We have approved a guidance line of credit to a commercial borrower. The guidance line is advanced under individual notes secured by an assignment of a promissory note and a deed of trust on a dwelling. Our borrower is acting more like a warehouse line for other individuals who are buying homes on the courthouse steps as investments. Are our individual notes reportable. The loans are for the purchase of a dwelling, but there is a middleman actually purchasing/in title on the property.

I'm confused by form over substance on this one and can't seem to find anything on this one in the threads.

Temporary - designed to be replaced by a loan of a longer term?? probably not.. I think it looks more like a fix and flip and therefore would be reportable as a purchase. The only other possibility...it is a revolving line of credit?

How does this actually work? When the home is purchased at the courthouse, who purchases it, who funds the purchase?

What is your bank's collateral...the notes that are secured?

It sounds, on third reading, that your customer borrows from the bank and then lends that to his clients to purchase a house, taking a note that is secured by a lien on the home purchased. The bank loan to your client is secured by those notes. Is that the structure?

A "purchase" for HMDA purposes has to be secured by a dwelling. If you are taking an "assignment of a deed of trust" then the property/home is not your collateral. The collateral is the Note (which is possessory collateral). Therefore, not HMDA reportable.

If the borrower was only assigning the note as security for the loan I would agree these loans would not be reportable because they are secured by the note and not the dwelling itself.

However the original post indicates the mortgage (DOT) is also being assigned to the bank. This assignment now makes the loan secured by the mortgage which if the mortgage is on a dwelling the loan is now secured by a dwelling and reportable if the loan purpose meets any of the definitions for reporting purposes.

It makes me nervous to disagree with a compliance expert but ... I don't agree that an assignment of deed of trust makes the loan secured by the dwelling. The loan is secured by the (assigned) Note which is a contract for payment between two parties. The bank is collateralizing its loan with the payment stream of the assigned Note. If the bank's borrower defaults then the bank can (after whatever legal proceedings)take over receipt of payments on the Note but can't foreclose on the dwelling (unless the payor on the assigned Note defaults on his payments after the Bank has taken over as owner of the assigned Note).

Never hesitate to disagree. I'm a compliance person, not an attorney and my opinions are not always correct.

There would be no reason to assign the mortgage. If the note is assigned that note is secured by the mortgage and you have the right to exercise your security agreement if the note goes into default and as you said that security agreement gives you, or it should, the right to start receiving payments from the assigned note to offset your debt secured by the note and then by virtue of that note you have the right to exercise actions against the mortgage should your assigned note go into default. So your loan is secured by a note not the mortgage.

If the mortgage is assigned to you as security for your loan then your loan is secured by that security agreement (mortgage). The mortgage now secures the original note plus your note. IMO, that makes your loan now dwelling secured because it is not only secured by an assigned note but is also secured by an assigned mortgage. You are now the mortgage holder.

I'm sure there would be some legal hoops to jump through if you had to exercise your default remedies against the mortgage but I still think your note is dwelling secured by assignment of the mortgage.

Now with all that said, it's not really an issue I would push to great lengths. I'm just throwing out another opinion that should be considered in deciding whether to report the loan or not.