TILA and RESPA require private mortgage lenders and seller financiers to deliver specific disclosures—Loan Estimates, Closing Disclosures, and accurate APR calculations—at defined deadlines. These federal rules govern escrow management, Ability-to-Repay underwriting, and borrower dispute procedures. Knowing each term is the foundation of compliant private mortgage lending.

Private lenders and seller financiers operate inside a regulatory framework most real estate investors underestimate. The Truth in Lending Act and the Real Estate Settlement Procedures Act govern disclosures, escrow, servicing conduct, and borrower protections across the entire life of a loan. This glossary defines each term you need to understand before originating or servicing a private mortgage note.

Truth in Lending Act (TILA)

TILA is a federal consumer protection law that requires lenders to disclose key credit terms—including the Annual Percentage Rate and Finance Charge—so borrowers can compare loan offers on equal footing. Private lenders who extend credit secured by a dwelling more than five times per calendar year qualify as creditors under TILA and are subject to its full disclosure framework, Ability-to-Repay requirements, and Higher-Priced Mortgage Loan rules. Compliance requires timely, accurate delivery of the Loan Estimate and Closing Disclosure on every covered transaction.

Real Estate Settlement Procedures Act (RESPA)

RESPA is a federal law governing mortgage settlement procedures and ongoing loan administration. It applies to most federally related mortgage loans and requires specific disclosures at application and closing, prescribes escrow account management rules, prohibits kickbacks and unearned fees, and establishes mandatory timelines for responding to borrower inquiries. Violations carry civil penalties and expose lenders to borrower rescission rights—making RESPA compliance a baseline operational requirement, not an optional safeguard.

Loan Estimate (LE)

The Loan Estimate is a standardized three-page form lenders must deliver to borrowers within three business days of receiving a loan application. It discloses the estimated interest rate, projected monthly payment, and total closing costs. Under the TRID Rule—which unified TILA and RESPA disclosure requirements into a single framework—the Loan Estimate sets the baseline against which the final Closing Disclosure is compared. Accurate, on-time LE delivery is a threshold compliance requirement for every private mortgage transaction subject to TRID.

Closing Disclosure (CD)

The Closing Disclosure is a five-page form that itemizes the final loan terms, projected payments, and all closing costs. Lenders must deliver it to the borrower at least three business days before closing. The CD must align with the Loan Estimate within permissible tolerance limits—deviations outside those limits constitute a disclosure violation. Private lenders who deliver an inaccurate or late Closing Disclosure face regulatory penalties and potential rescission exposure from the borrower.

Annual Percentage Rate (APR)

The APR is the true annualized cost of credit, expressed as a percentage. It includes the note rate plus origination fees, points, and other lender charges—converting all loan costs into a single comparable figure. TILA requires accurate APR disclosure so borrowers can evaluate competing loan offers on the same basis. Incorrect APR calculations give borrowers extended rescission rights and expose lenders to civil liability. A qualified private mortgage servicer supports precise APR computation and correct presentation on all required disclosures.

Finance Charge

The Finance Charge is the total cost of credit expressed in dollar terms. It includes interest, service charges, points, and other fees the consumer pays—directly or indirectly—for the extension of credit. TILA requires the Finance Charge to appear prominently on all required disclosures. Errors in Finance Charge calculation flow directly into APR errors, compounding compliance exposure. Accurate identification and aggregation of every applicable charge is essential before any required disclosure is issued.

Creditor (Under TILA)

Under TILA, a creditor is a person or entity that regularly extends credit secured by a consumer’s dwelling. The threshold is more than five dwelling-secured transactions in a calendar year—or more than one high-cost mortgage transaction. Private lenders and seller financiers who cross this threshold must comply with TILA’s full disclosure framework, including Ability-to-Repay rules and, where applicable, Higher-Priced Mortgage Loan requirements. Underestimating creditor status is one of the most common—and costly—compliance gaps in private lending.

Mortgage Servicing Rules

Mortgage Servicing Rules—codified under Regulation X (RESPA) and Regulation Z (TILA)—govern how servicers interact with borrowers throughout the life of a loan. They address error resolution procedures, information requests, force-placed insurance, escrow account management, and loss mitigation requirements. Private lenders who self-service or engage a third-party servicer are bound by these rules from the moment a loan is boarded. Violations trigger borrower dispute rights, regulatory fines, and litigation exposure. See 7 compliance mistakes private lenders make for the most common servicing failures.

Qualified Written Request (QWR)

A Qualified Written Request is a written communication from a borrower to a mortgage servicer requesting information about the loan account or disputing a servicing error. RESPA requires servicers to acknowledge a QWR within five business days and resolve it within 30 business days. Failure to respond within those deadlines triggers statutory liability, including actual damages and attorney’s fees. Private lenders using a professional servicer should confirm that a formal QWR management protocol exists before boarding any loan.

