We sold one of our bank owned properties to an investor who plans on finishing the construction of it (it was about 75% completed before we foreclosed) and then rent it out.

We couldn't get secondary market approval because the owner has to be in title for six months. So, the bank did this commercial investment loan as a construction loan for the term of one year in the hopes that the secondary will then be open to refinancing it.

If they won't, we will refinance it ourselves.


I am thinking this is a reportable home purchase loan because we are accepting the fact that we may need to refinance/modify ourselves when the construction is completed.

Thoughts?

A lot of gray area with this scenario.

The "conventional" rule is that a home can only be built once, where the house wasn't completed it is hard to say if this is a purchase or a construction loan.

I believe there are definitions of what constitutes a completed home, which gets into the foundation and footers... don't ask where I just know I have heard this... someone else may have a citation for you.

I would argue that at 75% the home is materially complete and that it is a reportable new home purchase for the full amount of the loan.

However based on the description of how your bank did the loan as a consturction (or really more so temporary financing), I don't think the loan would be reportable until you refinanced the loan.

To me the gray area is between the different ways you could have closed the loan. For consistency sake I would say you closed it as construction and not report it...

All just opinion though... see what other answers you get.

Cheers!

AFaquir, If you closed this as a construction loan, to be refinanced later; couldn't you classify as temp now (not reported) and then report as a purchase when it goes to perm financing? Sounds a lot like a construction/perm scenario.

It totally does Soccer Mom- from the description they provided it is a construction to perm scenario. Which would make the perm piece totally reportable, with a single app date of whenever and the construction phase backed out.

However, it doesn't sound like they actually stuctured the transacation that way internally. Just from what they said, it looks more like a flat construction or temp financing loan which will eventually have to be refied (looks like refried Ha). So they would be looking at a new application specifically for the refinance, rather than the single app for the Construction-to-perm.

The refi is obviously reportable.

I look at it as where the home is 75% built, they couldn't exactly call it a construction-to-perm.

Without all the pieces I think we are both guessing... that is just my take on it from what's been outlined.

Cheers!

Thanks for your input.

I am going with the way the loan is structured, and that's definitely more construction. I will report it as a refi if and when the time comes.

It wasn't done as a construction-to-perm loan (we used to do those and stopped a couple of years ago).

Thanks again!