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#1788086 - 02/21/13 06:56 PM Loan to LLC - Owner lives in home
manimal Offline
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manimal
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In this situation, the borrower is an LLC, with two individuals owning 50% each. The LLC is acquiring a single family home and refinancing 3 other SFHs in this transaction. One of the owners of the LLC lives in (rents) the SFH being acquired.

I am confident this loan is not subject to Reg. Z because the borrower is an entity (not a natural person). What I am worried about is RESPA. The exemption in Part 1024 includes loans that are primarily business purpose, which I believe we have with the other 3 SFHs being refinanced. But what about the SFH that one of the LLC owners lives in? It is my understanding that even after the acquisition, the LLC owner will continue to rent the property from the LLC.

Thanks in advance for any help you can offer!
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#1788094 - 02/21/13 07:05 PM Re: Loan to LLC - Owner lives in home manimal
raitchjay Offline
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OK
Since your borrower is the LLC and the purpose is to acquire "non-owner occupied" rental property (the LLC can't "occupy" the rent home, even though one of the owners of the LLC will) i'd argue that it's exempt from RESPA as business purpose. Now if the loan was to the LLC with the purpose of buying the primary residence (not a house that he is going to rent, but a house that he will reside in based on the good graces of the LLC) of one of the LLC borrowers, i'd look at it differently. Having said all of that, i've never faced that scenario and will be curious if others agree or disagree.

ETA: not sure i stated that as clearly as i could. In my eyes, the property is a non-owner occupied rent home. The fact that the LLC owner is the renter doesn't change how i'd look at it.
Last edited by raitchjay; 02/21/13 07:11 PM.
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#1788100 - 02/21/13 07:12 PM Re: Loan to LLC - Owner lives in home manimal
Kathleen O. Blanchard Offline

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Is he actually paying rent to the LLC? In that case, it is an investment property for the LLC.
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#1788127 - 02/21/13 07:45 PM Re: Loan to LLC - Owner lives in home manimal
manimal Offline
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So it sounds like the key point here is whether or not the individual will pay rent to the LLC to live in the home after the LLC acquires it. I will get clarification on that. Thank you so much for your thoughts!
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#1788130 - 02/21/13 07:46 PM Re: Loan to LLC - Owner lives in home manimal
Kathleen O. Blanchard Offline

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Or are they counting it as income for him, upon which he is taxed. Those are the types of things that make it business purpose for the LLC.

ETA: Another business explanation is the LLC (which really needs to count this as compensation unless he is renting from them) is that the LLC is purchasing and will either rent to him or count as part of compensation because the LLC will have tax writeoffs via the depreciation, interest, taxes, upkeep, etc.

There should be an understanding of just why the LLC is doing this deal. My LLC cannot buy a home for me without tax consequences for both of us.
Last edited by Kathleen B; 02/21/13 07:55 PM.
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#1788138 - 02/21/13 07:53 PM Re: Loan to LLC - Owner lives in home manimal
manimal Offline
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I just received word that the individual will continue to pay rent to the LLC after it acquires the home. So this would make this investment property for the LLC and exempt from RESPA.
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