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#2109805 - 12/06/16 04:17 PM Commercial bldg converted to mixed use property
Ree Offline
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We did a construction to perm loan that will convert a commercial building into a mixed use property. Once the building is complete, 68% will be residential apartment space and 32% will be retail space. The property was already owned by our borrower, so none of the funds were used to purchase the property. I'm struggling with determining the purpose of the loan. I'm leaning toward home improvement. However, I'm getting hung up on the fact that the property was never a residential structure to begin with. I don't want to go with purchase either because the structure was already there and you can only build a structure once. So technically not meeting the spirit of a true construction. Any thoughts on how to report the purpose or should this be reported at all?

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#2109813 - 12/06/16 05:15 PM Re: Commercial bldg converted to mixed use property Ree
Truffle Royale Offline

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Did you do this as a single closing or a construction loan?
Was any of the money used to pay off any existing debt or was it all new money for improvement?

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#2109817 - 12/06/16 05:33 PM Re: Commercial bldg converted to mixed use property Ree
Ree Offline
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We did this as a single loan with a 2 year draw period for construction converting to a 5 year P&I. Funds will not be used to pay anything off. Property was bought by our borrower 2 months prior to the loan closing. The funds are strictly going to be used to convert an old industrial building into apartments and retail space.

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#2109826 - 12/06/16 06:16 PM Re: Commercial bldg converted to mixed use property Ree
Truffle Royale Offline

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I'm leaning towards not reportable because it isn't yet a residence.
Maybe someone else will chime in to confirm but I say non-reportable for HMDA.

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#2109850 - 12/06/16 07:21 PM Re: Commercial bldg converted to mixed use property Ree
Bec Offline
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The proceeds were to improve the residential side of the now mixed use property. Does that factor in at all?

if this were an example of a mixed use commercial building where the residential piece of that building were being improved, that would be HMDA reportable wouldn't it?
This deal sort of rings to me in that way.
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#2109864 - 12/06/16 07:45 PM Re: Commercial bldg converted to mixed use property Ree
Ree Offline
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I'm kind of thinking in the way of HI. It's just the property is not mixed use yet. However, the funds will make it mixed use. Trying to decide if it could be viewed as a purchase though as well since the property was never a residential structure and our institution is treating it as a construction loan to convert it to a mixed use residential property.

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#2109954 - 12/07/16 03:20 PM Re: Commercial bldg converted to mixed use property Ree
Bec Offline
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I recall one thread where it was opined that one would not report a dwelling secured loan if the proceeds were going to be used to demolish it. The intent was that it was never going to be used as a dwelling. Couldn't one argue the converse. The proceeds are going to be used to create dwellings and will be used as such? Again, I am no expert...it could be one of those gray areas where you pick a side, document document document and be consistent moving forward.
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#2110036 - 12/07/16 10:31 PM Re: Commercial bldg converted to mixed use property Ree
David Dickinson Offline
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Once the building is complete, 68% will be residential apartment space and 32% will be retail space.
The key to this issue is what are you calling this building? Is it a dwelling or not? Just because it is 68% residential, doesn't make it a dwelling. For instance, a restaurant on floor 1 with apartments on floor 2 and 3 might still be classified as a restaurant. I always like to ask "Why did the borrower buy this building?" If it was for the retail space and they decided to not let the other space go to waste, then I don't think it's a dwelling. There's no "majority wins" when it comes to mixed-use buildings.

Make that determination first. IF you determine it is a dwelling, then the loan is a home improvement loan as the building is now classified as a dwelling and the funds were used to improve a dwelling. IF you decide to not classify it as a dwelling, then it's not HMDA reportable.
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#2110092 - 12/08/16 03:34 PM Re: Commercial bldg converted to mixed use property Ree
Bec Offline
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David, if the proceeds were used to improve the residential section, even if its mixed use-commercial, wouldn't it be reportable?
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#2110151 - 12/08/16 06:23 PM Re: Commercial bldg converted to mixed use property Ree
Ree Offline
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Thanks David. This helps. We will definitely be classifying this property as a residential dwelling based on other information found in the file and write up.

