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#1807011 - 04/22/13 06:55 PM Consumer purpose loan to business
Vander Offline
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Vander
Joined: Jul 2003
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Texas
I have an odd situation...Dad is buying daughter a house, but wants to finance in the name of his company. It's consumer purpose, but since the credit is not being extended to a "consumer" is it exempt from Reg Z?

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#1807015 - 04/22/13 06:57 PM Re: Consumer purpose loan to business Vander
Kathleen O. Blanchard Offline

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Kathleen O. Blanchard
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Will there be a lease and will she pay rent to the company? Will the company legitimately gain tax deductions (depreciation, interest, etc.) If there are no aspects of a business purpose loan (businesses really can't legitimately go around buying houses for people without a business purpose and accounting for it as such with IRS) then it is consumer purpose.
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#1807021 - 04/22/13 07:08 PM Re: Consumer purpose loan to business Vander
Vander Offline
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Vander
Joined: Jul 2003
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Texas
I have no arguments that it is consumer purpose. In looking at Reg Z under exemptions it lists "An extension of credit to someone other than a natural person, including credit to a government agency or instrumentality." I'm trying to figure out if this exemption applies to this situation. Thanks again for any help.

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#1807025 - 04/22/13 07:10 PM Re: Consumer purpose loan to business Vander
Kathleen O. Blanchard Offline

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Kathleen O. Blanchard
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Depending upon the structure of the business (is it a legal entity) the loan would be exempt from Z but not RESPA.

If a loan does not legally qualify as business purpose for that business, I for one have a real problem with helping customers get around tax issues. Business transactions are supposed to be for the benefit of the business.
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Kathleen O. Blanchard, CRCM "Kaybee"
HMDA/CRA Training/Consulting/Mapping
The HMDA Academy
www.kaybeescomplianceinsights.com

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#1807027 - 04/22/13 07:12 PM Re: Consumer purpose loan to business Vander
rlcarey Offline
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rlcarey
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Galveston, TX
If the company is a real stand alone entity, then yes it would be exempt from Reg. Z, but not RESPA. However, credit risk is a whole other issue unless the business is profitable and I too would be curious how they are going to account for this asset and liability.
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#1807114 - 04/22/13 09:17 PM Re: Consumer purpose loan to business Vander
Richard Insley Offline
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Richard Insley
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Toano, VA
If this deal has already closed, hope for the best. Otherwise, talk to dad again and ask enough questions to make you comfortable that this is not a tax evasion scheme or something else the bank has no business facilitating. There could be a legitimate explanation--for example, daughter is qualified to run the business and some number of company-paid years in the house is a signing bonus.
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#1807116 - 04/22/13 09:28 PM Re: Consumer purpose loan to business Richard Insley
Kathleen O. Blanchard Offline

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Kathleen O. Blanchard
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Originally Posted By: Richard Insley
If this deal has already closed, hope for the best. Otherwise, talk to dad again and ask enough questions to make you comfortable that this is not a tax evasion scheme or something else the bank has no business facilitating. There could be a legitimate explanation--for example, daughter is qualified to run the business and some number of company-paid years in the house is a signing bonus.

Exactly, a true business purpose. I find that many banks think this is solely a Reg Z/RESPA issue. It goes well beyond that into much more serious matters. A business needs a business purpose to borrow.
_________________________
Kathleen O. Blanchard, CRCM "Kaybee"
HMDA/CRA Training/Consulting/Mapping
The HMDA Academy
www.kaybeescomplianceinsights.com

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#1809003 - 04/29/13 05:51 PM Re: Consumer purpose loan to business Vander
NotDoneYet Offline
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NotDoneYet
Joined: Jul 2010
Posts: 482
PA
We had found that our commercial lenders were doing any kind of loan their customers requested through them because they are business customers. We put a stop to that. If it is not a business purpose loan, they can't do it through the commercial dept. and they are politely handed over to the consumer lending dept.

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