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#2160817 - 01/17/18 10:32 PM Business/Ag Purpose - Probably Not??
TeamComply Offline
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Individual runs a hay business (with brother) on 80 acres, business includes scales, etc. This property also has individual's primary residence with office space included. Borrower wants to refinance existing debt (approx. $20,000 on land and approx. $110,000 on residence/office space) into one loan, using his individual name and his spouse (loan would not be in the name of the business). I know there is an ag exemption in Reg. Z for transactions for ag purpose that includes a dwelling, if the transaction is primarily for ag purposes. I don't think we have a "primarily" for ag purposes in this scenario. What is the best way to determine this? Follow the $?

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#2160890 - 01/18/18 04:47 PM Re: Business/Ag Purpose - Probably Not?? TeamComply
David Dickinson Offline
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I agree this doesn't sound like primarily ag purposes. However, there's also an exemption for any dwelling located on Ag land:
Do not report any applications for loans or lines …if the loan or line of credit is secured by a dwelling that is located on real property that is used primarily for agricultural purposes (e.g., a farm). An institution may use any reasonable standard to determine the primary use of the property. An institution may select the standard to apply on a case-by-case basis. [Commentary to §1003.3(c)(9) #1]

You say the residence is located on the 80 acres used for hay business. Is it "located on real property that is used primarily for agricultural purposes (e.g., a farm)"? If so, it is exempt.
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#2160891 - 01/18/18 04:52 PM Re: Business/Ag Purpose - Probably Not?? TeamComply
raitchjay Offline
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OK
I wonder if the OP is asking from a Z or a C perspective.
Last edited by raitchjay; 01/18/18 04:54 PM.
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#2160896 - 01/18/18 05:09 PM Re: Business/Ag Purpose - Probably Not?? TeamComply
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Asking from a Reg. Z perspective. Thanks.

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#2160905 - 01/18/18 05:59 PM Re: Business/Ag Purpose - Probably Not?? TeamComply
rlcarey Offline
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It all comes down to what the loan proceeds are going to be used for. The refinance of business debt or personal debt. Collateral is not a consideration when it comes to consumer/commercial purpose.
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#2160906 - 01/18/18 06:00 PM Re: Business/Ag Purpose - Probably Not?? TeamComply
raitchjay Offline
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In that case, your "follow the dollars" idea makes the most sense IMO. It sounds like it is primarily consumer purpose.
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#2160907 - 01/18/18 06:10 PM Re: Business/Ag Purpose - Probably Not?? raitchjay
rlcarey Offline
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Originally Posted By raitchjay
It sounds like it is primarily consumer purpose.


Why? Without knowing more information about the original transactions and why they are refinancing, it is impossible to say.
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#2160909 - 01/18/18 06:25 PM Re: Business/Ag Purpose - Probably Not?? TeamComply
raitchjay Offline
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OK
I guess i was swayed by the OP's leaning that way (that their knowledge of the loan made them think it wasn't ag. purpose). I agree that it's all about following the money.
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#2160944 - 01/18/18 08:39 PM Re: Business/Ag Purpose - Probably Not?? rlcarey
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What additional information about the original transactions is needed?

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#2160947 - 01/18/18 08:52 PM Re: Business/Ag Purpose - Probably Not?? TeamComply
raitchjay Offline
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OK
The purpose of funds for the loan being refinanced.
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#2160948 - 01/18/18 08:52 PM Re: Business/Ag Purpose - Probably Not?? TeamComply
raitchjay Offline
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OK
(Or loans...not sure if there are multiple loans.)
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#2160949 - 01/18/18 08:58 PM Re: Business/Ag Purpose - Probably Not?? TeamComply
raitchjay Offline
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Just a quick example...let's say the 80 acres referenced above secured a loan where the purpose was to get cash out to take a trip to Hawaii. Even though it's ag. land, there is no ag. purpose attached to the loan, and a subsequent straight refinance of that loan would still be consumer purpose.

Or the flip side....a loan secured by the primary residence had a loan purpose of working capital for their ag. business. A subsequent straight refi of that loan would maintain the original ag./business purpose.
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#2160970 - 01/18/18 10:32 PM Re: Business/Ag Purpose - Probably Not?? raitchjay
Richard Insley Offline
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Richard Insley
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Toano, VA
Originally Posted By rlcarey
Collateral is not a consideration
Originally Posted By raitchjay
let's say the 80 acres referenced above secured a loan where the purpose was to get cash out to take a trip to Hawaii. Even though it's ag. land, there is no ag. purpose
Right. The only time land becomes a relevant consideration for determining Reg. Z coverage is when the loan purpose is to acquire real property which will be used for one of the types of agricultural production listed in Section 1026.3(a), OI #8.
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