Property owners / borrowers may have taken advantage of payment deferrals based upon lack of payments received from tenants , and / or foreclosure moratoriums , from both state and federal mandates . Borrowers may need loans secured by their real estate for the purpose of catchingup or shoringup the finances of their business enterprise ( s ), and to renew a good credit status and return to timely payment habits . This almost sounds like a “ fresh start loan .”
The lenders / mortgage brokers should obtain a completed borrower ’ s loan application , financials , credit report , and independent thirdparty appraisal . Bank statements or tax returns showing profit and loss may be helpful . Six months of business and personal bank statements are usually adequate for private money loans . The procuring lender can visually substantiate available cash flow from the borrower ( s ), the borrower ( s ) business , and the subject property for expenses and debt service .
Credit considerations and approval will take on some compassionate analysis of circumstances as well as proving up the borrower ’ s ability to repay . This will be a delicate balance .
Since many private money lenders are more “ equity driven ” than “ income driven ” alternative methods of analysis may be approached . For example , historically many lenders assume that if
Consumer purpose laws are driven by the purpose of the borrowed funds , not the collateral property borrowed against . a borrower has a property with a 60 % loan to value and 40 % as “ protective equity ” then the lender may not require much more than an application , independent appraisal , and a credit report . Timely payments and performance of the loan terms are assumed because any borrower who accrues that much equity over time will likely not default in any circumstance . This is referred to as “ equity driven lending vs . credit and income driven lending .” Somewhere in between is most prudent . We may find that with recently passed laws and new legislation pending , loantovalues and methods of analysis will change .
A consumer purpose loan can only be made to a consumer , which is a natural person or a natural person ’ s family trust . Generally , a family trust is considered a consumer and is therefore covered under federal and state consumer laws .
Since LLCs , corporations , and business trusts are typically formed for business purposes , loans to these entities are not covered ( exempt from consumer disclosure laws ). The entity would generally be exempt if used for a legitimate business purpose and is not
established to circumvent applicable consumer lending laws .
Consumer purpose laws are driven by the purpose of the borrowed funds , not the collateral property borrowed against .
It is natural to confuse “ owner occupancy ” and “ consumer ” with whether a loan is covered by the Truth in Lending Act ( TILA ), RESPA , ( Real Estate Settlement Procedures Act ), DoddFrank , and other federal and state regulatory requirements are also involved . Loans do not have to be owneroccupied to fall under the TruthinLending and “ ability to repay ” requirements .
The determination as to whether a loan falls inside consumer laws is “ purpose driven ” rather than “ occupancy driven .” This means if the purpose of the loan was consumer that it must comply with consumer laws . If a gas station owner who rents his property to a third party borrows money using the gas station as security to consolidate personal and household debts and to improve his owneroccupied home , then it is a consumer loan . This article is educational but not a complete representation of facts or regulations .
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