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#1914747 - 04/15/14 08:49 PM Purchase house using commercial property
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Scenario:

1. We have an individual that had a loan on a commercial building that was paid off early. He comes to us and says I need a loan against that commercial property because I want to purchase a new primary residence. Is this a consumer purpose loan subject to Regulation Z?

2. Same scenario except the borrower tells us that he wants to replenish his cash on hand because he felt paid down too much and wanted to put the $$ back in his checking account. Subject to Regulation Z?
Last edited by raidersn2000; 04/15/14 08:57 PM.
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#1914831 - 04/16/14 01:32 PM Re: Purchase house using commercial property Red Raiders
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Piggybacking on the above:

3. Same scenario except the borrower tells us he wants to replenish his cash (for future investments) and then tells us he is going to purchase a primary residence. He doesn't say that this is the use of our funds.
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#1914834 - 04/16/14 01:41 PM Re: Purchase house using commercial property Red Raiders
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1. Yes.

2. Personal cash? Yes.

3. Personal investments, stocks, bonds, RE, whatever...Yes.
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#1914842 - 04/16/14 01:50 PM Re: Purchase house using commercial property Red Raiders
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This individual is in the business of rental real estate (mainly apartment buildings). For #2 and #3 if he "says" he wants to replenish cash to have future liquidity to potentially purchase more investment property does this change things (keeping in mind that for #3 he told us he is purchasing a house with cash)?

Thanks for the response!
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#1914845 - 04/16/14 01:56 PM Re: Purchase house using commercial property Red Raiders
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I guess at that point, if he signed a business purpose statement and that's what he said he was doing, then I'd treat it as such..

For #3, I'm confused. The original question contradicts itself. It says he wants to replenish cash for future investments AND then tells us he's purchasing a PR AND then says he doesn't say that is what he's going to do...so which is it?
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#1914849 - 04/16/14 02:01 PM Re: Purchase house using commercial property Red Raiders
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He tells us that he wants to replenish cash for future investments and in the next sentence he mentions he is buying a primary residence for cash.

We have a disbursement authorization that is signed by the borrower that is marked "business purpose - refinance commercial building" (this document is typed by us but the borrower signed off on it). Does this get us off the hook? He didn't owe anything on the building.
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#1914868 - 04/16/14 02:28 PM Re: Purchase house using commercial property Red Raiders
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You start by pinning the customer down as to the loan purpose. Then you base your treatment of the loan as consumer- or business-purpose credit based on the customer's statement and other information about the transaction that you have.
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#1914881 - 04/16/14 02:38 PM Re: Purchase house using commercial property Red Raiders
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You can't 'refinance' something that has no balance, so that particular purpose is mis-stated in my opinion.
Last edited by RR Joker; 04/16/14 02:38 PM.
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#1914884 - 04/16/14 02:40 PM Re: Purchase house using commercial property Red Raiders
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I guess at that point, if he signed a business purpose statement and that's what he said he was doing, then I'd treat it as such.

I don't put a lot of stock in a business purpose statement. Dealt with too many loan officers over the years that as a matter of practice always had that statement signed.

If the bank has knowledge the borrower is using the money to purchase a primary residence and the loan officer has the borrower sign a business purpose statement to avoid consumer disclosures that is both, IMO, evasion and fraud. The fraud portion would require a SAR.
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#1914895 - 04/16/14 02:48 PM Re: Purchase house using commercial property Red Raiders
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Agreed. You should not accept a purpose statement that conflicts with the obvious facts. Purchase of a consumer's primary residence is always a consumer purpose loan, regardless of the collateral for the loan or the borrower's conflicting statement.
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#1914907 - 04/16/14 02:55 PM Re: Purchase house using commercial property Red Raiders
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I based the first portion of my 'business purpose' response based on:

"This individual is in the business of rental real estate (mainly apartment buildings). For #2 and #3 if he "says" he wants to replenish cash to have future liquidity to potentially purchase more investment property".

I also don't put a lot of stock in those statements, but I'm only going to interrogate a customer so far. If he is in the commercial RE business...why should I unless he gives me reason to doubt it.

Which led me to part 2 above that needed clarification in order to answer it.
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#1914908 - 04/16/14 02:55 PM Re: Purchase house using commercial property Red Raiders
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So in this instance, since it is not RESPA applicable and is only subject to Reg Z, we would only need a final TIL and the other docs used could be the "normal" commercial docs we would use to secure a lien against a commercial building, right?
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#1914917 - 04/16/14 02:59 PM Re: Purchase house using commercial property Red Raiders
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You would need consumer documentation which should include any state consumer protections you might have (note, for instance) not commercial. A deed will more than likely secure the building.
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