Florida Statute 494 has some changes effective July 1st, 2019 that tighten up the use of the RESPA loophole for Business Purpose Loans.
Language has been added that makes it a clear violation of FS 494 to misrepresent a residential mortgage loan as a business purpose loan.
Sound familiar? Your client lives in a property either as is full time residence or his second/vacation home. Because of his credit circumstances he cannot qualify for a QM or non-QM loan. So someone suggests he create an LLC, and make it look like an investment. Less required disclosure, higher interest rates and costs to the client. Then when the loan closes the “façade” is stripped away – the borrower is the client not the LLC, he house is his residence, he uses the proceeds to pay off his credit cards, and any cash needed comes and goes between the client and lender, not the LLC.
So what do you need to do? You need to be sure a business purpose loan is exactly that. Most if not all of the proceeds must go into a true business venture. Further, if the business purpose loan involves a RESPA property (residential) then the MLO and his sponsor better have a license. Finally, if in doubt, disclose to a higher level.
These loans will become red flags for audits. Be prepared.
Confused? Ask your compliance team. If you don’t have one, call us at 800-656-4584 and let us tell you how we can help you stay out of trouble.
Nelson A. Locke, Esq.
Compliance Services, USA.