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#1536425 - 04/15/11 08:32 PM Investment Property
Patricia Offline
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Original purpose of loan was to purchase a primary residence. The home is now being used as a rental and the borrowers are refinancing the balloon pmt. No new money was given. So I am thinking no Reg Z or RESPA disclosures need to be given. I have read the commentary at 226.3 and I am still not sure.

Thanks.

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#1536429 - 04/15/11 08:34 PM Re: Investment Property Patricia
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Rentals are specifically exempt from RESPA/Reg Z. I think RESPA actually contains the exemption and Reg Z refers to it.....or may be the other way around. It's a refi is you're a HMDA reporter.
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#1536439 - 04/15/11 08:43 PM Re: Investment Property swiggles
Patricia Offline
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Thanks.

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#1536575 - 04/18/11 12:34 AM Re: Investment Property Patricia
Dan Persfull Offline
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Reg 226.3 exempts the acquisition, maintenance repair or rehabilitation of 1-4 non owner occupied rental property. The purpose of the loan does not fall within any of those categories. This is a consumer purpose refinancing using rental property as collateral.

When dealing with Reg. Z and RESPA you have to always look at the loan's purpose, not just the collateral.
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#1536967 - 04/18/11 06:55 PM Re: Investment Property Dan Persfull
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Unless I read the question wrong, the loan is to refinance the aquisition of the home. The exemption cannot be used because the property was originally homestead?
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#1536984 - 04/18/11 07:10 PM Re: Investment Property swiggles
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Not sure if you and I are agreeing or disagreeing.

Welsh states in the original post that they DO NOT think TIL & RESPA apply due to the home now being used as a rental property.

You state in your response rental property is exempt under Reg Z and RESPA. I therefore took your response, as written, to be agreeing with Welsh's opinion.

The original loan was to purchase the consumer's primary dwelling. Most definitely a consumer purpose loan.

The balloon has now come due and the consumer is refinancing that balloon but the property is now being used as a rental. This fact does not change the purpose of the original loan. The purpose of the new loan is to refinance that loan. There is no new money being advanced therefore none of the proceeds are being used to maintain, improve or rehabilitate the property. Nor is the loan for the acquisition of rental property. The consumer is refinancing a consumer purpose loan secured by a rental property. As I stated in my reply the loan's purpose does not fall within the rental property exemption found in 226.3 and the refinancing is a consumer purpose loan and is not exempt from TIL or RESPA.
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#1536999 - 04/18/11 07:23 PM Re: Investment Property Dan Persfull
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Yes.....I agree.....sort of. But if the customer now lives in a new home and their former home is being used as rental property and they need to refinance it...convert to different terms....possibly to match the mortgage payments to the rent payments....seems like it ought to be exempt. But conservatively speaking....you're right.

Ha...silly me....you're always right. wink
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#1537001 - 04/18/11 07:26 PM Re: Investment Property swiggles
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Is the converse also true Dan? A loan to purchase a rent home that later turns into the primary residence of the borrower would be an exempt transaction under the same circumstances?
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#1537003 - 04/18/11 07:30 PM Re: Investment Property raitchjay
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Originally Posted By: raitchjay
Is the converse also true Dan? A loan to purchase a rent home that later turns into the primary residence of the borrower would be an exempt transaction under the same circumstances?
Well now, THAT'S an interesting twist!
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#1537011 - 04/18/11 07:40 PM Re: Investment Property raitchjay
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No. Again you have to look at the purpose of the refinancing. That would be an example of a business purpose loan later being refinanced as a consumer purpose loan. From the Commentary to 226.3:

6. Business credit later refinanced. Business-purpose credit that is exempt from the regulation may later be rewritten for consumer purposes. Such a transaction is consumer credit requiring disclosures only if the existing obligation is satisfied and replaced by a new obligation made for consumer purposes undertaken by the same obligor.

The misconception is Reg. Z automatically exempts non-owner occupied rental property. If you review the Commentary to Reg Z you will find it is only exempt under the following:

4. Non-owner-occupied rental property. 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. . . .

Welsh's refinancing does not fall within those categories.


