Q: I Are there special disclosure rules available for transactions with simultaneous subordinate-lien loans?
A: Yes. Creditors may have options for disclosing transactions with simultaneous subordinate-lien loans. Those options apply to the disclosures for both the subordinate and first-lien loans. Some of these options include:
Use of alternative forms for the subordinate-lien disclosures. If the first-lien Closing Disclosure discloses the entirety of the seller’s transaction, subordinate-lien creditors are allowed to use the alternative Loan Estimate and Closing Disclosure when disclosing a subordinate-lien loan. If the subordinate-lien creditor uses the alternative Loan Estimate for the subordinate lien loan, it must also use the alternative Closing Disclosure for the subordinate lien loan. (§§ 1026.37(d)(2), 37(h)(2) and 1026.38(e); Comments 37(d)(2)-1, 37(h)(2)-1, 38(d)(2)-1, and 38(e)-1)
Modifications for the simultaneous subordinate-lien loan’s disclosures. If the Closing Disclosure for the first-lien loan discloses the entirety of the seller’s transaction, creditors are permitted to leave certain disclosures, such as the seller’s name and address, blank on the Closing Disclosure for the subordinate-lien loan. (See, for example, § 1026.38(t)(5)(vii) and Comments 37(a)(9)-1, 38(a)(4)-2, 38(k)-1, 38(t)(5)(vii)(B)-1, and 38(t)(5)(vii)(B)-2)
Special instructions when a simultaneous subordinate-lien loan is involved. Additionally, in all cases, even if the Closing Disclosure for the first-lien loan does not disclose the entirety of the seller’s transaction, there are still special instructions for how to disclose particular items on the Closing Disclosure subordinate-lien loan. There are also specific instructions for how to include the proceeds from the subordinate-lien funding in the Cash to Close Table on the first-lien loan’s Loan Estimate, as well as how to disclose the proceeds from subordinate-lien funding on the first-lien loan’s Closing Disclosure, including use of positive and negative numbers in these calculations. (See, for example, §§ 1026.37(h)(1)(iii)(A)(2), 38(e)(2)(ii), 38(e)(4)(ii), 38(i)(4)(ii)(A)(2), and Comments 19(f)(4)(i)-2, 37(h)(1)-2, 37(h)(1)(iii)-2, 37(h)(2)(iii)-2, 38(a)(3)(iii)-1, 38(d)(2)-1, 38(e)-1)
For more information about which disclosures a creditor can leave blank, modify, or have additional instructions for the subordinate-lien Loan Estimate or Closing Disclosure, see the TILA-RESPA Guide to Forms.