a contract for any purchase or refinance. This rescission period was designed to allow a buyer to rethink his purchase and the potential consequences of the contract while being allowed extra time to read, understand and interpret the disclosure statement. In order to rescind the contract, all the buyer needs to do is mail a notice of rescission to the lender within the three-day period.

The Mortgage Loan Disclosure Statement;

If a mortgage broker solicits a mortgage loan, Article 7 Chapter 3 of the California Real Estate Law requires the broker/lender to provide a mortgage loan disclosure statement. The contents of this statement are summarized in Section 102411 of the California Real Estate Law. This disclosure must be presented to the borrower and signed before the loan is finalized. The objective of the disclosure statement is similar to the Truth in Lending Act disclosure, although is intent to provide the borrower with an estimate of the loan proceeds available after all closing costs are deducted.

The Real Estate Settlement Procedures Act of 1974:

The Real Estate Settlement Procedures Act of 1974 was a disclosure act that required all the costs incurred by the buyer and seller of real estate loans to be disclosed at closing. At the time of the loan application a good-faith estimate of all costs were to be provided by the seller to the buyer. The lender must also provide a settlement costs booklet that details consumer information, the parties involved in the closing, and how the consumer can comparison shop the closing costs. In 1992, this act was amended, and now prohibits sellers from requiring buyers to use particular title companies.