We have a builder that will form a new entity with each real estate construction project they take on. For example ABC Homes with gross revenues greater than $1 million applies for an interim construction loan on a lot they own on 102 Main St. A single purpose entity called 102 Main St will be formed and they will be the formal borrower on the loan. As such 102 Main St will be a new entity with no income of their own. If we decline the application would the adverse action fall under a category of gross revenues less than or greater than $1million? My LOs do not want to have to send an AA in writing if it's not needed.

I assume that ABC Homes is only a guarantor. If so, then gross income of the borrower is $0.

Thank you, that is the direction in which I was leaning.

If you deny the loan in such a case and the new entity "102 Main Street" is not actually formed, who do you think the AAN should be sent to?

To whomever appeared on the credit application. Whether they are a legal entity or not is a moot point.

Let's say it's a business loan and there is really no written application, or at least the applicant is not yet named because it was a "to be formed" entity? Basically, you have no "whomever" on the credit application at this point.

How can you have a credit application and not know who is applying?? How could you possibly move forward by telling them what you are going to need to approve the loan?

It's a to be formed new entity. I don't think it's rocket science here. It just creates a funky situation for adverse action purposes. Commercial deals like this are pretty common from my experience as an examiner. Some trusted guarantors get together and form an entity to purchase land that they will build a spec home on and try to sell, for example. The difference here is the entity just didn't end up getting formed.