I HAVE A COMMERCIAL CUSTOMER PURCHASING A PROPERTY UNDER A LEASE AGREEMENT THAT HAD A OPTION TO PURCHASE. THE ORIG PURCHASE PRICE IS IDENTIFIED AS $350,00.00 WITH A BALANCE OF $310,000 DUE AT THE END OF THE 36 M LEASE. CAN I CLASSIFY THIS AS A REFI AND USED THE APPRAISED VALUE? OR IS IT A PURCHASE OF 310,000??? WHICH SHOULD I USE?

MY OPINION AND THOSE OF MY LOAN OFFICERS ALWAYS DIFFER

I would not consider it a purchase of $310,000, since the original purchase price was $350,000. Plus, since the purchase price was entered into three years ago, I would tend to use the current appraised value anyway.

Your post raises a lot of questions in my mind (not necessarily listed in order of importance):

1) When was the option exercised? If it was an intention from the getgo that the 'tenant' would occupy for three years and then go get bank financing and call the rent paid equity, then I would say their arrangement was really a purchase money mortage and I'd call the sale price $350,000 (although are you allowed to rename an arrangement? Does the 'look like a duck' rule apply?).

2) A tie-in to the last ?, when was the purchase price determined and how/where is it documented? This might give a clue as to whether this was a PMM that was being called a LP.

2) When was the property appraised and, more importantly...

3) Who ordered (or negotiated fee/timing on) the appraisal?

4) Is this a business loan or a real estate loan (is repayment of the debt dependent on income or sale from real estate)? If it is a business loan, you don't have an appraisal requirement, you have an evaluation requirement (business loan <$1MM). Unless, of course, you are not relying on the real estate value to make your credit decision but are taking the real estate in abundance of caution. If it is a real estate loan, how does your lending institution define 'current' appraisal?

6) Is it possible for a loan to be a refi if there was never a transfer of property rights and loan to begin with?