Existing loan to consumer, collateral was primary residence. Now refinancing, but property is now rental property. What would stop the bank from processing as business purpose loan and taking an assignment of rents?

What was the original use of proceeds? That is what determines if the loan was consumer or business purpose.

originally the loan was a home equity line of credit. File isn't documented very well, but it is more than likely consumer purpose. But now we are converting to term out the loan, one of the signers will change too.

I would not change it to a business purpose without some evidence that it actually is a business purpose. It sounds like consumer purpose. It would be very unusual for a loan to "change purpose" midstream, refi or not.

This is no longer the primary dwelling, now rental property which is exempt from Reg Z. As long as this is a true refi, paying off first loan, then this is business purpose - purpose of new loan is to refi rental property.

Did I mention this is a workout deal? Definitely a refi.

Collateral is not a determining factor in consumer/business decision. If I use a rental home as collateral to get funds to go on vacation and then later refinance that amount, it does not turn it into an exempt transaction just because the collateral is a rental home and I am refinancing a current debt secured by that property.

To take this a step futher. Rental property is only exempt as business purpose if its for credit extended to acquire, improve, or maintain rental property (regardless of the number of housing units) that is not owner-occupied is deemed to be for business purposes.

So...if you were refinancing credit originally for the above purposes, it would be BP.

This does not sound like it was purchase money, since it's a HELOC and it's very difficult to determine what the HELOC money was used for, for instance, improvements or maintenance.

If you can't determine these things, then chances are you will keep this as a personal purpose loan.

I'll go with that! Thanks for the feedback.