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#1989827 - 01/20/15 09:47 PM App under "LLC to be Formed" withdrawn
Melissa S Offline
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Melissa S
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We had an application for a loan where the borrower was going to be an LLC that had not yet been formed. The purpose of the loan was to purchase a 4 unit condo building and was to be collateralized by this property along with a 3rd on the guarantor's personal residence. The loan was withdrawn by the borrower.

Where the LLC was not formed, but the intent was there, is this considered a corporate borrower or is it considered a real person borrower as the LLC was not formed.

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#1989834 - 01/20/15 09:56 PM Re: App under "LLC to be Formed" withdrawn Melissa S
raitchjay Offline
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No direct experience with this, so this is strictly my opinion, but i don't think an entity that doesn't yet exist can really apply for a loan. The individuals behind the yet-to-exist-LLC can, but to my way of thinking, they would have had to amend the application at the point the LLC DID come into existence. I guess that's my long way of saying: i think your application was to the individuals, since there was no LLC at the time of application.

Again, just my opinion (based on my own idea of common sense, which can always be dangerous).
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#1989837 - 01/20/15 10:00 PM Re: App under "LLC to be Formed" withdrawn Melissa S
Melissa S Offline
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thank you raitchjay. You're thinking is similar to mine, so that's good to know!

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#1994353 - 02/06/15 10:28 PM Re: App under "LLC to be Formed" withdrawn Melissa S
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If it was their intention to guarantee the loan and not borrow, how would you handle GMI and GAI?

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#1994528 - 02/09/15 06:00 PM Re: App under "LLC to be Formed" withdrawn Melissa S
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For GAI:

From the GIR-Appendix D 4(a)(10) #6

6.
Income data—income relied on. An institution reports the gross annual income relied on in evaluating the creditworthiness of applicants. For example, if an institution relies on an applicant’s salary to compute a debt-to-income ratio but also relies on the applicant’s annual bonus to evaluate creditworthiness, the institution reports the salary and the bonus to the extent relied upon. Similarly, if an institution relies on the income of a cosigner to evaluate creditworthiness, the institution includes this income to the extent relied upon. But an institution does not include the income of a guarantor who is only secondarily liable.
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#1994533 - 02/09/15 06:04 PM Re: App under "LLC to be Formed" withdrawn Melissa S
raitchjay Offline
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I think it still boils down to whether you think a non-existent entity can apply for a loan. I would have gathered GMI and GAI on the individual, as at the time of application, there was no entity for them to guarantee for.
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#1994537 - 02/09/15 06:09 PM Re: App under "LLC to be Formed" withdrawn Melissa S
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You don't collect GMI for guarantors, but cannot find the source for that.
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#1994539 - 02/09/15 06:10 PM Re: App under "LLC to be Formed" withdrawn Melissa S
raitchjay Offline
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What i'm saying is: the scenarios presented in this thread are all asking the same thing: can an entity that does not exist at the time of application apply for a loan.
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#1994541 - 02/09/15 06:11 PM Re: App under "LLC to be Formed" withdrawn Melissa S
raitchjay Offline
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OK
So the question isn't: "do you collect GMI on guarantors?", it's "can someone offer to be the guarantor for an LLC that doesn't yet exist, thereby causing the bank not to gather GMI since they weren't an applicant?"
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#1994549 - 02/09/15 06:24 PM Re: App under "LLC to be Formed" withdrawn CompBanker0613
Dan Persfull Online
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Originally Posted By: CompBanker0613
You don't collect GMI for guarantors, but cannot find the source for that.


Page D-10 of the GIR.
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#1994558 - 02/09/15 06:35 PM Re: App under "LLC to be Formed" withdrawn Melissa S
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I asked the question because we had an application for a 'TBD LLC', it was withdrawn before the entity was formed and before a credit decision was able to be made. In fact, it was withdrawn within 10 days I believe. The individuals were to be the guarantors, not co-applicants. Could this situation be looked at as a pre-qual of sorts because a borrower was never truly identified?

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#1994561 - 02/09/15 06:44 PM Re: App under "LLC to be Formed" withdrawn Melissa S
raitchjay Offline
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I'll defer to someone else with more experience/knowledge on this subject, (and i don't think Reg. C or the GIR will give any real insight on the question) but i still don't see how an entity that doesn't yet exist can really apply for a loan. To me, it would be the equivalent of John Doe, contemplating a name change to John Q. Public, attempting to apply for a loan as John Q. Public before the name change.
Last edited by raitchjay; 02/09/15 06:46 PM.
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#1994594 - 02/09/15 07:43 PM Re: App under "LLC to be Formed" withdrawn Melissa S
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Thank you for your insight!

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#1994601 - 02/09/15 07:48 PM Re: App under "LLC to be Formed" withdrawn Melissa S
Dan Persfull Online
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If I came in to apply for, and guarantee a $2,000,000 loan to form a corporation, purchase a building, equipment, etc. how would you underwrite it?

Treat the guarantors wanting to form this LLC the same and report accordingly.
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#1994605 - 02/09/15 07:51 PM Re: App under "LLC to be Formed" withdrawn Melissa S
David Dickinson Offline
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I agree. I'm not going to tell a banker that a non-formed entity is a person and that GMI applies to the people wanting to form the entity. Yes, this might be cart before the horse, but it doesn't sound like the people standing in front of the LO's desk were there as individual borrowers. They were there representing an entity yet to be formed. I think collecting their GMI would be incorrect.

We all know what their intent is - to form an entity. They need a loan (or are seeking information about getting a loan), so they can take the next step.
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#1994739 - 02/09/15 11:51 PM Re: App under "LLC to be Formed" withdrawn Melissa S
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I agree with you both Dan and David, I asked about GAI and GMI being Devil's Advocate. We didn't collect GMI for the individuals in our situation. But what we did do is create a quick 'maybe' file that has my head spinning on if we report. I think I have to lean toward reporting. We had an OREO property that we were trying to sell before the end of the calendar year. The applicants wanted to purchase it in the name of a To Be Determined LLC (first iffy part, do we have an application without a borrower? You guys, as well as HMDAHelp(less) say yes!). Then we have our second iffy part, the file (and the lender) say that the intention of the property would be short-term rental until they decided what they wanted to do with it long term (does short-term = transitory? We have several exempt loans due to transitory nature in our area because of over-night vacation rentals (ski towns!). But we cannot find any clarification on what 'short-term' meant to the applicants. And finally, the terms they were looking at says it would have likely been a three year, interest-only 'until they decided what to do next'. Temporary financing, to be replaced with a mortgage after the transaction took place and the direction was decided? Ugh!

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#1994741 - 02/09/15 11:54 PM Re: App under "LLC to be Formed" withdrawn Dan Persfull
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Originally Posted By: Dan Persfull
Originally Posted By: CompBanker0613
You don't collect GMI for guarantors, but cannot find the source for that.


Page D-10 of the GIR.



Correct. That is the page I pointed the poster to for GAI, but what about GMI? I don't see where the GIR addresses that on that page. I know you don't report on guarantors, but wanted to back that up.
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