Ability-to-Repay (ATR) Rule

The ATR Rule, established under TILA, requires lenders to make a reasonable, good-faith determination that a borrower has the ability to repay a residential mortgage loan before extending credit. Verification covers income, assets, employment, credit history, and existing debt obligations—all documented at origination. Seller financiers and private lenders who meet the creditor definition must satisfy ATR requirements and retain documentation to prove it. Originating a loan without documented ATR analysis creates substantial default-litigation exposure. See 7 TILA/RESPA misconceptions seller financiers must avoid for common ATR errors.

Higher-Priced Mortgage Loan (HPML)

A Higher-Priced Mortgage Loan is a closed-end mortgage secured by a consumer’s principal dwelling with an APR that exceeds the Average Prime Offer Rate (APOR) by a defined threshold. HPML status triggers additional TILA requirements: a mandatory escrow account for property taxes and homeowner’s insurance, and an appraisal by a licensed or certified appraiser before closing. Private lenders must identify HPML status during underwriting and build compliant escrow and appraisal processes into the transaction workflow before any loan of this type closes.

Escrow Account

An escrow account is a servicer-managed fund into which borrowers contribute portions of their annual property tax and homeowner’s insurance obligations alongside their regular mortgage payment. The servicer disburses those funds when bills come due. RESPA prescribes strict rules for establishing, analyzing, and adjusting escrow accounts—including annual escrow analyses and limits on the cushion a servicer retains. For a detailed breakdown of how this works within private mortgage notes, see escrow account setup for private mortgage notes and escrow disbursement for private mortgage notes.

Seller Financing

Seller financing—also called owner financing—is a transaction in which the property seller extends credit directly to the buyer, taking back a promissory note secured by a mortgage or deed of trust rather than receiving full cash proceeds at closing. Seller financiers who cross the TILA creditor threshold face the same disclosure obligations as institutional lenders: Loan Estimate, Closing Disclosure, accurate APR, and ATR compliance. Structure and compliance traps are significant. See 7 seller financing pitfalls private lenders must avoid before structuring any owner-carry transaction.

Private Mortgage Servicing

Private mortgage servicing encompasses all post-closing loan administration for notes originated by private lenders or through seller financing: payment collection, escrow management, borrower communications, delinquency handling, IRS tax reporting, and required periodic statements. Professional servicing creates a documented compliance trail, satisfies Regulation X and Z obligations, and insulates lenders from servicing-rule violations. See 10 private mortgage servicing pitfalls and solutions for the administration failures that most commonly expose private lenders to regulatory risk.

Anti-Kickback Provisions (RESPA Section 8)

RESPA Section 8 prohibits any person from giving or receiving anything of value in exchange for referring settlement service business in connection with a federally related mortgage loan. This covers kickbacks, fee-splitting, and unearned fees of any kind. Violations carry criminal penalties, including fines and imprisonment. Private lenders and seller financiers must ensure all fees paid to settlement service providers—title, escrow, appraisal—are for services actually performed and are fully disclosed. Informal referral arrangements warrant legal review before any implementation.

Expert Take

The most costly TILA/RESPA errors in private lending are not willful—they are structural. Lenders who self-service miss QWR deadlines because no formal protocol exists. Seller financiers exceed the creditor threshold without recognizing it. Escrow accounts get established without an initial analysis. The solution is not memorizing every regulatory citation; it is building a servicing infrastructure that executes each requirement correctly by default. A qualified private mortgage servicer is that infrastructure.

Frequently Asked Questions

Does TILA apply to all private mortgage loans?

TILA applies to private lenders who qualify as creditors under the statute—those who extend dwelling-secured credit more than five times in a calendar year, or more than once for high-cost mortgages. Lenders below that threshold face more limited obligations, but any transaction involving a consumer borrower warrants legal review to confirm exemption status before assuming TILA does not apply.

What is the difference between the Loan Estimate and the Closing Disclosure?

The Loan Estimate is delivered within three business days of application and communicates estimated rate, payment, and closing costs so the borrower can compare loan options. The Closing Disclosure is delivered at least three business days before closing and reflects the final, binding transaction terms. The two documents must align within defined tolerance limits—material deviations between them constitute a compliance violation.

When does seller financing trigger RESPA compliance?

RESPA covers federally related mortgage loans, and many seller-financed transactions fall within that definition when secured by a one-to-four-family residential property. Seller financiers who complete multiple transactions per year, or who sell notes into the secondary market, face the broadest compliance exposure and should treat RESPA as applicable until legal counsel confirms otherwise.

What are the consequences of ignoring a Qualified Written Request?

A servicer who fails to acknowledge a QWR within five business days or resolve it within 30 business days faces statutory liability for actual damages, additional per-violation damages, and attorney’s fees. Repeated noncompliance attracts regulatory examination. Private lenders who self-service without a documented QWR response process carry direct personal exposure on every unanswered borrower dispute.