Truth in Lending (Regulation Z); Consumer Protections for Home Sales Financed Under Contracts for Deed, 68086-68090 [2024-18620]
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Federal Register / Vol. 89, No. 164 / Friday, August 23, 2024 / Rules and Regulations
exemptions,’’ or 10 CFR part 37 Subpart
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Requirements During Use,’’ and Subpart
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• The licensee has a written analysis
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Licensees must comply with all other
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CFR 37.11(a), for material that may not
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submitted before the NRC inspects the
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This interim policy will remain in
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IV. Paperwork Reduction Act
This revision to the Policy does not
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0214.
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VI. Congressional Review Act
This policy is a rule as defined in the
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801–808). However, the Office of
Management and Budget has not found
it to be a major rule as defined in the
Congressional Review Act.
Dated: August 15, 2024.
For the Nuclear Regulatory Commission.
Carrie Safford,
Secretary of the Commission.
[FR Doc. 2024–18669 Filed 8–22–24; 8:45 am]
BILLING CODE 7590–01–P
CONSUMER FINANCIAL PROTECTION
BUREAU
12 CFR Part 1026
Truth in Lending (Regulation Z);
Consumer Protections for Home Sales
Financed Under Contracts for Deed
Consumer Financial Protection
Bureau.
ACTION: Advisory opinion.
AGENCY:
This advisory opinion affirms
the current applicability of consumer
protections and creditor obligations
under the Truth in Lending Act (TILA)
and its implementing Regulation Z to
SUMMARY:
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transactions in which a consumer
purchases a home under a ‘‘contract for
deed.’’ When a creditor sells a home to
a buyer under a contract for deed, that
transaction will generally meet TILA
and Regulation Z’s definition of credit.
Where the transaction is secured by the
buyer’s dwelling, the buyer will also
generally be entitled to the protections
associated with residential mortgage
loans under TILA.
DATES: This advisory opinion is
applicable as of August 23, 2024.
FOR FURTHER INFORMATION CONTACT:
George Karithanom, Regulatory
Implementation & Guidance Program
Analyst, Office of Regulations, at 202–
435–7700 or at: https://reginquiries.
consumerfinance.gov/. If you require
this document in an alternative
electronic format, please contact CFPB_
Accessibility@cfpb.gov.
SUPPLEMENTARY INFORMATION: The
Consumer Financial Protection Bureau
(CFPB) is issuing this advisory opinion
through the procedures for its Advisory
Opinions Policy.1 Refer to those
procedures for more information.
I. Advisory Opinion
A. Background
The CFPB is issuing this advisory
opinion to affirm the applicability of
certain consumer protections under the
Truth in Lending Act (TILA) and its
implementing Regulation Z to
transactions in which a consumer
purchases a home under a ‘‘contract for
deed.’’ Broadly speaking, TILA protects
consumers engaged in credit
transactions by requiring creditors to
disclose information about the costs and
terms of the credit, and, where the
credit is secured by the consumer’s
dwelling, provides additional
protections. The CFPB has previously
identified certain contracts for deed as
consumer credit under the Consumer
Financial Protection Act (CFPA),2
which uses a substantially similar
definition of credit. Consistent with that
earlier application of the CFPA, this
advisory opinion clarifies how the CFPB
understands the current application of
TILA and Regulation Z to contracts for
deed.
1. Contract for Deed Overview and
History
A contract for deed is a type of home
loan, alternatively called a ‘‘land
contract,’’ ‘‘land installment contract,’’
‘‘land sales contract,’’ ‘‘bond for deed,’’
1 85
FR 77987 (Dec. 3, 2020).
Order, In re Harbour Portfolio Advisors
et al., CFPB No. 2020–BCFP–0004 (June 23, 2020),
¶ 4.
2 Consent
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‘‘agreement for deed,’’ or ‘‘buying on
contract.’’ Home loans commonly
referred to as contracts for deed, which
this advisory opinion refers to as
‘‘contracts for deed,’’ tend to have a few
key features. In a typical contract for
deed, a homebuyer agrees to make
periodic payments to the home seller,
and the seller retains the deed to the
property until the loan is fully repaid.3
Loan terms vary but often range from 5
to 30 years and may include balloon
payments. Properties are often
purchased ‘‘as is,’’ without inspection or
appraisal, and may have property
condition issues that prevent them from
being suitable for rental or qualifying for
mainstream mortgage financing.
Additionally, because the sales price of
the home may not be tied to appraisal
or other typical market measures, the
sales price may be inflated. During the
repayment period, the buyer has the
exclusive right to occupy the home and
often assumes many of the
responsibilities of homeownership,
including paying for taxes, insurance,
home maintenance, and repairs.4
Another common feature is a
forfeiture clause that can be triggered if
the borrower fails to meet the terms of
the contract. In these scenarios, the
contract is canceled, the seller retakes
possession of the property, and the
buyer generally forfeits their entire
investment—including their
downpayment, principal payments, and
any increase in home equity, including
home equity that the buyer generated by
making property improvements.5 In
some contracts, a single missed payment
is enough to trigger these losses.
Forfeiture clauses can also be triggered
by breaches unrelated to payment
status, such as when a borrower fails to
pay taxes, is unable to obtain or
maintain insurance, or does not make
improvements to the property within a
specified timeframe.6 While some states
restrict forfeiture and require
foreclosure, others have allowed
‘‘virtually unrestricted use of forfeiture
clauses.’’ 7
2. TILA Legislative History
Congress first enacted TILA, 15 U.S.C.
1601 et seq., in 1968 intending ‘‘to
assure a meaningful disclosure of credit
terms’’ and ‘‘avoid the uninformed use
of credit, and to protect the consumer
against inaccurate and unfair credit
billing and credit card practices.’’ 8 As
industry commenters noted at the time,
TILA’s disclosure regime could help ‘‘a
prospective mortgage borrower [ ]
consider the relative costs of credit
offered by . . . various purchase
arrangements, for example, contract for
deed or an FHA-insured mortgage’’
when purchasing a home.9
In 1994, Congress amended TILA by
enacting the Home Ownership and
Equity Protection Act (HOEPA) to
require special disclosures and
restrictions for high-cost mortgage loans
secured by the consumer’s principal
dwelling.10 In the wake of the 2008
financial crisis, in which widespread
mortgage loan defaults produced a wave
of foreclosures and systemic economic
instability, Congress passed the DoddFrank Wall Street Reform and Consumer
Protection Act (Dodd-Frank Act) which
added additional protections to TILA, as
well as establishing the CFPB under the
Consumer Financial Protection Act.11
New TILA sections added by the
Dodd-Frank Act required creditors to
make good-faith assessments of
consumers’ ability to repay loans
secured by their dwellings, imposed
new standards on mortgage disclosures,
and prohibited certain practices,
including mandatory arbitration clauses
and waivers of Federal causes of action
in consumer credit transactions secured
by a dwelling.12 The Dodd-Frank Act
also expanded the scope of HOEPA
coverage and protections. In the Senate
Report accompanying the Dodd-Frank
Act, Congress cited the ‘‘proliferation of
poorly underwritten mortgages with
abusive terms,’’ made ‘‘with little or no
regard for a borrower’s understanding of
the terms [ ], or their ability to repay,’’
as precipitators of the financial crisis
and motivation for the Act’s financial
8 15
U.S.C. 1601.
in Lending Act: Hearings Before the
Subcomm. on Financial Institutions of the S.
Comm. on Banking and Currency, 90th Cong., 1st
Sess. (Apr. 18, 1967) (testimony of Darrel M. Holt,
Mortgage Bankers Association of America).
10 15 U.S.C. 1602(bb), 1639.
11 Public Law 111–203, 124 Stat. 1376 (2010).
12 Sections 1411, 1412, and 1414 of the DoddFrank Act, codified at 15 U.S.C. 1639c; sections
1418, 1420, 1463, and 1464 of the Dodd-Frank Act,
codified at 12 U.S.C. 2605; 15 U.S.C. 1638, 1638a,
1639f, and 1639g. Other protections apply to
servicing practices, such as prompt payment
processing, no pyramiding of late fees, and loan
originator qualification requirements. See 12 CFR
1026.36(c), (d), (f).
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9 Truth
3 More complex arrangements exist, such as those
where the buyer pays the seller’s agent.
4 See Joint Center for Housing Studies of Harvard
University, The American Dream or Just an
Illusion? Understanding Land Contract Trends in
the Midwest Pre- and Post-Crisis (Aug. 2019),
https://www.jchsharvard.edu/sites/default/files/
media/imp/harvard_jchs_housing_tenure_
symposium_carpenter_george_nelson.pdf.
