Commercial Mortgage Rewrite

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Question:

A husband and wife own a commercial property and run a business at the location. The business is operated as a DBA/sole proprietorship. The wife works outside of the business and earns the majority of household income. Can a rewrite of the commercial mortgage be considered to the owners with the proceeds being for personal use? Very little of the proceeds would go back into the business.

Answer:

In most states a business run by a husband and wife or two or more people would be a partnership, not a sole proprietorship. If the rewrite of the mortgage is for personal use then you have a consumer loan and must follow all the applicable consumer regulations. From the Commentary to Reg Z's 226.3:

5. Business credit later refinanced. Business-purpose credit that is exempt from the regulation may later be rewritten for consumer purposes. Such a transaction is consumer credit requiring disclosures only if the existing obligation is satisfied and replaced by a new obligation made for consumer purposes undertaken by the same obligor.

First published on BankersOnline.com 3/05/07