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#2261791 - 10/28/21 07:59 PM Loan against land. Proceeds to build
Melissa S Offline
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Melissa S
Joined: Jan 2015
Posts: 301
Maine
Good afternoon. I have a loan officer asking me the following question:

Borrower owns a parcel of raw land free and clear. The lender will provide a commercial loan against the value of the land only, providing funds outright. The borrower has stated he intends to use the funds to construct a single family rental home. The lender will have no direct mortgage on the rental home, although the loan officer states the mortgage covers anything on the land at any point in time. The loan is not being handled as a construction loan.

The loan officer is wondering if in this circumstance this loan is reportable as HMDA.
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#2261792 - 10/28/21 08:05 PM Re: Loan against land. Proceeds to build Melissa S
Dan Persfull Offline
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Dan Persfull
Joined: Aug 2002
Posts: 46,630
Bloomington, IN
I would have to say this is a construction-permanent loan and would be reported as a purchase.

The purpose of the loan is clearly to construct a dwelling and the loan does not appear to be temporary in nature from the information provided nor does there appear to be any other exemption.
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#2261793 - 10/28/21 08:05 PM Re: Loan against land. Proceeds to build Melissa S
Skittles Offline
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Skittles
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Posts: 13,963
TN
Is this a permanent loan or will it be refinanced after the home is constructed?
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#2261794 - 10/28/21 08:07 PM Re: Loan against land. Proceeds to build Skittles
Melissa S Offline
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Melissa S
Joined: Jan 2015
Posts: 301
Maine
This is a permanent loan from the get-go against the raw land only. although we do know the purpose is to build a rental residence.
Last edited by Melissa S; 10/28/21 08:08 PM.
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#2261795 - 10/28/21 08:11 PM Re: Loan against land. Proceeds to build Melissa S
Dan Persfull Offline
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Dan Persfull
Joined: Aug 2002
Posts: 46,630
Bloomington, IN
The loan is against the raw land value. Once the dwelling is constructed the mortgage will automatically encumber the improvement making the loan secured by a dwelling.

The fact you are not controlling the disbursement of the proceeds does not negate the fact this is a loan to construct a dwelling.
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#2261796 - 10/28/21 08:11 PM Re: Loan against land. Proceeds to build Melissa S
Skittles Offline
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Skittles
Joined: Sep 2002
Posts: 13,963
TN
Then I agree with Dan and this loan is HMDA reportable.
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#2261798 - 10/28/21 08:12 PM Re: Loan against land. Proceeds to build Melissa S
Melissa S Offline
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Melissa S
Joined: Jan 2015
Posts: 301
Maine
Perfect. Thank you Dan and Skittles. I was about to tell the LO this would be classified as a purchase, but I'm prone to second guessing myself now and then.
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