5 Id.
6 Id.
7 See The Pew Charitable Trusts, Summary of
State Land Contract Statutes (Apr. 30, 2021),
https://www.pewtrusts.org/-/media/assets/2022/02/
summary-of-state-land-contract-statutes.pdf.
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reforms.13 Congress explained that,
because of failures in consumer
protection, ‘‘millions of Americans have
lost their homes,’’ 14 and quoted expert
testimony that ‘‘a plague of abusive and
unaffordable mortgages and exploitative
credit cards . . . cost millions of
responsible consumers their homes,
their savings, and their dignity.’’ 15
B. Legal Analysis
1. Because contracts for deed allow
buyers to acquire property and defer the
payment, contracts for deed are
generally ‘‘credit’’ under TILA and
Regulation Z.
a. Credit Under TILA
TILA’s definition of ‘‘credit’’ includes
the typical contract for deed. TILA and
Regulation Z define credit as ‘‘the right
granted [by a creditor to a debtor] to
defer payment of debt or to incur debt
and defer its payment.’’ 16 TILA and
Regulation Z do not define debt. Used
infrequently in the statute and the
regulation, ‘‘debt’’ for the most part
appears only in the definition of
‘‘credit.’’ As the CFPB has noted
elsewhere,17 in the ordinary usage, debt
means simply ‘‘something owed,’’
without any obvious limitation.18 Legal
dictionaries, including those dating to
the enactment of TILA, similarly
describe debt as a ‘‘sum of money due
by certain and express agreement’’ or ‘‘a
financial liability or obligation owed by
one person, the debtor, to another, the
creditor.’’ 19 This understanding of
‘‘debt,’’ as any obligation by a consumer
to pay another party, applies to
contracts for deed in a straightforward
manner.
13 S.
Rept. No. 176, 111th Cong. (2010), at 11, 12.
at 9.
15 Id., n.19 (quoting Testimony of Michael Barr,
Assistant Secretary of the Treasury for Financial
Institutions, to the Senate Committee on Banking,
Housing, and Urban Affairs, July 14, 2009).
16 15 U.S.C. 1602(f), 12 CFR 1026.2(a)(14).
Whether a seller is a ‘‘creditor’’ under TILA and
Regulation Z depends on several factors, discussed
below, at section I.B.3.
17 Proposed rule, Truth in Lending (Regulation Z);
Consumer Credit Offered to Borrowers in Advance
of Expected Receipt of Compensation for Work, 89
FR 61358 (July 31, 2024), https://files.consumer
finance.gov/f/documents/cfpb_paycheck-advancemarketplace_proposed-interpretive-rule_202407.pdf.
18 Debt, Merriam-Webster, https://www.merriamwebster.com/dictionary/debt (last updated Jan. 30,
2024).
19 Debt, Black’s Law Dictionary (4th ed. 1968)
(defining debt as ‘‘[a] sum of money due by certain
and express agreement; as by bond for a
determinate sum, a bill or note, a special bargain,
or a rent reserved on a lease, where the amount is
fixed and specific, and does not depend upon any
subsequent valuation to settle it’’); Debt, Wex,
https://www.law.cornell.edu/wex/debt (last updated
Sept. 2021).
14 Id.
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In a typical contract-for-deed
transaction, as discussed above, a debt
is created by the buyer receiving
exclusive possession of the property,
along with certain ownership
obligations, at the outset of the contract
in exchange for the obligation to repay
the agreed-upon value of that property
over time.20 Courts applying common
law doctrines have broadly recognized
these property-related rights and
obligations under the contract for deed
as constituting a grant of equitable title
to the buyer.21 In exchange for these
rights granted in the property, the
purchaser agrees to complete payment
on a deferred basis. The contractual
obligation to repay the agreed-upon
value of the property according to the
terms of the contract, therefore,
constitutes a debt under TILA. From the
20 This is distinct from lease-based rental
arrangements, even those involving an eventual
right to purchase (often called ‘‘lease-to-own’’),
because the lessee’s legal interest, privileges, and
obligations in the property are more limited in
scope, while the lessor retains both ownership
obligations and title. Many lease-to-own products
also require a separate agreement to effectuate a
purchase option, allowing for complete
performance of the original contract without
necessarily transferring property ownership. In a
typical contract for deed, complete performance
includes the transfer of full legal ownership.
Regardless of how the arrangement is styled, courts
have generally looked to the function of the
transaction and intent of the parties to determine
its nature. See, e.g., Gilliland v. Port Auth. of City
of St. Paul, 270 NW2d 743, 747 (Minn. 1978) (‘‘To
break the transaction into two separate parts, a sale
and a lease, would be to distort its real nature and
to ignore the intent of the parties.’’); In re
Montgomery Ward, L.L.C., 469 B.R. 522, 529 (Bankr.
D. Del. 2012) (‘‘Courts must analyze the ‘economic
reality’ of the agreement at issue to determine its
true nature.’’). Depending on their terms, such
leases, as well as contracts for deed, may be
considered ‘‘credit sales’’ covered under TILA and
Regulation Z. 15 U.S.C. 1602(h); 12 CFR
1026.2(a)(16).
21 In re Restivo Auto Body, Inc., 772 F.3d 168, 177
(4th Cir. 2014) (‘‘upon contracting to buy land, ‘in
equity the vendee becomes the owner of the land,
the vendor of the purchase money’ ’’) (internal
citation omitted); Hauben v. Harmon, 605 F.2d 920,
925 (5th Cir. 1979) (‘‘Under the doctrine of
equitable conversion a purchaser of realty becomes
seized of beneficial title to the property upon
execution of the contract of sale.’’); In re Blanchard,
819 F.3d 981, 985 (7th Cir. 2016) (‘‘Under
Wisconsin’s doctrine of equitable conversion, a
land contract buyer obtains equitable title to the
property, which includes ‘all the incidents of a real
ownership.’ ’’) (internal citation omitted);
Redevelopment Agency of City of Stockton v. BNSF
Ry. Co., 643 F.3d 668, 678 (9th Cir. 2011) (‘‘The
doctrine of equitable conversion generally provides
that when a valid executory land sales contract is
entered into, the purchaser becomes the equitable
owner of the land.’’); In re Hodes, 402 F.3d 1005,
1011 (10th Cir. 2005); SMS Assocs. v. Clay, 868 F.
Supp. 337, 340 (D.D.C. 1994), aff’d, 70 F.3d 638
(D.C. Cir. 1995). Even where some courts have
declined to view a contract for deed as transferring
equitable title, they nonetheless acknowledge that
the purchaser has received possession in exchange
for the promise of payment. See, e.g., In re Wall Tire
Distributors, Inc., 110 B.R. 614, 618 (Bankr. M.D.
Ga. 1990).
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face of the typical contract for deed, it
will be clear that the seller has granted
to the purchaser ‘‘the right . . . to
defer’’ payment of this debt.
b. Closed-End Credit
Where the property acquired under a
contract for deed is purchased by a
consumer primarily for personal, family,
or household purposes, as it generally is
when a purchaser buys a home using a
contract for deed, the transaction is
‘‘consumer credit’’ under Regulation
Z.22 Any consumer credit that is not
open-end credit under Regulation Z is
considered ‘‘closed-end credit.’’ 23
Because the typical contract for deed is
contemplated as a one-time transaction,
it is not open-end credit.24 Thus, when
a buyer purchases a personal dwelling
from a creditor under a contract for
deed, that transaction typically meets
the definition of closed-end credit under
TILA and Regulation Z, and is subject
to the applicable requirements of
subpart C of Regulation Z.
c. Consistency With Other Laws
In 2020, the CFPB settled with an
entity selling property under contracts
for deed, requiring penalties for
violations of the CFPA.25 In doing so,
the CFPB applied the CFPA’s
substantially similar definition of credit,
which is ‘‘the right granted by a person
to a consumer to defer payment of a
debt, incur debt and defer its payment,
or purchase property or services and
defer payment for such purchase.’’ 26
This advisory opinion therefore affirms
the consistency with which the CFPB
views and applies these statutory
definitions, when presented with
similar contexts. Although this advisory
opinion does not analyze the
application of other laws, the CFPB
expects that under other consumer
financial laws with similar definitions
of credit, the same considerations will
apply.27
22 12
CFR 1026.2(a)(12).
CFR 1026.2(a)(10).
24 12 CFR 1026.2(a)(20).
25 Consent Order, In re Harbour Portfolio
Advisors et al., CFPB No. 2020–BCFP–0004 (June
23, 2020), ¶ 4.
