TILA (Truth in Lending Act) and RESPA (Real Estate Settlement Procedures Act) govern disclosure requirements, cost transparency, and loan servicing standards for residential mortgage transactions. Private lenders and seller financiers who originate loans secured by owner-occupied properties face direct exposure to both statutes. This glossary covers the core terms every private note holder must know.

Federal Disclosure Law and Private Mortgage Notes

Private lenders who keep servicing in-house routinely treat TILA and RESPA as institutional bank problems. That assumption is incorrect. Once a lender crosses specific volume thresholds or originates loans on owner-occupied residential property, federal disclosure and servicing rules attach. The terms below define the framework.

Truth in Lending Act (TILA)

The Truth in Lending Act is a federal consumer protection statute requiring creditors to disclose loan terms and costs clearly before a borrower signs. For private lenders and seller financiers, TILA applies to residential consumer-purpose loans and governs the disclosure of key information — including the Annual Percentage Rate (APR) and payment schedules. Lenders who originate above the exemption threshold, or who originate any loan secured by an owner-occupied property, must provide accurate disclosures at specific stages of the transaction. Non-compliance carries severe penalties and extends a borrower’s right to cancel the transaction years after closing.

Real Estate Settlement Procedures Act (RESPA)

The Real Estate Settlement Procedures Act is a federal law protecting consumers from abusive settlement practices — requiring cost disclosures at closing and prohibiting kickbacks between settlement service providers. Many private loans and seller financing arrangements are exempt from RESPA’s initial disclosure requirements, such as the Loan Estimate, but RESPA’s loan servicing provisions attach broadly. These include rules governing escrow accounts, error resolution, and borrower information requests. Private mortgage servicers who underestimate RESPA’s servicing reach face penalties and borrower disputes that professional servicing is specifically structured to prevent.

Loan Estimate (LE)

The Loan Estimate is a standardized three-page disclosure giving borrowers a summary of a loan’s estimated interest rate, monthly payment, and closing costs, enabling side-by-side comparison of loan offers. Private lenders who originate three or fewer residential mortgage loans per calendar year are exempt from the LE requirement. Lenders who exceed that threshold — or who work with mortgage brokers on any covered transaction — must provide a compliant LE, making it critical to track annual origination volume before the first loan in any year closes.

Closing Disclosure (CD)

The Closing Disclosure is a five-page document delivering the final terms of a mortgage loan — including its payment schedule and all closing costs — to the borrower at least three business days before loan consummation. Like the Loan Estimate, the CD is not required for occasional private lenders or seller financiers operating within TILA’s low-volume exemptions. When a private loan falls under TILA/RESPA coverage — due to origination volume or broker involvement — the Closing Disclosure becomes a legally mandated document that must be delivered on time and in the prescribed format.

Annual Percentage Rate (APR)

The Annual Percentage Rate represents the total cost of credit expressed as an annual percentage, incorporating the stated interest rate plus specific fees such as origination charges, discount points, and mortgage insurance premiums. TILA requires creditors — including applicable private lenders — to calculate and prominently disclose the APR before loan consummation. To illustrate: on a $200,000 private mortgage note at 9% interest, adding origination fees to the APR calculation pushes the disclosed rate above the note rate, and that gap must be accurately reflected in the required disclosure. Miscalculating or omitting the APR triggers compliance violations and exposes the lender to rescission claims.

Right of Rescission

The Right of Rescission is a TILA-mandated protection giving borrowers three business days to cancel certain credit transactions without penalty after signing loan documents. This right attaches to loans secured by a borrower’s principal dwelling in refinance transactions — it does not apply to purchase money mortgages. Private lenders must identify every loan that triggers rescission rights and provide the required written notice at closing. Failure to provide proper notice extends the rescission window to three years, creating substantial uncertainty around the lender’s security interest and enforcement rights.

Ability to Repay (ATR) Rule

The Ability to Repay Rule, enacted under TILA, requires creditors to make a reasonable, good-faith determination that a borrower can repay a residential mortgage loan before extending credit. Verification includes income, assets, debt obligations, and debt-to-income ratio. Private lenders originating loans on non-owner-occupied investment properties who stay below specific volume thresholds qualify for an exemption. Lenders who sell loans into the secondary market must comply regardless of volume. Documenting ATR analysis at origination closes the door on post-foreclosure claims of irresponsible lending. For related compliance structure, see 7 Compliance Mistakes Private Lenders Make.

High-Cost Mortgage (HOEPA)

A High-Cost Mortgage is a loan category defined under the Home Ownership and Equity Protection Act (HOEPA) — an amendment to TILA — triggered when a loan’s APR, points and fees, or prepayment penalties exceed specific statutory thresholds. Crossing these thresholds activates additional disclosure requirements, restrictions on certain loan terms, and mandatory pre-loan counseling for the borrower. Private lenders must calculate HOEPA thresholds on every covered loan before closing: an inadvertent designation carries severe penalties, extended rescission rights, and heightened litigation exposure. See 7 Mandatory Disclosures for Private Mortgage Lenders for a practical disclosure baseline.