You have to make the disclosures based on known facts of the transaction and in this case the mitigating known fact is the original loan was a consumer purpose loan and the new loan is to refinance that loan. There is no business purpose to the refinancing based on the known facts of the transaction.
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#1537019 - 04/18/11 07:47 PM Re: Investment Property Dan Persfull
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Thanks for the clarification Dan. So, Reg. Z in this case is tilted toward disclosure, right? (Would make sense.) That is, there's a special rule about business credit later refinanced as consumer credit, but no disclaimer that primary residences that turn into non-owner occupied rent homes become exempt. If you don't mind humoring me some more (just trying to learn here).....what would it take to make Welsh's refinancing exempt? If a relatively minor amount of new money was added to do some home improvements, would that be enough?
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#1537025 - 04/18/11 07:52 PM Re: Investment Property raitchjay
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I guess i also have a question about the word "maintain". Couldn't the refinancing be looked at as letting the consumer "maintain" the property, which is now a non-owner occupied rent home? ETA: If "maintain" means another word for maintenance, upkeep, etc., then no, it wouldn't mean that. But if "maintain" means "keep in one's possession", then i'd look at it differently. Sorry if i'm rambling here....that word confuses me in this context.
Last edited by raitchjay; 04/18/11 07:54 PM.
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#1537028 - 04/18/11 07:58 PM Re: Investment Property raitchjay
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If new money is advanced to improve or maintain the rental property then I would apply the exemption.

Also if it was not known the original loan was for the purchase of the primary residence I would apply the exemption to the refinancing. Again based on known, or in this case unknown, facts of the transaction. I would caution though I would only apply this to paying off another FI. If refinancing an in-house loan you would, or should, have the purpose of the loan being refinanced and disclose accordingly.
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#1537035 - 04/18/11 08:03 PM Re: Investment Property Dan Persfull
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I would not consider the definition of maintain in this context as to be able to retain ownership in the property.

IMHO maintain in this context is referring to the maintenance of the property such as repairing a broken window, painting, replacing an appliance, etc.
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#1537041 - 04/18/11 08:08 PM Re: Investment Property Dan Persfull
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Thanks for your insight Dan.
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#1537043 - 04/18/11 08:09 PM Re: Investment Property Dan Persfull
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I don't like you anymore. wink
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#1537050 - 04/18/11 08:19 PM Re: Investment Property swiggles
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I guess the only reason i bring up the meaning of "maintain" in this context is because a refinancing with no new money doesn't "acquire" the property, nor does it "improve" the property and if the meaning of "maintain" is upkeep, etc., then it doesn't do that either, so how would a refinancing of a rent home EVER meet the test?
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#1537066 - 04/18/11 08:39 PM Re: Investment Property raitchjay
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The original loan was exempt as a business purpose loan based on the acquisition of the rental property. Refinancing a business purpose credit does not cause it to lose its exemption unless it would fall within the "later refinance as" scenario discussed earlier.

Again - purpose - not collateral - drives TIL & RESPA.

Remember - if I borrow $20,000 to "maintain" my non-owner occupied rental property and secure the loan with my primary residence the loan is exempt from TIL under 226.3 as a business purpose loan. Again it's purpose - not collateral - that drives TIL & RESPA (with the exception that non residential property or property of 25 or more acres are not subject to RESPA).


PS. Swiggles - somehow I don't believe you! smile
Last edited by Dan Persfull; 04/18/11 08:40 PM.
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#1537077 - 04/18/11 08:46 PM Re: Investment Property Dan Persfull
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Originally Posted By: Dan Persfull
PS. Swiggles - somehow I don't believe you! smile


I never have been a very good liar......
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#1537079 - 04/18/11 08:49 PM Re: Investment Property Dan Persfull
raitchjay Online
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One last kick at the dead horse: if Welsh's refinance included the nominal amount i mentioned earlier for improvements, the loan would be classified as business purpose and exempted. Would that end the "consumer purpose" train? In other words, say the orginal 3 year balloon is refinanced with extra for improvements into another 3 year balloon. When the 2nd balloon comes up for refinancing into a 3rd balloon, we are now refinancing a non-owner occupied rent home (even if there are no more new funds for any more improvement or maintenance), correct?
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#1537195 - 04/19/11 12:49 PM Re: Investment Property raitchjay
Dan Persfull Offline
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That would be correct.
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