26 12 U.S.C. 5481(7). A court validated the CFPB’s
authority to investigate the entity’s contracts for
deed as possible credit under the CFPA, noting that
the transactions may be credit because they
‘‘obligate the purchaser to pay a principal sum plus
interest through deferred monthly payments.’’ CFPB
v. Harbour Portfolio Advisors, No. 16–014183, 2017
WL 631914, at *3 (E.D. Mich. Feb. 16, 2017). The
court further characterized an acceleration clause
that ‘‘gives the seller the option to demand the full
purchase price once the purchaser misses a
payment’’ as ‘‘strongly suggest[ing] that
Respondents are supplying ‘credit’ . . . .’’ Id.
27 See, e.g., 15 U.S.C. 1691a(d) (defining ‘‘credit’’
under the Equal Credit Opportunity Act); 12 CFR
23 12
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2. Contracts for deed secured by a
dwelling, generally will be ‘‘residential
mortgage loans’’ under TILA and
Regulation Z.
Several provisions of TILA and
Regulation Z apply specifically to credit
transactions secured by the consumer’s
dwelling or by real property.28 As
discussed above, Congress amended
TILA through the Dodd-Frank Act with
the recognition that, when consumers
commit to loans secured by possession
of their homes, the stakes are
particularly high.29 It added to TILA
specific protections that apply to
‘‘residential mortgage loans.’’ Many
States define ‘‘mortgages’’ separately
from their definitions for contracts for
deed, with distinct requirements for
each. However, in TILA Congress
defined ‘‘residential mortgage loan’’ to
include ‘‘any consumer credit
transaction that is secured by a
mortgage, deed of trust, or other
equivalent consensual security interest
on a dwelling or on residential real
property that includes a dwelling, other
than a[n open-end] consumer credit
transaction . . . .’’ 30 Thus, the relevant
consideration for determining whether
contracts for deed are ‘‘residential
mortgage loans’’ under TILA is not
whether State law specifically regards
contracts for deed as ‘‘mortgages,’’ but
only whether the contract for deed is
secured by a mortgage, deed of trust, or
other equivalent consensual security
interest on a dwelling or on residential
real property that includes a dwelling.
Additional protections under Regulation
Z apply to ‘‘any consumer credit
transaction secured’’ by ‘‘a dwelling,’’ 31
by ‘‘the consumer’s principal
dwelling,’’ 32 or by ‘‘real property.’’ 33
Regulation Z defines a ‘‘security
interest’’ as ‘‘an interest in property that
pt. 1002 supp. I para. 2(j)–1 (‘‘Regulation B covers
a wider range of credit transactions than Regulation
Z.’’).
28 The CFPA similarly has provisions specifically
addressing loans secured by real estate. See, e.g., 12
U.S.C. 5514(a)(1)(A) (providing supervisory
authority over any covered person who originates
consumer loans ‘‘secured by real estate’’). This
advisory opinion does not assess the applicability
of such provisions beyond TILA, but the CFPB
expects to apply such definitions consistently
across Federal consumer financial laws to the
extent appropriate.
29 See supra, text accompanying notes 13–15.
30 15 U.S.C. 1602(dd)(5).
31 E.g., 12 CFR 1026.43(a). Regulation Z defines a
‘‘dwelling’’ as ‘‘a residential structure that contains
one to four units, whether or not that structure is
attached to real property.’’ 12 CFR 1026.2(a)(19).
32 E.g., 12 CFR 1026.32(a)(1).
33 E.g., 12 CFR 1026.19(e). Under Regulation Z, a
‘‘dwelling’’ does not need to be attached to real
property. 12 CFR 1026.2(a)(19). Thus, there may be
instances where, depending on the transaction, a
contract for deed is secured by a dwelling, but not
real property, or by real property without a
dwelling.
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secures performance of a consumer
credit obligation and that is recognized
by State or Federal law.’’ 34 While State
and Federal law regarding secured
transactions and contracts for deed will
vary, the CFPB expects that this
definition would be satisfied in many or
most cases. As a matter of general usage,
security is the ‘‘[c]ollateral given or
pledged to guarantee the fulfillment of
an obligation.’’ 35 As described earlier,
in a typical contract for deed, the seller
retains legal title to the subject property,
which generally allows the seller to
retake possession of the property should
the purchaser default on the payment
agreement. In function, this retention of
title serves to ensure that the purchaser,
who already has exclusive possession of
the property, fulfills the payment
obligations.36 The CFPB notes that this
structure is functionally equivalent to
common definitions of ‘‘mortgage,’’ 37
and is aware of State laws that expressly
consider such transactions to be
mortgages.38
The CFPB is additionally aware of
many instances nationwide in which a
seller’s retention of legal title to the
property has been characterized as
securing payment of the contract for
deed, either by State statute 39 or by
courts applying State law and equitable
principles.40 While this advisory
34 12
CFR 1026.2(a)(25).
Black’s Law Dictionary (11th ed.
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35 Security,
2019).
36 See Restatement (Third) of Property
(Mortgages) sec. 3.4 (1997) (‘‘A contract for deed is
a contract for the purchase and sale of real estate
under which the purchaser acquires the immediate
right to possession of the real estate and the vendor
defer delivery of a deed until a later time to secure
all or part of the purchase price. A contract for deed
creates a mortgage.’’).
37 Id. See also Mortgage, Black’s Law Dictionary
(11th ed. 2019) (‘‘A conveyance of title to property
that is given as security for the payment of a debt
or the performance of a duty and that will become
void upon payment or performance according to the
stipulated terms.’’); Restatement (Third) of Property
(Mortgages) sec. 1.1 (1997) (‘‘The function of a
mortgage is to employ an interest in real estate as
security for the performance of some obligation.’’).
38 See, e.g., Florida (Fla. Stat. Ann. sec. 697.01);
Indiana (Ind. Code Ann. sec. 24–4.4–1–301(14));
Oklahoma (Okla. Stat. Ann. tit. 16 sec. 11A).
39 See, e.g., Maine (33 M.R.S. sec. 481); Maryland
(Md. Real Property Code sec. 10–101); Ohio (Ohio
Rev. Code Ann. sec. 5313.01).
40 See, e.g., California (Petersen v. Hartell, 40 Cal.
3d 102, 112, 707 P.2d 232, 239 (1985)); Indiana
(Vic’s Antiques & Uniques, Inc. v. J. Elra Holdingz,
LLC, 143 NE3d 300, 305 (Ind. Ct. App. 2020));
Kentucky (Sebastian v. Floyd, 585 SW2d 381 (Ky.
1979)); Michigan (Barker v. Klingler, 302 Mich. 282,
288, 4 NW2d 596, 599 (1942)); Minnesota (Gagne
v. Hoban, 280 Minn. 475, 479, 159 NW2d 896, 899
(1968)); Nebraska (Mackiewicz v. J.J. & Assocs., 245
Neb. 568, 573, 514 NW2d 613, 618 (1994)); Oregon
(Bedortha v. Sunridge Land Co., 312 Or. 307, 311,
822 P.2d 694, 696 (1991)); Pennsylvania (Anderson
Contracting Co. v. Daugherty, 274 Pa. Super. 13, 21,
417 A.2d 1227, 1231 (1979)); Washington (Lanzce
G. Douglass, Inc. v. Dep’t of Revenue, 25 Wash.
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opinion does not provide any specific
interpretation or application of State
law, the prevalence of similar language
across State law and related
jurisprudence informs the CFPB’s
expectation that contracts for deed will
generally trigger Regulation Z’s
thresholds for mortgage transaction
protections based on the security
interest in the buyer’s home. As noted
above, this is the case whether or not
the relevant State or Federal law regards
a contract for deed generally as a
‘‘mortgage,’’ or its equivalent, including
for the purpose of forfeiture. Similarly,
this advisory opinion’s recognition that
contracts for deed are often ‘‘residential
mortgage loans’’ under TILA and
Regulation Z does not constitute a
determination that they are mortgages
under State or other Federal laws.
3. Creditors selling homes using
contracts for deed must comply with
applicable requirements under TILA
and Regulation Z.
a. TILA Creditors
Contract for deed sellers have
important obligations under TILA and
Regulation Z depending on the nature of
the contract for deed and whether they
are ‘‘creditors.’’ 41 For a transaction to be
credit covered under TILA, the seller
must be a creditor, and whether a seller
of a contract for deed is a creditor under
TILA turns not only on whether the
seller extends credit, but on the
characteristics of the credit and
frequency with which the seller engages
in such transactions. First, the credit
extended must be either subject to a
finance charge (such as interest or
implied interest) or be payable by a
written agreement in more than four
installments, not including a
downpayment.42 Second, the obligation
must be initially payable to the person,
either on the face of the note or contract,
or by agreement when there is no note
or contract, in order for that person to
be considered a creditor.43 These first
two prongs will typically be satisfied in
a contract-for-deed transaction.
