Assumptions: Borrower takes a loan to build a new structure within an already existing apartment complex. Basically, they build a new apartment building within a complex. Let's say there are 3 existing buildings and each "building" contains 10 units and, so, they are building another 10-unit structure. No improvements are made to any of the existing apartment buildings, strictly to construct the new building.

Question: Would you consider this a Home Purchase loan or a Home Improvement? I can see an argument for the Regulations to support either way. Any discussions with the CFPB anyone? Personal Thoughts with evidence?

I'd call it a purchase. You're building a 10-unit dwelling. If you wanted to go down the HI path, i guess you would want to say it's improving the real property on which a dwelling sits....but that still doesn't make HI trump purchase.....and how can you say building a 10 unit dwelling from the ground up is anything but a purchase?

Constructing a dwelling is a home purchase unless the loan is exempt from reporting, such as a temporary loan. The fact you may be securing the loan with the existing dwellings does not change the loan's purpose.

Review 1003.2(j) and its OSI.

3. Construction and permanent financing. A home purchase loan includes both a combined construction/permanent loan or line of credit, and the separate permanent financing that replaces a construction-only loan or line of credit for the same borrower at a later time. A home purchase loan does not include a construction-only loan or line of credit that is designed to be replaced by separate permanent financing extended by any financial institution to the same borrower at a later time or that is extended to a person exclusively to construct a dwelling for sale, which are excluded from Regulation C as temporary financing under § 1003.3(c)(3). Comments 3(c)(3)-1 and -2 provide additional details about transactions that are excluded as temporary financing.

I lean to purchase as well, but, yes, Raitch, the other side would be of you consider the "dwelling" to consist of the apartment complex, then the dwelling (at least most of it in this scenario) is already built and can't really be "constructed" again. Therefore, you are not actually constructing a dwelling here, but, rather improving the real property that secures the loan. The HI would not "trump" Purchase in such a view, the purchase would just not exist as an option.

I agree with Dan. And even if there is a case for HI (in conjunction with the purchase), a purchase takes precedence over a HI purpose. I just don't see how you could not call the new build a purchase.

But the "dwelling" isn't the apartment complex, at least IMO. The apartment complex consists of 3 existing dwellings in your scenario. Yes, it's one "entity" ....a complex....but it's not one "dwelling".

I assume this passage out of the OSC is part of your argument towards HI:

3. Multifamily dwellings. A single multifamily dwelling may have more than one postal address. For example, three apartment buildings, each with a different street address, comprise a single multifamily dwelling that secures a covered loan. For the purposes of § 1003.4(a)(9), a financial institution reports the information required by § 1003.4(a)(9) in the same manner described in comment 4(a)(9)-2.

That doesn't change my opinion, but i agree it's a wormhole you can try to go down.

I'm not sure I would agree it's a potential wormhole to use to support a HI classification. That cite, IMO, primarily instructs how you report the property location information.

For the purposes of § 1003.4(a)(9)

I happen to agree Dan, but the stand-alone sentence that says "For example, three apartment buildings...comprise a single multifamily dwelling..." can be seen as problematic as far as the point that (i think) Compliance NABW is trying to make...i.e., that multiple dwellings within an apartment complex are seen as a SINGLE multifamily dwelling". That sentence sort of stands alone in front of the part you are referencing....or at least, i would think that's the argument being made.

Some along those same lines.. if you have a loan to someone to build a mother-in-law cottage on their property behind their house where someone will live you would report that as a purchase?

Yes....the key being "where someone will live".

@Carolina Blue -- I think it depends on how the "accessory unit" is treated from a code standpoint with the city/county, as well as how it is used. If the "Accessory Unit," is commonly rented on a long-term basis (like one-year leases) or the Property Records on file with the county lists 2 units for the property, then I would consider it a separate dwelling. However, if the accessory unit is a mother-in-law that will be used for guests, short-term rentals (like AirBnb), or just extra space for the main dwelling, then I believe Home Improvement may be more appropriate. If you have no idea how it will be used, then Purchase is likely how I would go.

The reference you noted and the other commentary on multifamily dwellings and home improvement all play a role, yes. As I said initially, I would likely call it a "Purchase," but I could see a decent argument made for HI. I'll reach out to the Bureau and see what they say.

As I said before, it would not be in conjunction with Purchase. Purchase would be thrown out the window if you consider it HI.

I took "where someone will live" as meaning ....well....that someone will LIVE in it...fulltime. I think that's the common understanding of that phrase.

I have to go purchase. The loan is pretty clearly to construct a dwelling. Although the complex as a whole is a dwelling, so are the individual units, so it is going to be constructing a dwelling. Same with the accessory unit, the question is whether it is a dwelling being constructed. This logic does make me question "HI" for loans that are to add dwelling units to an existing building though. I think I can diferentiate based on what "construction" means, but not too easily. Curious what CFPB unofficially says.

(j) Home purchase loan means a closed-end mortgage loan or an open-end line of credit that is for the purpose, in whole or in part, of purchasing a dwelling.

(f) Dwelling means a residential structure, whether or not attached to real property. The term includes but is not limited to a detached home, an individual condominium or cooperative unit, a manufactured home or other factory-built home, or a multifamily residential structure or community.

3. Construction and permanent financing. A home purchase loan includes both a combined construction/permanent loan or line of credit, and the separate permanent financing that replaces a construction-only loan or line of credit for the same borrower at a later time. A home purchase loan does not include a construction-only loan or line of credit that is designed to be replaced by separate permanent financing extended by any financial institution to the same borrower at a later time or that is extended to a person exclusively to construct a dwelling for sale, which are excluded from Regulation C as temporary financing under § 1003.3(c)(3). Comments 3(c)(3)-1 and -2 provide additional details about transactions that are excluded as temporary financing.