I know this post is 10 years old. I have the same question today. Does anyone have an answer for this?
I am a private investor who only originates about 3 Private Notes per year. We have been loaning funds to borrowers and using their rental property as collateral. But, I currently have a client who would like a business loan to put a vineyard on his primary residence property in CA, and would like to use this primary residence as collateral for this business loan. From what I understand, I would not need to follow the Dodd Frank TRID guidelines for this type of loan, since the PURPOSE of the loan is BUSINESS. Is this your understanding?
Lender · Los Angeles, CA · Member since 2009 · 1k+ posts · 2k+ votes
3y
Not a day goes by here, @Jim Langdon that someone claims private/hard money lenders can’t lend on owner-occupied properties. Rubbish. Some myths here never die.
The primary use of the money must be for a business purpose. In fact, lending against a rental is not necessarily a business-purpose loan. It’s the use of the money that’s important. I hope in your case that your borrowers are not using the money for personal, family, or household uses.
The Official Staff Interpretations for Reg Z (Dodd-Frank) specify your exact scenario in at least two ways:
- Exempt Transactions
ii. Business-purpose examples. Examples of business-purpose credit include:
A loan to expand a business, even if it is secured by the borrower's residence or personal property.
…
8. Agricultural purpose. An agricultural purpose includes … (Too long to quote. Read the statute.)
You should read the entire Section 226.3 but this is pretty clear. Assuming the vineyard is a business and not a hobby, you could make this loan. In fact, we’ve been asked to make loans like this, except for business inventory, and we got the green light from our attorney.
Obviously, you don’t take legal advice from a message board -- and lastly from me. You must confirm with your lending attorney. As importantly, make sure you adequately document the purpose of the loan. Our lending attorney recommends having the borrower handwrite their intended use on a clean sheet of paper upon application. This makes it difficult for them to claim they got confused when they signed all the loan docs at escrow. Also, a UCC filing in case you must foreclose on business inventory.
There’s much more I know your attorney will recommend. You asked a good and well-needed question.