Contracts for deed are generally set up
to require periodic payments during the
term of the contract—often monthly
over the span of years—and thus,
require repayment of more than four
installments.44 Contracts for deed also
App. 2d 893, 908, 525 P.3d 999, 1007 (2023));
Wisconsin (Larchmont Holdings, LLC v. N. Shore
Servs., LLC, 292 F. Supp. 3d 833, 848–49 (W.D.
Wis. 2017)).
41 12 CFR 1026.2(a)(17).
42 12 CFR 1026.2(a)(17)(i), 1026.4(b).
43 12 CFR 1026.2(a)(17)(i).
44 Further, even if the contract for deed required
less than four installments, often the sales price is
inflated such that the additional profits earned by
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Sfmt 4700
68089
generally are established by a written
agreement that lists the title holder as
the payee.
Third, a creditor is a person that
regularly extends credit.45 For purposes
of this requirement, a ‘‘person’’ is a
natural person or an organization,
including a corporation, partnership,
proprietorship, association, cooperative,
estate, trust, or government unit.46 It
may include, for example, business
arrangements where multiple related
subsidiaries of a single organization
each conduct contract-for-deed sales.47
Whether a person regularly extends
credit will depend on the frequency
with which the person extends credit, as
well as the specific nature of those
credit transactions. As described below,
Regulation Z may require as many as 25
transactions or as few as one to be
deemed a person who regularly extends
credit, depending on the type of
credit.48 This will, in turn, determine
the seller’s legal obligations under TILA
and Regulation Z.
b. TILA Obligations With Contracts for
Deed
In general, when a person extends
consumer credit more than 25 times, or
more than 5 times for transactions
secured by a dwelling, in the preceding
calendar year, that person is a creditor
under TILA.49 Thus, in contract-fordeed sales that are not considered
secured by a dwelling in the relevant
jurisdiction, a seller that extends credit
more than 25 times in the preceding or
current calendar year will qualify as a
TILA creditor, assuming all other
elements of the ‘‘creditor’’ definition are
met.50 In such a case, the contract-fordeed sale is closed-end credit, subject to
TILA and Regulation Z’s general
disclosure requirements regarding the
key terms of the loan, including the
the seller meet the requirement for finance charge
under Regulation Z.
45 12 CFR 1026.2(a)(17).
46 12 CFR 1026.2(a)(22).
47 See Ward v. Shad, No. 18–CV–01933 (NEB/
ECW), 2019 WL 1084219, at *3 (D. Minn. Mar. 7,
2019).
48 12 CFR 1026.2(a)(17)(v). The CFPB is aware
that some contract-for-deed transactions may
involve one-time sellers. Where such transactions
are conducted without a broker and/or do not
qualify as ‘‘high-cost’’ mortgages, such one-time
sellers will not be creditors under Regulation Z.
49 Id.
50 Id. (‘‘A person regularly extends consumer
credit only if it extended credit . . . more than 25
times . . . in the preceding calendar year. If a
person did not meet these numerical standards in
the preceding calendar year, the numerical
standards shall be applied to the current calendar
year.’’).
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amount financed, any finance charge,
and the annual percentage rate.51
If the contract for deed is considered
to be secured by a dwelling by the
applicable law in the relevant
jurisdiction but is not a high-cost
mortgage loan, the seller will qualify as
a creditor if the seller has extended
credit secured by a dwelling more than
five times in the preceding or current
calendar year and all other elements of
the ‘‘creditor’’ definition are met.52 In
such a case, the seller is subject to TILA
and Regulation Z’s general disclosure
requirements, as well as additional
mortgage disclosure requirements.53
The transaction would generally also
qualify as a residential mortgage loan.54
These transactions are subject to
important additional requirements,
including the requirement that a
creditor make a reasonable, good faith
determination of the consumer’s ability
to repay the loan as well as the
prohibition on mandatory arbitration
clauses.55 These transactions may also
be subject to rules regarding servicing,
origination, and fees under TILA.56
If the contract for deed is secured by
a dwelling and qualifies as a high-cost
mortgage,57 a seller who extends credit
more than once in any 12-month period
can qualify as a creditor.58 A seller who
originates one or more such credit
extensions through a mortgage broker
can also qualify as a creditor.59
High-cost mortgage transactions will
also trigger HOEPA requirements and
protections, including required
disclosures.60 Specific prohibitions also
apply to high-cost mortgages, including
a prohibition on extending high-cost
mortgages without written certification
that a consumer has obtained
counseling, a prohibition on opening a
plan without regarding a consumer’s
51 What specific protections and requirement
apply will depend on the particular loan. See 15
U.S.C. 1631, 1632; see also 12 CFR 1026.17–.18.
52 12 CFR 1026.2(a)(17)(v) (the person must
regularly extend credit ‘‘more than 5 times for
transactions secured by a dwelling’’).
53 15 U.S.C. 1631, 1632; 12 CFR 1026.17–.18; see
also 15 U.S.C. 1638; 12 CFR 1026.19(e), 1026.37,
1026.38. Specific disclosure requirements will
depend on whether the dwelling-secured credit is
also secured by real property.
54 15 U.S.C. 1602(dd)(5).
55 12 CFR 1026.43(c); 12 CFR 1026.36(h)(1).
56 See generally 12 CFR 1026.36; 15 U.S.C. 1639a,
1639b, 1639e, 1639c(a)–(h). Some provisions only
apply if the loan is secured by the consumers’
principal dwelling. See, e.g., 12 CFR 1026.23.
57 A high-cost mortgage is any consumer credit
transaction secured by a principal dwelling and
which meets certain conditions as described in 12
CFR 1026.32. 15 U.S.C. 1602(bb), 1639; see also 12
CFR 1026.31, 1026.32, 1026.34.
58 12 CFR 1026.2(a)(17)(v).
59 Id.
60 12 CFR 1026.32, 1026.34.
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ability to repay, and prohibitions on
certain fees, among others.61
Regulatory Matters
Rohit Chopra,
Director, Consumer Financial Protection
Bureau.
[FR Doc. 2024–18620 Filed 8–22–24; 8:45 am]
BILLING CODE 4810–AM–P
61 12 CFR 1026.34(a)(4) (open-end, high-cost
mortgage repayment prohibitions), 1026.34(a)(5)
(pre-loan counseling requirements), 1026.34(a)(7)–
(8), 1026.34(a)(10) (requirements and prohibitions
related to fees).
62 12 U.S.C. 5512(b)(1).
63 15 U.S.C. 1640(f).
64 5 U.S.C. 801 et seq.
65 44 U.S.C. 3501 through 3521.
Frm 00010
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13 CFR Part 120
[Docket Number SBA–2024–0006]
This advisory opinion is an
interpretive rule issued under the
CFPB’s authority to interpret TILA and
Regulation Z, including under section
1022(b)(1) of the Consumer Financial
Protection Act of 2010, which
authorizes guidance as may be
necessary or appropriate to enable the
CFPB to administer and carry out the
purposes and objectives of Federal
consumer financial laws.62
By operation of TILA section 130(f),
no provision of TILA sections 130,
108(b), 108(c), 108(e), or section 112
imposing any liability applies to any act
done or omitted in good faith in
conformity with this interpretive rule,
notwithstanding that after such act or
omission has occurred, the interpretive
rule is amended, rescinded, or
determined by judicial or other
authority to be invalid for any reason.63
Pursuant to the Congressional Review
Act,64 the CFPB will submit a report
containing this advisory opinion and
other required information to the United
States Senate, the United States House
of Representatives, and the Comptroller
General of the United States prior to the
rule’s published effective date. The
Office of Information and Regulatory
Affairs has designated this interpretive
rule as not a ‘‘major rule’’ as defined by
5 U.S.C. 804(2).
The CFPB has determined that this
advisory opinion does not impose any
new or revise any existing
recordkeeping, reporting, or disclosure
requirements on covered entities or
members of the public that would be
collections of information requiring
approval by the Office of Management
and Budget under the Paperwork
Reduction Act.65
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SMALL BUSINESS ADMINISTRATION
Sfmt 4700
RIN 3245–AI17
Business Loan Program Temporary
Changes; Paycheck Protection
Program—Extension of Lender
Records Retention Requirements
U.S. Small Business
Administration.
ACTION: Interim final rule.
