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If a lender has mixed collateral, where one piece of collateral qualifies the loan as MLA covered, should the bank treat the transaction as MLA covered?

At a Military Lending Act (MLA) training seminar, the speaker said that if a lender has mixed collateral, where one piece of collateral qualifies the loan as MLA covered, it should treat the transaction as MLA covered. Thus, for example, a transaction using both a dwelling and vacant land as collateral is covered because loans secured by vacant land are covered. Is this correct?

No. Residential mortgage is defined as “any credit transaction secured by an interest in a dwelling… “The definition does not say, for example, a transaction that is “solely” secured by an interest in a dwelling. The transaction you describe is secured by a dwelling, so it is exempt regardless that is it is also secured by a vacant lot.

There may be some confusion due to language in the Department of Defense’s Interpretive Rule regarding “hybrid loans.” The Interpretive Rule states that purchase money loans used to purchase personal property unrelated to the property securing the loan are covered. However, it only refers to personal property loans, not loans secured by a dwelling. More importantly, both the statute and the regulation exempt purchase money financing arrangements even if they are used to finance other items or to get cash and the statute and regulation. ABA has asked the Department of Defense for clarification to the regulation to clear up the confusion. (July 2017)

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