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#2287529 - 08/09/23 09:20 PM Construction-to-Permanent Renewal
jel99 Offline
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Joined: Sep 2021
Posts: 46
We have a loan where the borrowers took out a loan to build a duplex.

The original note was 12 month I/O - we excluded as temporary.
There was a renewal at maturity to extend the maturity for 3 more months - again excluded.
Now, there is a renewal note putting the terms on permanent financing to begin leasing the property. The renewal note is under the same loan number and amount.

Should this be considered a Purchase or exempt because it was termed out on a renewal note?

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#2287542 - 08/10/23 12:51 PM Re: Construction-to-Permanent Renewal jel99
rlcarey Online
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rlcarey
Joined: Jul 2001
Posts: 83,016
Galveston, TX
What is a renewal note? Has the original construction loan been extinguished and replaced? Is this a modification?
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com

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#2287551 - 08/10/23 02:13 PM Re: Construction-to-Permanent Renewal jel99
jel99 Offline
Junior Member
Joined: Sep 2021
Posts: 46
I can only assume the renewal note does replace the original note, because new loan agreements and loan docs are sent out to be signed. However, that loan never closes, and the loan amount stays the same. We also file a modification DOT that references the renewal note.

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#2287552 - 08/10/23 02:17 PM Re: Construction-to-Permanent Renewal jel99
rlcarey Online
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rlcarey
Joined: Jul 2001
Posts: 83,016
Galveston, TX
Well, making assumptions is not really recommended when to comes to compliance. Ask your legal counsel. If this does not replace and extinguish the original debt, the loan would not be reportable under HMDA.
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com

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#2287575 - 08/10/23 05:34 PM Re: Construction-to-Permanent Renewal jel99
Dan Persfull Offline
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Dan Persfull
Joined: Aug 2002
Posts: 47,482
Bloomington, IN
First off take Randy's advice and consult the bank's attorney. Make sure you are talking to the attorney with facts and not assumptions.

the renewal note does replace the original note, because new loan agreements and loan docs are sent out to be signed.

IMO this constitutes a reportable home purchase. Converting a construction only loan to permanent financing.

However, that loan never closes, and the loan amount stays the same.

That is an internal accounting procedures and has no bearing on if the new obligation is satisfying and replacing the existing obligation.
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The opinions expressed are mine and they are not to be taken as legal advice.

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