Minister Purchases Houses to Renovate and Sell
by Dan Persfull and Richard Insley, BOL Gurus Guru BIOS
Question: I have an application for a loan. The applicant is a youth minister who is buys, renovates homes and sells them. The purpose of the application for the credit is to purchase a home to refurbish it and sell it. Do you consider this a business purpose loan or a consumer loan (affected by Reg Z and RESPA)? The application is in the name of Mr. and Mrs. XXX not a business entity
Answer by Dan Persfull: Based on your post it sounds as though this person is in the business of buying, renovating and selling homes on a regular basis. I would treat this as a business loan.
Answer by Richard Insley: I don't disagree with your conclusion, Dan, but it's worth outlining the process you followed to arrive at a conclusion. Since this is neither a typical home purchase/rehab nor a rental property loan, you must look to the general rules for coverage of loans to finance the acquisition of things in general (Section 226.3(a), Comment #2):
Factors. In determining whether credit to finance an acquisition—such as securities, antiques, or art—is primarily for business or commercial purposes (as opposed to a consumer purpose), the following factors should be considered:
The relationship of the borrower's primary occupation to the acquisition. The more closely related, the more likely it is to be business purpose.
The degree to which the borrower will personally manage the acquisition. The more personal involvement there is, the more likely it is to be business purpose.
The ratio of income from the acquisition to the total income of the borrower. The higher the ratio, the more likely it is to be business purpose.
The size of the transaction. The larger the transaction, the more likely it is to be business purpose.
The borrower's statement of purpose for the loan.
Be honest as you consider each item, and when you're done, if the case is not compelling, err on the side of disclosure.
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