[benef005]

I have a lender working a refinance deal for a 22-unit multi-family dwelling. The loan proceeds will pay off the existing first mortgage and reimburse the company for improvements made to the subject property.

The structure (22 units) meets the definition of a dwelling, “… a residential structure, whether or not attached to real property. The term includes but is not limited to a detached home, an individual condominium or cooperative unit, a manufactured home or other factory-built home, or a multifamily residential structure or community.” §1003.2(f)

So far, the transaction is reportable as a multi-family dwelling refinancing.

When looking at the details regarding tenant occupancy, there is a difference of opinion whether or not the property should be considered transitory. Of the 22 units in the structure, 20 are leased to a local non-profit. The non-profit allows people involved in their programs to live in these units without any (known) subleasing arrangement. The organization assists individuals who are “getting back on their feet” by providing non-medical services. The lender has been asked to determine the average stay of these tenants.

“Properties with service and medical components. For purposes of §1003.2(f), a property used for both long-term housing and to provide related services, such as assisted living for senior citizens or supportive housing for persons with disabilities, is a dwelling and does not have a non-residential purpose merely because the property is used for both housing and to provide services. However, transitory residences that are used to provide such services are not dwellings. See comment 2(f)-3. Properties that are used to provide medical care, such as skilled nursing, rehabilitation, or long-term medical care, also are not dwellings. See comment 2(f)-3. If a property that is used for both long-term housing and to provide related services also is used to provide medical care, the property is a dwelling if its primary use is residential. An institution may use any reasonable standard to determine the property’s primary use, such as by square footage, income generated, or number of beds or units allocated for each use. An institution may select the standard to apply on a case-by-case basis.” 2(f)-5 Supplement I to Part 1003

1.) If the lender comes back with a tenant occupancy time period of less than 12 months, should we consider the deal as transitory multi-family and thus not reportable?
2.) Does the fact that the non-profit’s name is on the lease supersede the assumed turnover in the 20 units?
3.) What, if any, impact do the remaining two units leased to individuals have on the reportability of the loan?

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[jholzknecht]

You have done a fine job of analyzing this complex scenario.The transaction does appear to be a refinance of a multi-family dwelling.But the 20 units leased to the non-profit may be transitory units. “Transitory” indicates the borrower lives here for a while before returning the their regular residence. Is that the case with these units? Once the residents get “back on their feet” do they return to their homes?

With more information you should be able to determine if the units are transitory. If they are, with 20 of 22 units used in a transitory manner, it should be easy to argue primary purpose.

[Author]

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