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Appraisal Rules and Construction Loans

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  • #5493
    Mary Frances
    Participant

    Need clarification regarding the ECOA Appraisal Rule for Construction Loans.
    Per 1002.14(a)(1) 1. Coverage. Section 1002.14 covers applications for credit to be secured by a first lien on a dwelling, as that term is defined in § 1002.14(b)(2), whether the credit is for a business purpose (for example, a loan to start a business) or a consumer purpose (for example, a loan to purchase a home).
    I think we should give the borrower a copy of the appraisal upon completion or 3 days prior to closing, which ever is earlier. Even if the borrower is a business and building a spec or contract home because we are taking a lien on what will be a dwelling. But then again the house is not built yet so should we be giving the borrower the appraisal? Especially if a builder is the one doing the construction loan?
    The Small Entity Guide for ECOA Appraisal Rule does not address this either. It only states that the exemptions are subordinate liens or vacant land which again leads me to believe that we should give the borrower a copy of the appraisal on construction loans.
    Sorry for the long question 🙂

    #5539
    rcooper
    Keymaster

    The following is from the preamble to the Reg B Valuation rules:
    Footnote 32 states: Similarly, questions about the rule’s coverage of temporary loans, such as bridge or construction loans, and renewals of credit, relate to the overall scope of Regulation B. The final rule is not intended to address whether these loans are subject to ECOA in the first place. If a temporary loan or a renewal is subject to ECOA, and a an appraisal or other written valuation is developed for that loan, then the applicant has a right to receive a copy under the final rule. This approach is consistent with existing comment 14(a)(1)-2 concerning the application of § 1002.14 to renewals, which is maintained in the final rule.

    Here’s a link to the preamble: https://files.consumerfinance.gov/f/201301_cfpb_final-rule_ecoa-appraisals-preamble.pdf

    #5542
    Mary Frances
    Participant

    So your opinion is that on a business construction loan (loan in the name of the builder’s company) that we need to give the appraisal to the builder 3 days prior to closing? This is the way I am reading it but there is a difference of opinion with the loan officers.

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