Construction Inspection Fee: Finance Charge or Prepaid Finance Charge Answer by: David Dickinson, BOL Guru BIO AND CONTACT INFO
Question: On a construction loan, is a construction inspection fee considered a finance charge/prepaid finance charge? We collecte the fee as construction progresses. The fee is either kept by the bank if we conduct the inspection or it is paid to a third party to conducts the constrction inspection on behalf of the bank.
Answer: A construction inspection fee is a prepaid finance charge (PPFC) if the service is performed after the closing of the construction loan. In other words, if it is an appraisal before closing, it is not a PPFC, but if it is after closing, it is a PPFC.
Refer to section 226.4(c)(7) where it says the following are NOT finance charges.
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:
(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.
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