AGENCY:
This interim final rule
lengthens the required records retention
for lenders that made loans under the
Paycheck Protection Program (PPP) to
ten years. PPP was established under
the Coronavirus Aid, Relief, and
Economic Security Act as a temporary
emergency guaranteed loan program to
provide economic relief to small
businesses nationwide adversely
impacted by the Coronavirus Disease
2019 (COVID–19), as amended. SBA has
issued a number of final rules
implementing the PPP Program. This
interim final rule harmonizes the PPP
lender records retention requirements
with subsequent legislation extending
the statute of limitations for criminal
charges and civil enforcement actions
for alleged PPP borrower fraud to ten
years after the offense.
DATES:
Effective date: The provisions of this
interim final rule are effective August
22, 2024.
Applicability date: This interim final
rule applies to all PPP lender loan
records. This includes PPP loan
applications that were withdrawn,
approved, denied or cancelled, and all
other PPP lender loan records for PPP
loans with an outstanding balance, PPP
loans that have been forgiven, and PPP
loans that are in repayment or have been
paid in full by the borrower as of the
effective date of this rule.1
Comment date: Comments must be
received on or before September 23,
2024.
ADDRESSES: You may submit comments,
identified by docket number SBA–
2024–0006 through the Federal
eRulemaking Portal: https://
www.regulations.gov. Follow the
instructions for submitting comments.
SUMMARY:
1 To the extent that a federally regulated PPP
lender destroyed any PPP loan records before the
effective date of this rule in accordance with a
general internal records retention policy that was
acceptable to the PPP lender’s federal regulator,
SBA will not enforce compliance by that federally
regulated PPP lender with respect to the PPP loan
records that were destroyed before the effective date
of this rule.
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]]>Agencies
- CONSUMER FINANCIAL PROTECTION BUREAU
[Federal Register Volume 89, Number 164 (Friday, August 23, 2024)]
[Rules and Regulations]
[Pages 68086-68090]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-18620]
=======================================================================
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CONSUMER FINANCIAL PROTECTION BUREAU
12 CFR Part 1026
Truth in Lending (Regulation Z); Consumer Protections for Home
Sales Financed Under Contracts for Deed
AGENCY: Consumer Financial Protection Bureau.
ACTION: Advisory opinion.
-----------------------------------------------------------------------
SUMMARY: This advisory opinion affirms the current applicability of
consumer protections and creditor obligations under the Truth in
Lending Act (TILA) and its implementing Regulation Z to transactions in
which a consumer purchases a home under a ``contract for deed.'' When a
creditor sells a home to a buyer under a contract for deed, that
transaction will generally meet TILA and Regulation Z's definition of
credit. Where the transaction is secured by the buyer's dwelling, the
buyer will also generally be entitled to the protections associated
with residential mortgage loans under TILA.
DATES: This advisory opinion is applicable as of August 23, 2024.
FOR FURTHER INFORMATION CONTACT: George Karithanom, Regulatory
Implementation & Guidance Program Analyst, Office of Regulations, at
202-435-7700 or at: https://reginquiries.consumerfinance.gov/. If you
require this document in an alternative electronic format, please
contact [email protected].
SUPPLEMENTARY INFORMATION: The Consumer Financial Protection Bureau
(CFPB) is issuing this advisory opinion through the procedures for its
Advisory Opinions Policy.\1\ Refer to those procedures for more
information.
---------------------------------------------------------------------------
\1\ 85 FR 77987 (Dec. 3, 2020).
---------------------------------------------------------------------------
I. Advisory Opinion
A. Background
The CFPB is issuing this advisory opinion to affirm the
applicability of certain consumer protections under the Truth in
Lending Act (TILA) and its implementing Regulation Z to transactions in
which a consumer purchases a home under a ``contract for deed.''
Broadly speaking, TILA protects consumers engaged in credit
transactions by requiring creditors to disclose information about the
costs and terms of the credit, and, where the credit is secured by the
consumer's dwelling, provides additional protections. The CFPB has
previously identified certain contracts for deed as consumer credit
under the Consumer Financial Protection Act (CFPA),\2\ which uses a
substantially similar definition of credit. Consistent with that
earlier application of the CFPA, this advisory opinion clarifies how
the CFPB understands the current application of TILA and Regulation Z
to contracts for deed.
---------------------------------------------------------------------------
\2\ Consent Order, In re Harbour Portfolio Advisors et al., CFPB
No. 2020-BCFP-0004 (June 23, 2020), ] 4.
---------------------------------------------------------------------------
1. Contract for Deed Overview and History
A contract for deed is a type of home loan, alternatively called a
``land contract,'' ``land installment contract,'' ``land sales
contract,'' ``bond for deed,''
[[Page 68087]]
``agreement for deed,'' or ``buying on contract.'' Home loans commonly
referred to as contracts for deed, which this advisory opinion refers
to as ``contracts for deed,'' tend to have a few key features. In a
typical contract for deed, a homebuyer agrees to make periodic payments
to the home seller, and the seller retains the deed to the property
until the loan is fully repaid.\3\ Loan terms vary but often range from
5 to 30 years and may include balloon payments. Properties are often
purchased ``as is,'' without inspection or appraisal, and may have
property condition issues that prevent them from being suitable for
rental or qualifying for mainstream mortgage financing. Additionally,
because the sales price of the home may not be tied to appraisal or
other typical market measures, the sales price may be inflated. During
the repayment period, the buyer has the exclusive right to occupy the
home and often assumes many of the responsibilities of homeownership,
including paying for taxes, insurance, home maintenance, and
repairs.\4\
---------------------------------------------------------------------------
\3\ More complex arrangements exist, such as those where the
buyer pays the seller's agent.
\4\ See Joint Center for Housing Studies of Harvard University,
The American Dream or Just an Illusion? Understanding Land Contract
Trends in the Midwest Pre- and Post-Crisis (Aug. 2019), https://www.jchsharvard.edu/sites/default/files/media/imp/harvard_jchs_housing_tenure_symposium_carpenter_george_nelson.pdf.
---------------------------------------------------------------------------
Another common feature is a forfeiture clause that can be triggered
if the borrower fails to meet the terms of the contract. In these
scenarios, the contract is canceled, the seller retakes possession of
the property, and the buyer generally forfeits their entire
investment--including their downpayment, principal payments, and any
increase in home equity, including home equity that the buyer generated
by making property improvements.\5\ In some contracts, a single missed
payment is enough to trigger these losses. Forfeiture clauses can also
be triggered by breaches unrelated to payment status, such as when a
borrower fails to pay taxes, is unable to obtain or maintain insurance,
or does not make improvements to the property within a specified
timeframe.\6\ While some states restrict forfeiture and require
foreclosure, others have allowed ``virtually unrestricted use of
forfeiture clauses.'' \7\
---------------------------------------------------------------------------
\5\ Id.
\6\ Id.
\7\ See The Pew Charitable Trusts, Summary of State Land
Contract Statutes (Apr. 30, 2021), https://www.pewtrusts.org/-/media/assets/2022/02/summary-of-state-land-contract-statutes.pdf.
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2. TILA Legislative History
Congress first enacted TILA, 15 U.S.C. 1601 et seq., in 1968
intending ``to assure a meaningful disclosure of credit terms'' and
``avoid the uninformed use of credit, and to protect the consumer
against inaccurate and unfair credit billing and credit card
practices.'' \8\ As industry commenters noted at the time, TILA's
disclosure regime could help ``a prospective mortgage borrower [ ]
consider the relative costs of credit offered by . . . various purchase
arrangements, for example, contract for deed or an FHA-insured
mortgage'' when purchasing a home.\9\
---------------------------------------------------------------------------
\8\ 15 U.S.C. 1601.
\9\ Truth in Lending Act: Hearings Before the Subcomm. on
Financial Institutions of the S. Comm. on Banking and Currency, 90th
Cong., 1st Sess. (Apr. 18, 1967) (testimony of Darrel M. Holt,
Mortgage Bankers Association of America).
---------------------------------------------------------------------------
In 1994, Congress amended TILA by enacting the Home Ownership and
Equity Protection Act (HOEPA) to require special disclosures and
restrictions for high-cost mortgage loans secured by the consumer's
principal dwelling.\10\ In the wake of the 2008 financial crisis, in
which widespread mortgage loan defaults produced a wave of foreclosures
and systemic economic instability, Congress passed the Dodd-Frank Wall
Street Reform and Consumer Protection Act (Dodd-Frank Act) which added
additional protections to TILA, as well as establishing the CFPB under
the Consumer Financial Protection Act.\11\
---------------------------------------------------------------------------
\10\ 15 U.S.C. 1602(bb), 1639.
\11\ Public Law 111-203, 124 Stat. 1376 (2010).
