Borrowing on Home Owned By a Business

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Question:

We have a borrower who lives in a home that is owned by an LLC. He is the sole owner of the LLC. He wants to take out a HELOC on this home. First of all, does the three day rescission apply, and second can he take out a HELOC since the home is owned by a business? He wants to use the funds for investment purposes.

Answer:

No ROR, the home is owned by the LLC, not the individual. It depends on your lending policy, and possibly state law whether such a loan is allowable.

As for as the investment purpose, your question is not exact enough to answer conclusively. If the loan is made to the LLC, then Reg Z does not apply. If the loan is made to the individual, then you have to decide if the investments are personal or business by reviewing 226.3 and its Commentary. If personal investments and the loan is to the individual, then applicable sections of Reg Z will apply.

First published on BankersOnline.com 2/13/06