Good Afternoon:

I have a complicated situation. Borrowers A & B are brothers, and own a property together. They purchased the property with a loan solely in Brother A's name. Brother B marries girl. Now, Brother B & the new SIL want to buy out Brother A with a new loan at our institution. I'm hesitant to call it a Code 1-Purchase because Brother B already is in title to the property. I cannot call it a Code 31-Refinance as Brother B is not on the loan being paid off. There's no Home Improvement going on with the funds, so that leaves Code 4-Other. Will that logic pass an exam, or should I stick with Code 1-Purchase as the SIL would be new to the title?

Thanks for your thoughts,

R. Shackleford

I would think to report it as a Code-1 Purchase as the SIL will be taking title to the property and didn't have any ownership interest before this loan. I would just make sure that the situation is well documented of what is actually happening.

Would it make a difference in your mind if I told you Brother B was the applicant and SIL the co-applicant?

You still have a joint application. SIL is applying WITH Brother B to buy the property and will have an ownership in the property, which she did not have previously.

That seems logical. However, this issue is anything but clean, and after reading the forum results at https://www.bankersonline.com/forum/ubbthreads.php/topics/2202127/1, I'm not 100% convinced (yet).

One of the borrowers is already in title so it can't be a purchase. Doesn't matter if you're adding another borrower and adding them to title.
Not a refinance because you're not making a loan to the same borrower.
I'd report it as Other.

I'm in the same camp as Truffle. This appears to be an "interest buyout" (which was discussed on the thread referenced by Rusty), so I don't see this as a purchase. In short, here's how I view an "interest buyout": there isn't a "purchase" of a house. For example, let's assume wife and husband own a home together and get divorced and wife keeps the house. Now, wife is getting married and you are doing a new loan to replace the one with the wife and ex (who both previously also owned the home) and the new loan will have the wife and new husband on both the loan and title. Is there a "purchase"? The way I see it, there was no for sale sign and no change of family. Sure, the new husband is new to the home and the ex is gone, but the kids are still in the same rooms, the dog is still in the back yard, and the same welcome sign is on the front of the house. Unlike an apple pie that can be divided up and sold separately if so chosen, a home cannot be split. And since the commentary tells us that [i]"the “same borrower” undertakes both the existing and the new obligation(s) even if only one borrower is the same on both obligations", then this tells me that the wife's consistent ownership excludes this as a purchase. So like Truffle, I'm of the camp that you can't purchase what is already owned.

That said, some obviously disagree, so you will have to pick your camp and be ready to defend it.

Now, I think we also need to ask whether this is a consumer purpose or business purpose loan, as "other" isn't reported for business purposes.

Thank you TR & Adam; I agree with you both, but it just felt like I might be off-base. FWIW, Adam, I think you have a country song somewhere in your response!

And yes, it's a consumer purpose loan. Thank you all for the discussion!