We have written procedures at our bank that lay out different scenario's of when to define a mixed use property as a dwelling or when proceeds will primarily be used for the dwelling side. This is the first time I had ever seen the mixed use property not start out that way. I will definitely add this to our procedures for the future.

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#2110214 - 12/08/16 11:18 PM Re: Commercial bldg converted to mixed use property Ree
David Dickinson Offline
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David, if the proceeds were used to improve the residential section, even if its mixed use-commercial, wouldn't it be reportable?
If the building isn't a "dwelling" (per your classification), then it can't be HOME improvement.
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#2110246 - 12/09/16 03:29 PM Re: Commercial bldg converted to mixed use property Ree
Bec Offline
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I hate to belabor it, but if the building was mixed use but considered commercial via the square footage or income test, however there is a residential portion to the building and say you were replacing the windows and redoing the floors in the residential space, would that not be reportable? You are improving the dwelling.

If you classify your home improvement loans that is smile
Last edited by Bec; 12/09/16 03:31 PM.
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#2110247 - 12/09/16 03:31 PM Re: Commercial bldg converted to mixed use property Ree
Colorado Girl Offline
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I'm with you Bec,
4.
Mixed-use property. A loan to improve property used for residential and commercial purposes (for example, a building containing apartment units and retail space) is a home improvement loan if the loan proceeds are used primarily to improve the residential portion of the property.

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#2110361 - 12/10/16 02:55 PM Re: Commercial bldg converted to mixed use property Bec
Bec Offline
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hate to belabor it, but if the building was mixed use but considered commercial via the square footage or income test, however there is a residential portion to the building and say you were replacing the windows and redoing the floors in the residential space, would that not be reportable? You are improving the dwelling.

Actually I got mixed up, even if you don't classify your home improvement notes that are unsecured or not secured by a dwelling, in my opinion, this would be reportable.
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#2110367 - 12/11/16 04:32 AM Re: Commercial bldg converted to mixed use property Ree
David Dickinson Offline
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How you do home improvements to a building that is not a dwelling? That's my point. If you classify the building as a non-dwelling, then HMDA can't apply to it later - even if you refinance it (it's not a dwelling secured loan) or improve it (it's not a dwelling being improved). I have specifically asked the CFPB this question concerning the mixed-use building and mixed-use property issues they present in the new rule.
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#2110368 - 12/11/16 04:35 AM Re: Commercial bldg converted to mixed use property Ree
David Dickinson Offline
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One more thought: If you classify the building as a non-dwelling and don't report it on you LAR and then later decide that new funds are used to do Home Improvements, then you didn't properly report the first loan. It can't be both a non-dwelling for the first loan and a dwelling for the second loan.
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#2110415 - 12/12/16 04:24 PM Re: Commercial bldg converted to mixed use property Ree
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David, that seems to conflict with the sentence from the commentary that Colorado Girl posted above.

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#2110656 - 12/13/16 08:59 PM Re: Commercial bldg converted to mixed use property Ree
David Dickinson Offline
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I have reviewed this and am going to eat crow. smile I've been spending so much time on the 2018 rules, that I've mixed my brain around the mixed use property rules (that don't go into effect until 2018) and applied it to today's rules. Let me try to set this straight:

Today's rule states: [Commentary to ยง1003.2 #4]

4. Mixed-use property. A loan to improve property used for residential and commercial purposes (for example, a building containing apartment units and retail space) is a home improvement loan if the loan proceeds are used primarily to improve the residential portion of the property. If the loan proceeds are used to improve the entire property (for example, to replace the heating system), the loan is a home improvement loan if the property itself is primarily residential. An institution may use any reasonable standard to determine the primary use of the property, such as by square footage or by the income generated. An institution may select the standard to apply on a case-by-case basis. If the loan is unsecured, to report the loan as a home improvement loan the institution must also have classified it as such.

[Yes, that's what Colorado Girl stated too]

Thanks for challenging me on this. I stand corrected.
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#2252405 - 04/15/21 03:19 PM Re: Commercial bldg converted to mixed use property David Dickinson
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Under the new HMDA regime, would you understand such a conversion of commercial space into a HMDA "dwelling" where no existing HMDA "dwelling" was in play as a "Home Purchase?" This would be my conclusion based on applying the construction perm citation to such a scenario.

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