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#2162418 - 01/30/18 05:45 PM Occupancy for non natural persons
Compliance NABW Offline
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I know that the general consensus for loans to businesses or trusts under prior HMDA was to report a Code 3 "not owner occupied." With the switch in 2018 to the borrower being the focus of occupancy, what is your take on reporting business and trusts for Occupancy? Can a non natural person actually occupy a dwelling? My take is that one could, but I believe this is kind of against the usual understanding. For instance, a business can use a dwelling as it's place of business. If the business is the borrower and uses the dwelling as its place of business, then I would say "Primary Residence" would apply. Or, if a loan is to a Trust and the people of the Trust live in the dwelling, would the same theory hold?

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#2162444 - 01/30/18 07:56 PM Re: Occupancy for non natural persons Compliance NABW
Adam Witmer Offline
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Originally Posted By JPC
I know that the general consensus for loans to businesses or trusts under prior HMDA was to report a Code 3 "not owner occupied."
I don't think that was the case. The focus since 2006 has been on the "owner" of the property. The 2004 GIR referenced "borrower" but the 2006 GIR changed the focus to "owner" occupancy.

Originally Posted By JPC
My take is that one could, but I believe this is kind of against the usual understanding. For instance, a business can use a dwelling as it's place of business. If the business is the borrower and uses the dwelling as its place of business, then I would say "Primary Residence" would apply.
I don't see it that way. Depending on the specifics of the situation, that loan is probably not HMDA reportable. If a structure that was originally designed as a dwelling has been converted to a professional office, it is not HMDA reportable. From the new commentary:

[i]Also excluded are transitory residences such as hotels, hospitals, college dormitories, and recreational vehicle parks, and structures originally designed as dwellings but used exclusively for commercial purposes, such as homes converted to daycare facilities or professional offices.[/]
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#2162453 - 01/30/18 08:12 PM Re: Occupancy for non natural persons Compliance NABW
rlcarey Online
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A business does not occupy anything. It only exists on a piece of paper. Even in 2017 it would have been reported as non-owner occupied.
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#2162455 - 01/30/18 08:16 PM Re: Occupancy for non natural persons Compliance NABW
David Dickinson Offline
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I'm with Randy. A business is an entity. It doesn't have a race/sex/ethnicity and it doesn't dwell anywhere.
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#2162592 - 01/31/18 06:48 PM Re: Occupancy for non natural persons Compliance NABW
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@Randy; @David - I can see that argument for sure. It has a "place of operation" or the like, but I could accept that it doesn't "dwell" anywhere. It obviously doesn't have race/sex/ethnicity, though American Capitalism teaches us that corporations are a person wink

@Adam - Yes, but there are situations where that commentary doesn't work. Somebody could run an LLC or an S Corp out of a single room in their home. Such a home hasn't been converted to professional use. The structure is still a dwelling under HMDA, as well as the official place of business.

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#2179483 - 05/23/18 08:59 PM Re: Occupancy for non natural persons Compliance NABW
RR Becca Offline
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out of the frying pan...
I've got a twist on this one. Loan is to ABC Inc, secured by the principal residence of the owners of ABC Inc (and yes, the loan is a reportable refi). The owners are not personally named as borrowers on the debt. What occupancy should I report for this loan?
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#2179484 - 05/23/18 09:00 PM Re: Occupancy for non natural persons Compliance NABW
rlcarey Online
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Any entity exists on paper - it does not reside anywhere. Although this was never contemplated by the CFPB, I would pick 3. If you pick 1 or 2 it is going to generate a number of other audits.
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#2179545 - 05/24/18 01:16 PM Re: Occupancy for non natural persons Compliance NABW
RR Joker Offline
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I agree. It's not a primary or secondary residence of the borrower, so Investment is all that's left because there is no NA for that category.
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#2179561 - 05/24/18 02:01 PM Re: Occupancy for non natural persons Compliance NABW
RR Becca Offline
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out of the frying pan...
Thank you both!
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#2179563 - 05/24/18 02:15 PM Re: Occupancy for non natural persons Compliance NABW
Dan Persfull Offline
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Although this was never contemplated by the CFPB

In their infinite wisdom the CFPB didn't contemplate a lot of things.
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#2179656 - 05/24/18 05:45 PM Re: Occupancy for non natural persons Compliance NABW
RR Joker Offline
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laugh!
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#2181337 - 06/11/18 10:20 PM Re: Occupancy for non natural persons Compliance NABW
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I agree with Dan!!!!!

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#2198499 - 11/16/18 06:19 PM Re: Occupancy for non natural persons Compliance NABW
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Revisiting this for a current situation. As I noted above, a corporation could use a dwelling as a place of business, and I feel that this part of the Official Interpretation kind of implies that "primary residence" may be a legit reporting code for a business entity if they use said dwelling as their principal place of business. Seems to allow for if they did occupy it, then a different code may be necessary.

"For example, if a corporation purchases a property that is a dwelling under § 1003.2(f), THAT IT DOES NOT OCCUPY, but that is for the long-term residential use of its employees, the property is an investment property for purposes of § 1003.4(a)(6), even if the corporation considers the property as owned for business purposes rather than investment purposes, does not generate income by renting the property, and does not intend to generate income by selling the property at some point in time."

It would have been simple for the CFPB just to add a statement about what to do when the loan is to a non-natural person . . .

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#2198601 - 11/19/18 02:39 PM Re: Occupancy for non natural persons Compliance NABW
RVFlyboy Offline
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Primary residence would never be an applicable code for residency for a loan to a corporation. A corporation cannot, itself, reside anywhere. Its could occupy the dwelling as a business, but that is not "residing". Its employees could reside there, either long-term or short-term. That is what the cited section of the commentary is getting at. If long-term, then the occupancy flag would be set to investment. If short-term, then the property would be considered transitory housing and would not be HMDA-reportable.
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#2198617 - 11/19/18 03:38 PM Re: Occupancy for non natural persons Compliance NABW
Adam Witmer Offline
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Originally Posted By Compliance NABW
Seems to allow for if they did occupy it, then a different code may be necessary.

I see your point, Justin, but I agree with Jim that a corporation can never use a dwelling as a "residence."

Here are a few thoughts to substantiate this:
1) The statement you quoted is found in the commentary that is discussing whether a dwelling is an investment property or not - not whether the dwelling is used as a residence.

2) That specific statement is the third in a series that give 3 different scenarios, all of which say "does not occupy" which seems to be a copy and paste. Could this have been an oversight? Possibly, because the small entity compliance guide excluded the words "does not occupy" for the example of a corporation buying a dwelling. Even still, I have always taken those poorly chosen words to mean that the business also isn't located in that building, which could cause it to be a mixed-used property and possibly not a dwelling (which would lead to an entirely different discussion in the commentary).

3) Furthermore, the question technically isn't whether they can "occupy a dwelling", it is whether a business can "use" a dwelling as a "residence" (either principal or secondary). "Residence" is not defined, but saying that a business can have a "residence" is a stretch, in my opinion, especially when the commentary to Principal Residence refers to the borrower as "his or her."

I do agree that the CFPB could have made things easier with clarification here, as is the case in quite a few areas.
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#2201969 - 01/03/19 03:57 PM Re: Occupancy for non natural persons Adam Witmer
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I've come to an agreement on this and drop all my arguments to the contrary grin

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