Survey Fees and Finance Charge
Question: Recently, I've been hearing that examiners are writing banks up for not including the survey fee for a construction loan in the finance charge. I have always thought that the survey fee is exempt from the finance charge definition. I suppose the finance charge interpretation is related to the fact that the service is actually performed after closing but I thought that only applied to appraisals, life of loan flood, inspections, and other such fees. Please let me know your opinion on this.
Answer: The examiners are correct when they make this finding. While it is true that some fees related to real estate loans are exempted from finance charge status, this only applies when the fee and service occur at or before closing. Services that are performed after settlement, such as life of loan flood hazard determinations, construction inspections, and post-settlement survey fees, are finance charges. These fees should be anticipated as accurately as possible and included in the total finance charge disclosure at settlement.
Disclosures must be accurate as of the time you make them. Subsequent events that could not be anticipated are not violations. A lender might expect five inspection fees over the course of a six-month construction loan that would be finance charges. If construction was delayed for some reason and six inspections were actually performed, the disclosures would not be inaccurate because they were based on what was known and reasonably expected at the time of settlement.
However, if the lender consistently under-estimated the number of inspection fees that would be required, such as estimating three monthly inspections for a six month loan, those disclosures would not meet the reasonable expectation test and would be a violation.
This approach seems illogical. Some of the fees that you know about and have been charged or are being charged at settlement are exempted from the finance charge while fees for services that occur later must be guessed at and included. This is the result of the way the law is written, so we have to live with it. Good luck!
Copyright © 2006 Compliance Action. Originally appeared in Compliance Action, Vol. 10, No. 16, 1/06
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