---------------------------------------------------------------------------
New TILA sections added by the Dodd-Frank Act required creditors to
make good-faith assessments of consumers' ability to repay loans
secured by their dwellings, imposed new standards on mortgage
disclosures, and prohibited certain practices, including mandatory
arbitration clauses and waivers of Federal causes of action in consumer
credit transactions secured by a dwelling.\12\ The Dodd-Frank Act also
expanded the scope of HOEPA coverage and protections. In the Senate
Report accompanying the Dodd-Frank Act, Congress cited the
``proliferation of poorly underwritten mortgages with abusive terms,''
made ``with little or no regard for a borrower's understanding of the
terms [ ], or their ability to repay,'' as precipitators of the
financial crisis and motivation for the Act's financial reforms.\13\
Congress explained that, because of failures in consumer protection,
``millions of Americans have lost their homes,'' \14\ and quoted expert
testimony that ``a plague of abusive and unaffordable mortgages and
exploitative credit cards . . . cost millions of responsible consumers
their homes, their savings, and their dignity.'' \15\
---------------------------------------------------------------------------
\12\ Sections 1411, 1412, and 1414 of the Dodd-Frank Act,
codified at 15 U.S.C. 1639c; sections 1418, 1420, 1463, and 1464 of
the Dodd-Frank Act, codified at 12 U.S.C. 2605; 15 U.S.C. 1638,
1638a, 1639f, and 1639g. Other protections apply to servicing
practices, such as prompt payment processing, no pyramiding of late
fees, and loan originator qualification requirements. See 12 CFR
1026.36(c), (d), (f).
\13\ S. Rept. No. 176, 111th Cong. (2010), at 11, 12.
\14\ Id. at 9.
\15\ Id., n.19 (quoting Testimony of Michael Barr, Assistant
Secretary of the Treasury for Financial Institutions, to the Senate
Committee on Banking, Housing, and Urban Affairs, July 14, 2009).
---------------------------------------------------------------------------
B. Legal Analysis
1. Because contracts for deed allow buyers to acquire property and
defer the payment, contracts for deed are generally ``credit'' under
TILA and Regulation Z.
a. Credit Under TILA
TILA's definition of ``credit'' includes the typical contract for
deed. TILA and Regulation Z define credit as ``the right granted [by a
creditor to a debtor] to defer payment of debt or to incur debt and
defer its payment.'' \16\ TILA and Regulation Z do not define debt.
Used infrequently in the statute and the regulation, ``debt'' for the
most part appears only in the definition of ``credit.'' As the CFPB has
noted elsewhere,\17\ in the ordinary usage, debt means simply
``something owed,'' without any obvious limitation.\18\ Legal
dictionaries, including those dating to the enactment of TILA,
similarly describe debt as a ``sum of money due by certain and express
agreement'' or ``a financial liability or obligation owed by one
person, the debtor, to another, the creditor.'' \19\ This understanding
of ``debt,'' as any obligation by a consumer to pay another party,
applies to contracts for deed in a straightforward manner.
---------------------------------------------------------------------------
\16\ 15 U.S.C. 1602(f), 12 CFR 1026.2(a)(14). Whether a seller
is a ``creditor'' under TILA and Regulation Z depends on several
factors, discussed below, at section I.B.3.
\17\ Proposed rule, Truth in Lending (Regulation Z); Consumer
Credit Offered to Borrowers in Advance of Expected Receipt of
Compensation for Work, 89 FR 61358 (July 31, 2024), https://files.consumerfinance.gov/f/documents/cfpb_paycheck-advance-marketplace_proposed-interpretive-rule_2024-07.pdf.
\18\ Debt, Merriam-Webster, https://www.merriam-webster.com/dictionary/debt (last updated Jan. 30, 2024).
\19\ Debt, Black's Law Dictionary (4th ed. 1968) (defining debt
as ``[a] sum of money due by certain and express agreement; as by
bond for a determinate sum, a bill or note, a special bargain, or a
rent reserved on a lease, where the amount is fixed and specific,
and does not depend upon any subsequent valuation to settle it'');
Debt, Wex, https://www.law.cornell.edu/wex/debt (last updated Sept.
2021).
---------------------------------------------------------------------------
[[Page 68088]]
In a typical contract-for-deed transaction, as discussed above, a
debt is created by the buyer receiving exclusive possession of the
property, along with certain ownership obligations, at the outset of
the contract in exchange for the obligation to repay the agreed-upon
value of that property over time.\20\ Courts applying common law
doctrines have broadly recognized these property-related rights and
obligations under the contract for deed as constituting a grant of
equitable title to the buyer.\21\ In exchange for these rights granted
in the property, the purchaser agrees to complete payment on a deferred
basis. The contractual obligation to repay the agreed-upon value of the
property according to the terms of the contract, therefore, constitutes
a debt under TILA. From the face of the typical contract for deed, it
will be clear that the seller has granted to the purchaser ``the right
. . . to defer'' payment of this debt.
---------------------------------------------------------------------------
\20\ This is distinct from lease-based rental arrangements, even
those involving an eventual right to purchase (often called ``lease-
to-own''), because the lessee's legal interest, privileges, and
obligations in the property are more limited in scope, while the
lessor retains both ownership obligations and title. Many lease-to-
own products also require a separate agreement to effectuate a
purchase option, allowing for complete performance of the original
contract without necessarily transferring property ownership. In a
typical contract for deed, complete performance includes the
transfer of full legal ownership. Regardless of how the arrangement
is styled, courts have generally looked to the function of the
transaction and intent of the parties to determine its nature. See,
e.g., Gilliland v. Port Auth. of City of St. Paul, 270 NW2d 743, 747
(Minn. 1978) (``To break the transaction into two separate parts, a
sale and a lease, would be to distort its real nature and to ignore
the intent of the parties.''); In re Montgomery Ward, L.L.C., 469
B.R. 522, 529 (Bankr. D. Del. 2012) (``Courts must analyze the
`economic reality' of the agreement at issue to determine its true
nature.''). Depending on their terms, such leases, as well as
contracts for deed, may be considered ``credit sales'' covered under
TILA and Regulation Z. 15 U.S.C. 1602(h); 12 CFR 1026.2(a)(16).
\21\ In re Restivo Auto Body, Inc., 772 F.3d 168, 177 (4th Cir.
2014) (``upon contracting to buy land, `in equity the vendee becomes
the owner of the land, the vendor of the purchase money' '')
(internal citation omitted); Hauben v. Harmon, 605 F.2d 920, 925
(5th Cir. 1979) (``Under the doctrine of equitable conversion a
purchaser of realty becomes seized of beneficial title to the
property upon execution of the contract of sale.''); In re
Blanchard, 819 F.3d 981, 985 (7th Cir. 2016) (``Under Wisconsin's
doctrine of equitable conversion, a land contract buyer obtains
equitable title to the property, which includes `all the incidents
of a real ownership.' '') (internal citation omitted); Redevelopment
Agency of City of Stockton v. BNSF Ry. Co., 643 F.3d 668, 678 (9th
Cir. 2011) (``The doctrine of equitable conversion generally
provides that when a valid executory land sales contract is entered
into, the purchaser becomes the equitable owner of the land.''); In
re Hodes, 402 F.3d 1005, 1011 (10th Cir. 2005); SMS Assocs. v. Clay,
868 F. Supp. 337, 340 (D.D.C. 1994), aff'd, 70 F.3d 638 (D.C. Cir.
1995). Even where some courts have declined to view a contract for
deed as transferring equitable title, they nonetheless acknowledge
that the purchaser has received possession in exchange for the
promise of payment. See, e.g., In re Wall Tire Distributors, Inc.,
110 B.R. 614, 618 (Bankr. M.D. Ga. 1990).
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b. Closed-End Credit
Where the property acquired under a contract for deed is purchased
by a consumer primarily for personal, family, or household purposes, as
it generally is when a purchaser buys a home using a contract for deed,
the transaction is ``consumer credit'' under Regulation Z.\22\ Any
consumer credit that is not open-end credit under Regulation Z is
considered ``closed-end credit.'' \23\ Because the typical contract for
deed is contemplated as a one-time transaction, it is not open-end
credit.\24\ Thus, when a buyer purchases a personal dwelling from a
creditor under a contract for deed, that transaction typically meets
the definition of closed-end credit under TILA and Regulation Z, and is
subject to the applicable requirements of subpart C of Regulation Z.
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\22\ 12 CFR 1026.2(a)(12).
\23\ 12 CFR 1026.2(a)(10).
\24\ 12 CFR 1026.2(a)(20).
