Customer #1 purchased a commercial building with apartments. This customer has an LLC with customer 2 who was going through a divorce. Therefore, the initial loan was done in the personal name of Customer #1 and was vested as such. Divorce is now final, so the parties wanted to get the debt into LLC's name. A quit claim was prepared in April and recorded in April transferring the property from Customer #1 into the LLC. We made a loan in May to the LLC and used the funds to pay off the original loan. For HMDA, this is not a refinance, because different borrowers. I also don't think it is a purchase as the property was already in LLC's name when we made the loan. Am I correct? I feel that it is not HMDA reportable but would like validation. Thanks.

I may be wrong, and I may need to be educated about this, but I just have a feeling that this is a HMDA reportable transaction.

I've dealt with this in the past where it was in an individuals name and then "refinanced" into an LLC or other type of entity, but it was at that time that the transfer of property occured. I've never had one with a quit claim in between.

Also you've mentioned this is a commercial building with Apartments. Is there a possibility you can exempt this from HMDA due to the simple square footage test or income test?

For HMDA, this is not a refinance, because different borrowers. I also don't think it is a purchase as the property was already in LLC's name when we made the loan. Am I correct?

Yes.

It's not a refinancing because as you said none of the borrowers are the same.

It's not a purchase because ownership of the property was transferred prior to your loan transaction. If the property had transferred as part of the loan transaction then it would be reported as a purchase.

Since the deed was done prior to the loan in May, we would not report.

We posed this question some time ago to hmdahelp; they indicated the loan would be classified as a purchase if the borrowers changed from the prior note - internally it would be classified as a refi, but for HMDA purposes I would report it as a purchase. We are FED regulated, so pretty much have to go by what HMDAhelp gives us, given the response was from the Fed!

Here was the above response from 2011 - perhaps if you posed it now, the answer may be different from a different person there. We attach a copy of their email to each one of these cases to keep us out of hot water!


Since the borrowers are changing from loan to loan the second loan would actually be reported as a home purchase and not a refinance. If all of the borrowers on the initial loan remained borrowers on the subsequent loan then that would be reported as a refinancing OR if all the borrowers on the initial loan remained on the subsequent loan and new borrowers were added then that would also be reported as a refinancing.
I would try to think of it as the new person is buying into the loan and that is how it would become a home purchase.

Moman, did your property change hands at closing? That is most definitely a purchase. If the property is deeded to the new party prior to closing, it is fairly standard for it NOT to be reported as a purchase because the borrower getting the loan already owns the property. Sloppy bookkeeping by the parties involved, but ownership was already transferred preclosing.

If you reported a pre-closing transfer as a purchase at HMDAHelp's advice and got away with it, that is great for you but unusual.

Title to the property did not change. The key was the borrowers changing on the note, not the property title at all. We have been treating it this way since 2011, especially since the marching orders came from the Fed. We have many loans where the borrower flips from the individual(s) to the entity or vice-versa, so it's not an unusual situation for us. Note that HMDAHelp addresses "new person buying into the loan", which has nothing to do with title to the property. Many of these are owner occupied residences, where the principal of the entity applies for an initial loan in the entities name, then applies for the next in their individual name. This rendering by HMDA Help pre-dates me at this institution. In my past life I treated it as you indicate above.

Sometimes in compliance one feels like a marionette on a string!

My point was that in this case, there was a deed change. The advice your bank was given, if I am understanding it correctly, was to report as a purchase if the borrowers changed with no corresponding change in ownership of the property?

That is very odd advice and frankly, I would question the way the inquiry to HMDA Help was worded. I have had clients ask a question and when I saw what they asked, it was not the situation. When I went back with a very specifically worked question, I got the correct answer.

There is no such thing as "new person buying into the loan". Not in this context, anyway. Crazy.