August 16, 2011 at 6:10 pm #2401JolParticipant
If we are refinancing a loan that was originally financed for the purchase of a mobile home and we are currently adding new money for improvements to the mobile home, would a 3rd party appraisal charge be considered a prepaid finance charge?
It is my understanding that a refinance of a purchase money loan is not considered a residential mortgage transaction and therefore exclusion of the appraisal fees ( in-house or 3rd party fees)from the finance charge is NOT allowed.August 16, 2011 at 8:43 pm #2762JGo9Participant
Here is what I found. 226.2(a)(24) of Reg Z defines a Residential Mortgage Transaction as follows:
(24) Residential mortgage transaction means a transaction in which a mortgage, deed of trust, purchase money security interest arising under an installment sales contract, or equivalent consensual security interest is created or retained in the consumer’s principal dwelling to finance the acquisition or initial construction of that dwelling.
226.4(c)(7)(iv) of Reg Z is where you’ll find out about the fee for the Appraisal from a 3rd Party being excluded from the Finance Charge:
(7) Real-estate related fees. The following fees in a transaction secured by real property or in a residential mortgage transaction, if the fees are bona fide and reasonable in amount:
(i) Fees for title examination, abstract of title, title insurance, property survey, and similar purposes.
(ii) Fees for preparing loan-related documents, such as deeds, mortgages, and reconveyance or settlement documents.
(iii) Notary and credit-report fees.
(iv) Property appraisal fees or fees for inspections to assess the value or condition of the property if the service is performed prior to closing, including fees related to pest-infestation or flood-hazard determinations.
(v) Amounts required to be paid into escrow or trustee accounts if the amounts would not otherwise be included in the finance charge.
It looks you are correct about it not being considered a Residential Mortgage Transaction, but from section 226.4 it sounds like the fee would still be excluded from the Finance Charge, as it’s still secured by real property.
Now this is assuming that you have the land as well as collateral.
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