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c. Consistency With Other Laws
In 2020, the CFPB settled with an entity selling property under
contracts for deed, requiring penalties for violations of the CFPA.\25\
In doing so, the CFPB applied the CFPA's substantially similar
definition of credit, which is ``the right granted by a person to a
consumer to defer payment of a debt, incur debt and defer its payment,
or purchase property or services and defer payment for such purchase.''
\26\ This advisory opinion therefore affirms the consistency with which
the CFPB views and applies these statutory definitions, when presented
with similar contexts. Although this advisory opinion does not analyze
the application of other laws, the CFPB expects that under other
consumer financial laws with similar definitions of credit, the same
considerations will apply.\27\
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\25\ Consent Order, In re Harbour Portfolio Advisors et al.,
CFPB No. 2020-BCFP-0004 (June 23, 2020), ] 4.
\26\ 12 U.S.C. 5481(7). A court validated the CFPB's authority
to investigate the entity's contracts for deed as possible credit
under the CFPA, noting that the transactions may be credit because
they ``obligate the purchaser to pay a principal sum plus interest
through deferred monthly payments.'' CFPB v. Harbour Portfolio
Advisors, No. 16-014183, 2017 WL 631914, at *3 (E.D. Mich. Feb. 16,
2017). The court further characterized an acceleration clause that
``gives the seller the option to demand the full purchase price once
the purchaser misses a payment'' as ``strongly suggest[ing] that
Respondents are supplying `credit' . . . .'' Id.
\27\ See, e.g., 15 U.S.C. 1691a(d) (defining ``credit'' under
the Equal Credit Opportunity Act); 12 CFR pt. 1002 supp. I para.
2(j)-1 (``Regulation B covers a wider range of credit transactions
than Regulation Z.'').
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2. Contracts for deed secured by a dwelling, generally will be
``residential mortgage loans'' under TILA and Regulation Z.
Several provisions of TILA and Regulation Z apply specifically to
credit transactions secured by the consumer's dwelling or by real
property.\28\ As discussed above, Congress amended TILA through the
Dodd-Frank Act with the recognition that, when consumers commit to
loans secured by possession of their homes, the stakes are particularly
high.\29\ It added to TILA specific protections that apply to
``residential mortgage loans.'' Many States define ``mortgages''
separately from their definitions for contracts for deed, with distinct
requirements for each. However, in TILA Congress defined ``residential
mortgage loan'' to include ``any consumer credit transaction that is
secured by a mortgage, deed of trust, or other equivalent consensual
security interest on a dwelling or on residential real property that
includes a dwelling, other than a[n open-end] consumer credit
transaction . . . .'' \30\ Thus, the relevant consideration for
determining whether contracts for deed are ``residential mortgage
loans'' under TILA is not whether State law specifically regards
contracts for deed as ``mortgages,'' but only whether the contract for
deed is secured by a mortgage, deed of trust, or other equivalent
consensual security interest on a dwelling or on residential real
property that includes a dwelling. Additional protections under
Regulation Z apply to ``any consumer credit transaction secured'' by
``a dwelling,'' \31\ by ``the consumer's principal dwelling,'' \32\ or
by ``real property.'' \33\
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\28\ The CFPA similarly has provisions specifically addressing
loans secured by real estate. See, e.g., 12 U.S.C. 5514(a)(1)(A)
(providing supervisory authority over any covered person who
originates consumer loans ``secured by real estate''). This advisory
opinion does not assess the applicability of such provisions beyond
TILA, but the CFPB expects to apply such definitions consistently
across Federal consumer financial laws to the extent appropriate.
\29\ See supra, text accompanying notes 13-15.
\30\ 15 U.S.C. 1602(dd)(5).
\31\ E.g., 12 CFR 1026.43(a). Regulation Z defines a
``dwelling'' as ``a residential structure that contains one to four
units, whether or not that structure is attached to real property.''
12 CFR 1026.2(a)(19).
\32\ E.g., 12 CFR 1026.32(a)(1).
\33\ E.g., 12 CFR 1026.19(e). Under Regulation Z, a ``dwelling''
does not need to be attached to real property. 12 CFR 1026.2(a)(19).
Thus, there may be instances where, depending on the transaction, a
contract for deed is secured by a dwelling, but not real property,
or by real property without a dwelling.
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Regulation Z defines a ``security interest'' as ``an interest in
property that
[[Page 68089]]
secures performance of a consumer credit obligation and that is
recognized by State or Federal law.'' \34\ While State and Federal law
regarding secured transactions and contracts for deed will vary, the
CFPB expects that this definition would be satisfied in many or most
cases. As a matter of general usage, security is the ``[c]ollateral
given or pledged to guarantee the fulfillment of an obligation.'' \35\
As described earlier, in a typical contract for deed, the seller
retains legal title to the subject property, which generally allows the
seller to retake possession of the property should the purchaser
default on the payment agreement. In function, this retention of title
serves to ensure that the purchaser, who already has exclusive
possession of the property, fulfills the payment obligations.\36\ The
CFPB notes that this structure is functionally equivalent to common
definitions of ``mortgage,'' \37\ and is aware of State laws that
expressly consider such transactions to be mortgages.\38\
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\34\ 12 CFR 1026.2(a)(25).
\35\ Security, Black's Law Dictionary (11th ed. 2019).
\36\ See Restatement (Third) of Property (Mortgages) sec. 3.4
(1997) (``A contract for deed is a contract for the purchase and
sale of real estate under which the purchaser acquires the immediate
right to possession of the real estate and the vendor defer delivery
of a deed until a later time to secure all or part of the purchase
price. A contract for deed creates a mortgage.'').
\37\ Id. See also Mortgage, Black's Law Dictionary (11th ed.
2019) (``A conveyance of title to property that is given as security
for the payment of a debt or the performance of a duty and that will
become void upon payment or performance according to the stipulated
terms.''); Restatement (Third) of Property (Mortgages) sec. 1.1
(1997) (``The function of a mortgage is to employ an interest in
real estate as security for the performance of some obligation.'').
\38\ See, e.g., Florida (Fla. Stat. Ann. sec. 697.01); Indiana
(Ind. Code Ann. sec. 24-4.4-1-301(14)); Oklahoma (Okla. Stat. Ann.
tit. 16 sec. 11A).
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The CFPB is additionally aware of many instances nationwide in
which a seller's retention of legal title to the property has been
characterized as securing payment of the contract for deed, either by
State statute \39\ or by courts applying State law and equitable
principles.\40\ While this advisory opinion does not provide any
specific interpretation or application of State law, the prevalence of
similar language across State law and related jurisprudence informs the
CFPB's expectation that contracts for deed will generally trigger
Regulation Z's thresholds for mortgage transaction protections based on
the security interest in the buyer's home. As noted above, this is the
case whether or not the relevant State or Federal law regards a
contract for deed generally as a ``mortgage,'' or its equivalent,
including for the purpose of forfeiture. Similarly, this advisory
opinion's recognition that contracts for deed are often ``residential
mortgage loans'' under TILA and Regulation Z does not constitute a
determination that they are mortgages under State or other Federal
laws.
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\39\ See, e.g., Maine (33 M.R.S. sec. 481); Maryland (Md. Real
Property Code sec. 10-101); Ohio (Ohio Rev. Code Ann. sec. 5313.01).
\40\ See, e.g., California (Petersen v. Hartell, 40 Cal. 3d 102,
112, 707 P.2d 232, 239 (1985)); Indiana (Vic's Antiques & Uniques,
Inc. v. J. Elra Holdingz, LLC, 143 NE3d 300, 305 (Ind. Ct. App.
2020)); Kentucky (Sebastian v. Floyd, 585 SW2d 381 (Ky. 1979));
Michigan (Barker v. Klingler, 302 Mich. 282, 288, 4 NW2d 596, 599
(1942)); Minnesota (Gagne v. Hoban, 280 Minn. 475, 479, 159 NW2d
896, 899 (1968)); Nebraska (Mackiewicz v. J.J. & Assocs., 245 Neb.
568, 573, 514 NW2d 613, 618 (1994)); Oregon (Bedortha v. Sunridge
Land Co., 312 Or. 307, 311, 822 P.2d 694, 696 (1991)); Pennsylvania
(Anderson Contracting Co. v. Daugherty, 274 Pa. Super. 13, 21, 417
A.2d 1227, 1231 (1979)); Washington (Lanzce G. Douglass, Inc. v.
