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#1661855 - 02/08/12 12:58 PM Is this a consumer purpose loan?
Game On Offline
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Marietta, GA
A commercial lender wants to do a loan where the purpose of the loan will be to refinance 125 acres of farmland, barn, other improvements AND to construct a Single Family Residence. The farmland and barn will continue to be owned by the LLC and the new SFR will also be owned by the LLC.
1. The land and barn will be used for agricultural purposes
2. A portion of the SFR will be used for rental purposes. An S-corporation with common ownership with the LLC will be paying rent to the LLC for office space and insurance, etc.

3. The house will also be the residence of the owners of the LLC.


First thought was not subject to TILA and RESPA. After a restless night I am now second guessing my decision since it appears the purpose behind refinancing the farm loan would be to get additional money to build the house the owners will live in. Also,Doe LLC is run by Jon and Jane Doe (who will occupy the SFR).

I still think it is business purpose and I am most likely overthinking this but I would appreciate some other opinions.

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#1661891 - 02/08/12 02:23 PM Re: Is this a consumer purpose loan? Game On
Kathleen O. Blanchard Offline

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I would consider how much square footage/income of the new structure (part residence, part office space) is to be attributed to the office space. If primarily commercial, the loan could be treated as commercial.
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#1661892 - 02/08/12 02:24 PM Re: Is this a consumer purpose loan? Game On
Skittles Offline
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Skittles
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TN
Is the LLC the borrower?
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#1661920 - 02/08/12 02:53 PM Re: Is this a consumer purpose loan? Skittles
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Marietta, GA
YES- THE BORROWER will be the LLC
John and Jane DOE LLC

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#1661923 - 02/08/12 03:00 PM Re: Is this a consumer purpose loan? Game On
Kathleen O. Blanchard Offline

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Kathleen O. Blanchard
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Besides looking at how much is commercial, consider if the individuals living in the home will pay rent to the LLC (or is it treated as compensation). If yes, I would treat as a commercial loan.

Last edited by Kathleen B; 02/08/12 03:02 PM.
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#1661930 - 02/08/12 03:04 PM Re: Is this a consumer purpose loan? Game On
Dan Persfull Offline
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Dan Persfull
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Bloomington, IN
Originally Posted By: UGA Fan
YES- THE BORROWER will be the LLC
John and Jane DOE LLC


The loan would be exempt from Reg Z because the loan is to a non-natural person and exempt from RESPA because the acreage is 25 or more acres.
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#1661949 - 02/08/12 03:21 PM Re: Is this a consumer purpose loan? Dan Persfull
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Marietta, GA
Thank you!

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#1661979 - 02/08/12 03:49 PM Re: Is this a consumer purpose loan? Game On
Kathleen O. Blanchard Offline

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Kathleen O. Blanchard
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But don't forget that if you treat it as consumer purpose (exempt from Z and RESPA nonetheless) it is a consumer purpose loan for all other regulations that apply.

If it is commercial dependent upon cash flow etc. it should be underwritten as commercial, with annual reviews and so forth to ensure ongoing credit quality, viability of collateral, etc. Some OTS banks that are now OCC are learning that lesson.
_________________________
Kathleen O. Blanchard, CRCM "Kaybee"
HMDA/CRA Training/Consulting/Mapping
The HMDA Academy
www.kaybeescomplianceinsights.com

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