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#2273977 - 08/10/22 04:46 PM TRID deed flipping situation
dutchbltz Offline
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Joined: Oct 2015
Posts: 191
I have a weird TRID situation I'd like to hear thoughts on.

We have a loan that started as a purchase application. The applicant is in the business of flipping houses; and apparently likes this one that she flipped so much that she wants to keep it for herself. Her business is an LLC; of which she is a member. The initial aquisition of the property by her LLC was funded by a loan to the LLC - and the LLC alone. She is NOT an obligor.

When she originally applied, she said she was buying it from her LLC and provided a purchase price. However, as time has gone on, the plan has changed and her accountant and attorney have advised that she is NOT selling this from her LLC to herself; she is just flipping the deed. We do not have any version of a purchase contract nor sales price; as now it is not being sold. They have been adamant on this factor. So obviously our TRID purpose has changed. Since she is not an obligor on the prior debt, it does not meet TRID's definition of a refinance so this is now (I guess) a home equity loan - not a purchase, not a refi, not a construction.

Where I am getting held up today (when we are trying to create a CD) is the payoff. The attorney wants the payoff of the LLC's obligation listed on the CD. On one hand, I see the point - the payoff has to occur as part of the closing transaction. Otherwise we won't get our lien position. On the other hand, the LLC is not the new obligor and putting the prior owners' payoff doesn't seem right either. Nor does it seem to align with what the 'Guide to Forms' says - which starts the section about payoffs by saying 'Disclose other *consumer* charges owed by the *consumer* in the real estate closing not otherwise disclosed in the Loan Costs table, Other Costs table, or Section K of the Closing Disclosure.' This debt is not owed by the consumer.

Has anyone ran into this before? If so, how did you handle it, and on what basis?

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#2273981 - 08/10/22 05:12 PM Re: TRID deed flipping situation dutchbltz
rlcarey Online
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rlcarey
Joined: Jul 2001
Posts: 79,917
Galveston, TX
Not sure I understand. "she is just flipping the deed. " So she already transferred the property into her name? If so, she already owns the property and this is not a purchase. If she is choosing to personally assume the debt of the LLC, she could do an assumption. If you do not offer assumptions, then it would be a home equity loan and you would just show the payoff of the LLC's loan in the payment and payments table or under adjustments in the Summary of Transactions. IT is paying off a lien on the property she owns regardless of whether she is an obligor on that transaction.
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#2273983 - 08/10/22 05:22 PM Re: TRID deed flipping situation dutchbltz
dutchbltz Offline
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Joined: Oct 2015
Posts: 191
I'm not sure I fully understand it either, but it's what the attorney keeps telling us. She is transferring the property into her name at close. Today she does not personally own it; but she will at the time she closes. Apparently she could not do that prior to this transaction due to the terms of the prior debt. Those same terms prohibited her from an assumption. (we are not the lender on that debt.)

We have a copy of the note from the other lender showing it is not her that is the obligor..... what I don't like here is that the purpose (although technically correct) does not align with the payoffs table. And that payoff is not her own debt. It doesn't feel right to show another person's payoff on her CD.

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#2273986 - 08/10/22 05:51 PM Re: TRID deed flipping situation dutchbltz
rlcarey Online
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rlcarey
Joined: Jul 2001
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Galveston, TX
Is this a sole owner LLC? Otherwise, I fail to see how this is not a purchase loan from a TRID perspective. However their attorney and their accountant want to treat it is their problem and not the banks. You need to document the loan as you see fit along with meeting the requirements of your title insurance company for title insurance purposes. If they do not like it, they can go down the street. .
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#2273993 - 08/10/22 06:46 PM Re: TRID deed flipping situation rlcarey
dutchbltz Offline
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Joined: Oct 2015
Posts: 191
There are no third parties involved. I am not sure if it is a sole member LLC or joint with her husband; but her and her husband are both applicants and we know that there are no additional LLC owners. We seem not to have gotten org docs for the LLC; which is not really surprising since we would not typically request such documents for a seller in a transaction. This only got murky when we were told that this was actually not a sale after all and that the applicant is not acquiring an interest.

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#2273998 - 08/10/22 07:06 PM Re: TRID deed flipping situation dutchbltz
rlcarey Online
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rlcarey
Joined: Jul 2001
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Galveston, TX
Someone is trying most likely to play some accounting game. I would say - here is what we are prepared to do as far as granting you a loan - take it or leave it. How you account for all of this is not our concern.
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#2274000 - 08/10/22 07:23 PM Re: TRID deed flipping situation dutchbltz
dutchbltz Offline
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Joined: Oct 2015
Posts: 191
Thank you, I appreciate it. And I agree - there is some sort of accounting game going on.

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#2274009 - 08/10/22 08:59 PM Re: TRID deed flipping situation dutchbltz
Dan Persfull Offline
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Dan Persfull
Joined: Aug 2002
Posts: 46,958
Bloomington, IN
Keep in mind they are representing the borrower, not the bank and based on the PITA it sounds like they are being I would bet you if you don't properly document this under the TRID rules and the guidance of your own legal counsel then you may be looking at a court battle for improper disclosure claims.
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