Dep't of Revenue, 25 Wash. App. 2d 893, 908, 525 P.3d 999, 1007
(2023)); Wisconsin (Larchmont Holdings, LLC v. N. Shore Servs., LLC,
292 F. Supp. 3d 833, 848-49 (W.D. Wis. 2017)).
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3. Creditors selling homes using contracts for deed must comply
with applicable requirements under TILA and Regulation Z.
a. TILA Creditors
Contract for deed sellers have important obligations under TILA and
Regulation Z depending on the nature of the contract for deed and
whether they are ``creditors.'' \41\ For a transaction to be credit
covered under TILA, the seller must be a creditor, and whether a seller
of a contract for deed is a creditor under TILA turns not only on
whether the seller extends credit, but on the characteristics of the
credit and frequency with which the seller engages in such
transactions. First, the credit extended must be either subject to a
finance charge (such as interest or implied interest) or be payable by
a written agreement in more than four installments, not including a
downpayment.\42\ Second, the obligation must be initially payable to
the person, either on the face of the note or contract, or by agreement
when there is no note or contract, in order for that person to be
considered a creditor.\43\ These first two prongs will typically be
satisfied in a contract-for-deed transaction. Contracts for deed are
generally set up to require periodic payments during the term of the
contract--often monthly over the span of years--and thus, require
repayment of more than four installments.\44\ Contracts for deed also
generally are established by a written agreement that lists the title
holder as the payee.
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\41\ 12 CFR 1026.2(a)(17).
\42\ 12 CFR 1026.2(a)(17)(i), 1026.4(b).
\43\ 12 CFR 1026.2(a)(17)(i).
\44\ Further, even if the contract for deed required less than
four installments, often the sales price is inflated such that the
additional profits earned by the seller meet the requirement for
finance charge under Regulation Z.
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Third, a creditor is a person that regularly extends credit.\45\
For purposes of this requirement, a ``person'' is a natural person or
an organization, including a corporation, partnership, proprietorship,
association, cooperative, estate, trust, or government unit.\46\ It may
include, for example, business arrangements where multiple related
subsidiaries of a single organization each conduct contract-for-deed
sales.\47\ Whether a person regularly extends credit will depend on the
frequency with which the person extends credit, as well as the specific
nature of those credit transactions. As described below, Regulation Z
may require as many as 25 transactions or as few as one to be deemed a
person who regularly extends credit, depending on the type of
credit.\48\ This will, in turn, determine the seller's legal
obligations under TILA and Regulation Z.
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\45\ 12 CFR 1026.2(a)(17).
\46\ 12 CFR 1026.2(a)(22).
\47\ See Ward v. Shad, No. 18-CV-01933 (NEB/ECW), 2019 WL
1084219, at *3 (D. Minn. Mar. 7, 2019).
\48\ 12 CFR 1026.2(a)(17)(v). The CFPB is aware that some
contract-for-deed transactions may involve one-time sellers. Where
such transactions are conducted without a broker and/or do not
qualify as ``high-cost'' mortgages, such one-time sellers will not
be creditors under Regulation Z.
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b. TILA Obligations With Contracts for Deed
In general, when a person extends consumer credit more than 25
times, or more than 5 times for transactions secured by a dwelling, in
the preceding calendar year, that person is a creditor under TILA.\49\
Thus, in contract-for-deed sales that are not considered secured by a
dwelling in the relevant jurisdiction, a seller that extends credit
more than 25 times in the preceding or current calendar year will
qualify as a TILA creditor, assuming all other elements of the
``creditor'' definition are met.\50\ In such a case, the contract-for-
deed sale is closed-end credit, subject to TILA and Regulation Z's
general disclosure requirements regarding the key terms of the loan,
including the
[[Page 68090]]
amount financed, any finance charge, and the annual percentage
rate.\51\
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\49\ Id.
\50\ Id. (``A person regularly extends consumer credit only if
it extended credit . . . more than 25 times . . . in the preceding
calendar year. If a person did not meet these numerical standards in
the preceding calendar year, the numerical standards shall be
applied to the current calendar year.'').
\51\ What specific protections and requirement apply will depend
on the particular loan. See 15 U.S.C. 1631, 1632; see also 12 CFR
1026.17-.18.
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If the contract for deed is considered to be secured by a dwelling
by the applicable law in the relevant jurisdiction but is not a high-
cost mortgage loan, the seller will qualify as a creditor if the seller
has extended credit secured by a dwelling more than five times in the
preceding or current calendar year and all other elements of the
``creditor'' definition are met.\52\ In such a case, the seller is
subject to TILA and Regulation Z's general disclosure requirements, as
well as additional mortgage disclosure requirements.\53\ The
transaction would generally also qualify as a residential mortgage
loan.\54\ These transactions are subject to important additional
requirements, including the requirement that a creditor make a
reasonable, good faith determination of the consumer's ability to repay
the loan as well as the prohibition on mandatory arbitration
clauses.\55\ These transactions may also be subject to rules regarding
servicing, origination, and fees under TILA.\56\
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\52\ 12 CFR 1026.2(a)(17)(v) (the person must regularly extend
credit ``more than 5 times for transactions secured by a
dwelling'').
\53\ 15 U.S.C. 1631, 1632; 12 CFR 1026.17-.18; see also 15
U.S.C. 1638; 12 CFR 1026.19(e), 1026.37, 1026.38. Specific
disclosure requirements will depend on whether the dwelling-secured
credit is also secured by real property.
\54\ 15 U.S.C. 1602(dd)(5).
\55\ 12 CFR 1026.43(c); 12 CFR 1026.36(h)(1).
\56\ See generally 12 CFR 1026.36; 15 U.S.C. 1639a, 1639b,
1639e, 1639c(a)-(h). Some provisions only apply if the loan is
secured by the consumers' principal dwelling. See, e.g., 12 CFR
1026.23.
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If the contract for deed is secured by a dwelling and qualifies as
a high-cost mortgage,\57\ a seller who extends credit more than once in
any 12-month period can qualify as a creditor.\58\ A seller who
originates one or more such credit extensions through a mortgage broker
can also qualify as a creditor.\59\
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\57\ A high-cost mortgage is any consumer credit transaction
secured by a principal dwelling and which meets certain conditions
as described in 12 CFR 1026.32. 15 U.S.C. 1602(bb), 1639; see also
12 CFR 1026.31, 1026.32, 1026.34.
\58\ 12 CFR 1026.2(a)(17)(v).
\59\ Id.
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High-cost mortgage transactions will also trigger HOEPA
requirements and protections, including required disclosures.\60\
Specific prohibitions also apply to high-cost mortgages, including a
prohibition on extending high-cost mortgages without written
certification that a consumer has obtained counseling, a prohibition on
opening a plan without regarding a consumer's ability to repay, and
prohibitions on certain fees, among others.\61\
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\60\ 12 CFR 1026.32, 1026.34.
\61\ 12 CFR 1026.34(a)(4) (open-end, high-cost mortgage
repayment prohibitions), 1026.34(a)(5) (pre-loan counseling
requirements), 1026.34(a)(7)-(8), 1026.34(a)(10) (requirements and
prohibitions related to fees).
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Regulatory Matters
This advisory opinion is an interpretive rule issued under the
CFPB's authority to interpret TILA and Regulation Z, including under
section 1022(b)(1) of the Consumer Financial Protection Act of 2010,
which authorizes guidance as may be necessary or appropriate to enable
the CFPB to administer and carry out the purposes and objectives of
Federal consumer financial laws.\62\
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\62\ 12 U.S.C. 5512(b)(1).
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By operation of TILA section 130(f), no provision of TILA sections
130, 108(b), 108(c), 108(e), or section 112 imposing any liability
applies to any act done or omitted in good faith in conformity with
this interpretive rule, notwithstanding that after such act or omission
has occurred, the interpretive rule is amended, rescinded, or
determined by judicial or other authority to be invalid for any
reason.\63\
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\63\ 15 U.S.C. 1640(f).
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Pursuant to the Congressional Review Act,\64\ the CFPB will submit
a report containing this advisory opinion and other required
information to the United States Senate, the United States House of
Representatives, and the Comptroller General of the United States prior
to the rule's published effective date. The Office of Information and
Regulatory Affairs has designated this interpretive rule as not a
``major rule'' as defined by 5 U.S.C. 804(2).
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\64\ 5 U.S.C. 801 et seq.
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The CFPB has determined that this advisory opinion does not impose
any new or revise any existing recordkeeping, reporting, or disclosure
requirements on covered entities or members of the public that would be
collections of information requiring approval by the Office of
Management and Budget under the Paperwork Reduction Act.\65\
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\65\ 44 U.S.C. 3501 through 3521.
Rohit Chopra,
Director, Consumer Financial Protection Bureau.
[FR Doc. 2024-18620 Filed 8-22-24; 8:45 am]
BILLING CODE 4810-AM-P
