[sgarcia01]

We did a construction to perm loan that will convert a commercial building into a mixed use property. Once the building is complete, 68% will be residential apartment space and 32% will be retail space. The property was already owned by our borrower, so none of the funds were used to purchase the property. I’m struggling with determining the purpose of the loan. I’m leaning toward home improvement. However, I’m getting hung up on the fact that the property was never a residential structure to begin with. I don’t want to go with purchase either because the structure was already there and you can only build a structure once. So technically not meeting the spirit of a true construction. Any thoughts on how to report the purpose or should this be reported at all?

Topic

[kowsley]

Unfortunately, the regulation doesn’t specifically address this type of situation, of course! However, a few things to consider:

1. The intent of the funds from the construction-to-perm loan is to convert the commercial building into a mixed-use structure, so ultimately the loan will be covered by a dwelling.
2. You could utilize the square footage test or the projected income test to determine whether the structure is being utilized primarily for commercial purpose or residential purpose. If you have information regarding the projected income of the retail space you may be able to classify it as primarily commercial and could avoid the HMDA reporting requirement.
3. Based on the explanation that 68% is residential and 32% is commercial, it appears that you may be utilizing the square footage method and it would be deemed residential.

Considering these factors I believe it is a covered transaction that should be reportable as a home improvement transaction.

Because this is an obscure transaction, you may want to consider reaching out to your regulatory agency to seek an opinion as well to ensure your financial institution and the agency are interpreting it consistently.

[Author]

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