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Are loans to purchase vacant land (“lot loans”) exempt from coverage under the Military Lending Act (MLA)?

Are loans to purchase vacant land (“lot loans”) exempt from coverage under the Military Lending Act (MLA)? Could such a loan be exempt if a servicemember purchases a plot of land with the intention of building a home in the future?

No is the answer to both questions. The key to determining whether a loan is covered under the MLA is to look at the definitions and the exclusions. Section 232.3(f) defines consumer credit under the rule but excludes certain loans, following the MLA statute. Among other loans that are excluded from coverage, the definition excludes "residential mortgages," which are defined as credit transactions that are secured by an interest in a dwelling.

Because a lot loan is not and cannot be secured by a dwelling, it falls outside the current exclusion and is covered by the MLA. However, ABA believes that it would make sense to revise the definition to include lot loans within the exclusion, and we have asked the Department of Defense to issue a clarification that would exempt lot loans. For now, though, vacant land is not excluded from coverage, regardless of the borrower’s intent to build on the property at some point in the future.

The question has been raised whether another exclusion, the exclusion for personal property, could be applied to lot loans. Since a piece of property is real estate and not personal property, that exclusion is not applicable. Until the Department of Defense takes action and does something to exclude lot loans, when a loan is made to a covered borrower and secured by vacant land, the MLA rule applies and the bank must comply with all the provisions of the MLA. (September 2019)

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