Qualified Written Request (QWR)

A Qualified Written Request is a formal written communication from a borrower to their mortgage servicer requesting account information or asserting that a servicing error occurred. Under RESPA, servicers must acknowledge a QWR within five business days and respond with a resolution, correction, or explanation within 30 business days — with a potential 15-day extension for complex matters. Private mortgage servicers without a documented QWR intake and tracking process are exposed to fines and escalating borrower claims. A professional servicer handles QWR acknowledgment, routing, and response deadlines as standard workflow.

Servicing Transfer Statement

A Servicing Transfer Statement is the RESPA-required notice delivered to a borrower when servicing responsibility transfers from one servicer to another. It discloses the transfer’s effective date and contact information for both the outgoing and incoming servicer. Private lenders who sell their notes or transition to a professional servicer must deliver this notice within the timeline RESPA prescribes. A late or deficient transfer notice is a compliance violation — and a source of borrower confusion that creates delinquency risk at the moment of transition. For what to expect through the full handoff process, see 7 Things That Happen to Your Note When You Transfer Loan Servicing.

Private Mortgage Servicing

Private mortgage servicing is the administrative management of a private mortgage note from loan boarding through payoff. Core functions include payment processing, escrow administration for taxes and insurance, delinquency management, borrower communications, and regulatory compliance with TILA, RESPA, and applicable state statutes. For private lenders and seller financiers, outsourcing to a professional servicer ensures that disclosure obligations, QWR response timelines, and transfer notice requirements are handled by a dedicated team — removing the liability that accumulates when self-servicing without the infrastructure to do it correctly. Note Servicing Center services private mortgage notes exclusively, with every process built around this specific asset class.

Seller Financing

Seller financing — also called owner financing — is a transaction in which the property seller acts as the lender, providing a loan to the buyer secured by a promissory note and a mortgage or deed of trust. This structure gives the seller an income-producing private mortgage note and gives the buyer financing outside conventional lending channels. Seller financing is not automatically exempt from federal regulation. Sellers who finance multiple transactions per year, or whose buyer occupies the property as a primary residence, face TILA and RESPA disclosure and servicing obligations that demand the same compliance attention as any institutional transaction. For the most common compliance gaps, see 7 Seller Financing Pitfalls Private Lenders Must Avoid.

Loan Originator Compensation

Loan Originator Compensation refers to any payment or financial benefit received by an individual or entity for assisting a consumer in obtaining a residential mortgage loan. TILA’s originator compensation rules prohibit payments tied to loan terms — such as steering borrowers toward higher interest rates in exchange for increased originator pay — and require that compensation structures not be adjusted based on whether a transaction closes. Private lenders who work with brokers or other third parties must review their compensation arrangements for compliance before the first loan originates, not after a dispute surfaces.

Escrow Account

An escrow account is a custodial account maintained by a mortgage servicer to collect and hold borrower funds for property taxes and homeowner’s insurance premiums, disbursed when bills come due. RESPA regulates every phase of escrow account administration — including the initial escrow disclosure statement, the annual escrow analysis, and the process for handling fund surpluses or shortages. Private lenders and servicers who maintain escrow accounts on their notes must follow RESPA’s escrow rules completely, including all required account disclosures and timing requirements. For setup and disbursement mechanics, see Escrow Account Setup for Private Mortgage Notes and Escrow Disbursement for Private Mortgage Notes.

Exempt Transaction

An exempt transaction is a credit agreement that falls outside the full scope of TILA or RESPA requirements. Common exemptions cover loans for business, commercial, or agricultural purposes, and credit extended to corporate entities rather than individual consumers. A private individual who originates three or fewer residential mortgage loans in a calendar year — and does not sell those loans to an institution — qualifies for certain TILA disclosure thresholds. Qualifying for a federal exemption does not eliminate all compliance obligations: RESPA’s servicing rules and state-level disclosure statutes apply independently, regardless of whether the loan itself is federally exempt.

Expert Take

The exemptions in TILA and RESPA are narrower than most private lenders realize. The statute tracks loans originated across a rolling 12-month period, and lenders who self-service without an annual compliance review of their origination count and loan structure are the ones who discover their exposure after a borrower’s attorney raises it. Professional servicing closes that gap before it opens — because a servicer with documented procedures and trained staff is the first line of defense, not a reaction to a problem already in motion. For a full compliance checklist, see 9 Compliance Checkpoints for Private Mortgage Loan Servicers in 2026.

Understanding these terms is the foundation, but TILA and RESPA compliance requires consistent servicing practices, documented procedures, and a servicer built specifically for private mortgage notes. For more on navigating these rules in practice, see 7 TILA/RESPA Misconceptions That Risk Your Seller Financing Investment and 30% Less Litigation Risk: Proactive Disclosure for Private Lenders.