An interim construction loan went bad because a builder failed (not so much as even laid a foundation) & bailed. As such, the FI providing the perm has backed out. So now, the note has matured and the borrowers (and loan officer) simply want to "modify" the original loan (variable rate, interest only) to make it a fixed term (still a variable rate) in order to sell the property/land...as no dwelling was ever constructed.

First, could this even be considered a modification, especially after maturity? Or, is it most definitely a refi?

Second, although the original purpose was to provide financing to construct (and another FI provide permanent financing) a personal home, since the borrowers now just "want out," can they claim this was a business investment?

Bottom line: Reg Z applies, correct?

since the borrowers now just "want out," can they claim this was a business investment?

Was it at the time the loan was made? If not under what reasonable belief could it even remotely be claimed as a business purpose loan now?

If the loan has matured then in IMO you must treat it as a refinancing.

Agree with Dan on all counts.

Thanks, that's what I figured, but never hurts to ask, right?

Getting more info from the Credit Officer.

Due to multiple issues (e.g. failed builder, retaining wall improperly built on neighbor's land, mechanic's liens, tax liens, etc.), do we have any flexibility (to prevent us from losing position) under TDR guidance?

I'm not sure how refinancing the loan properly would affect your position.

I wouldn't mess with this without legal counsel being involved. I say that with my old "workout loan" hat on. This is not a situation where you want to make a mistake.

I believe the CCO was concerned replacing the "existing obligation" would require filing a new note.