• For speculative vertical construction loans , if the security property is residential property of 1 to 4 the loan file should contain a written statement from the borrower ’ s intent to sell the finished property on the open market , and that he / she does not intend to move into the home as a primary residence .
• Obtain a list of items and dollars to be spent for business related expenses contemplated by the borrower . Written estimates from vendor cost bids are helpful .
Consumer purpose loans have historically been subject to much greater federal and state government restrictive regulatory oversight . This is the same for onetofour residential unit loans versus commercial or larger multitenant buildings . This has led many lenders / mortgage brokers to the decision to exit consumer purpose lending altogether and only engage in lending for business purposes . Many mortgage brokers have found out the hard way that consumer related lending is not worth the risk of legal liability if anything goes wrong . Judges and courts are tremendously biased toward the “ perceived less than sophisticated consumer / homeowner parties .” In general , businesspersons in US courts of law especially in California are suspected of wrongdoing until proven innocent . Most highly experienced practitioners will agree !
Any accusation of a perceived infraction of violating TruthinLending or another state and federal law , even with little legal basis , could cost a mortgage broker a ton of money for discovery , court costs , and lawyer fees . Their entire career and loss of real estate lending license may be on the line with every single transaction .
Here are a few recommendations under the category of best practices :
• Broker should verify that the business purpose portion of the net loan proceeds are disbursed at escrow closing into a business account .
• Obtain a borrower resume and / or history of business activities evidencing business purpose .
• The correlation between the consumer ’ s occupation and redundancy can be verified by a resume . An investor may repeatedly purchase investment real estate for rehabilitation and resale at a potential profit .
Private money or what is referred to as hard money lenders provide an alternative borrowing industry to institutional lenders such as banks and government sponsored lenders ( GSEs ) such as Fanny Mae and Freddy Mac .
A new set of underwriting standards and loan approval considerations may be required for borrowers who have been subject to difficulty in 2020 from the Covid related fallout and the changes in real estaterelated California laws . Borrowers may have a fragmented credit history and perhaps skipped payments due to reduced personal or businessrelated cashflow . The “ unable to qualify ” for bank loans may become more prevalent .
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