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#1314514 - 12/29/09 05:16 PM RESPA concerning Perm loan on Construction
ChristyB Offline
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Joined: Dec 2009
Posts: 6
Can you please provide RESPA guidance for loans to purchase a
house under construction: Initially we only have a lot and block# but no actual street address. Does this trigger RESPA?

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RESPA
#1314528 - 12/29/09 05:27 PM Re: RESPA concerning Perm loan on Construction ChristyB
Irishguy Offline
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Irishguy
Joined: Aug 2008
Posts: 613
Kentucky
Here is the wording from the Reg:

(3) Temporary financing. Temporary financing, such as a construction loan. The exemption for temporary financing does not apply to a loan made to finance construction of 1- to 4-family residential property if the loan is used as, or may be converted to, permanent financing by the same lender or is used to finance transfer of title to the first user. If a lender issues a commitment for permanent financing, with or without conditions, the loan is covered by this part. Any construction loan for new or rehabilitated 1- to 4-family residential property, other than a loan to a bona fide builder (a person who regularly constructs 1- to 4- family residential structures for sale or lease), is subject to this part if its term is for two years or more. A ``bridge loan'' or ``swing loan'' in which a lender takes a security interest in otherwise covered 1- to 4-family residential property is not covered by RESPA and this part.

I'm guessing if you do not have a commitment for permanent financing, RESPA would not apply.

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#1314530 - 12/29/09 05:29 PM Re: RESPA concerning Perm loan on Construction Irishguy
CompDat Offline
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Posts: 553
USA
I think it all depends. Who is doing the construction and permenant. Or who could (more exactly). If you are doing both then I have some bad news for you, both apply to RESPA and both applied at application of the original construction.

If you are only doing the permenant financing, then that financing applies to RESPA. But if you are only doing the construction phase and you know the take out is with someone else, then I would argue none apply to RESPA.

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#1314532 - 12/29/09 05:29 PM Re: RESPA concerning Perm loan on Construction ChristyB
Doug Hendrickson Offline
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Doug Hendrickson
Joined: Oct 2009
Posts: 3,927
The instructions for the GFE call for "the address or location of the property for which financing is sought". If all other conditions are met for this to trigger RESPA, then the lot/block serves as the location.
_________________________
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#1314533 - 12/29/09 05:31 PM Re: RESPA concerning Perm loan on Construction CompDat
CompDat Offline
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Posts: 553
USA
Originally Posted By: Irishguy
I'm guessing if you do not have a commitment for permanent financing, RESPA would not apply.


This would not matter if you do make loans for permenant financing, thus RESPA would apply unless you have a take out from another lender.

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#1314564 - 12/29/09 06:23 PM Re: RESPA concerning Perm loan on Construction CompDat
ChristyB Offline
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Joined: Dec 2009
Posts: 6
The loan is only for final financing. The builder is paying the construction loan. The have 2 problems most important listed below:

1. Applicant came to us for preapproval did not know the address of property.
2. Applicant sent in contract 30 days later and it was dated 1 day prior to application.
The applicant did not inform us of the address so to me there was not a completed application until the contract was received by us. Should we have sent disclosures out with unknown in the address section and assumed RESPA applied even though the applicant did not know the address?

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#1314572 - 12/29/09 06:32 PM Re: RESPA concerning Perm loan on Construction ChristyB
CompDat Offline
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Posts: 553
USA
Quote:
Applicant came to us for preapproval did not know the address of property.


OK, so what is the problem?

Quote:
Applicant sent in contract 30 days later and it was dated 1 day prior to application.


If your applicant truly not inform you of the property you have no issue. That said, they had already bought the proprety. I suspect your loan officer is playing games. Remember, the diligence requirement for Reg. B requires you to ask the questions needed to complete the application. This does not sound like a preapproval if they already have the property.



Quote:
Should we have sent disclosures out with unknown in the address section and assumed RESPA applied even though the applicant did not know the address?


No. I think what you did was right if your loan officer really did not know the property address. I suspect your loan officer did know the address though. I think this may be a training issue and, if it were my loan officer, I would explain to him where Reg. B and RESPA come into play. If the applicant truly mislead him (suggesting that it was a preapproval and no property was identified) then the loan officer did the right thing. If not, the loan officer should go back to compliance 101.

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#1314619 - 12/29/09 07:03 PM Re: RESPA concerning Perm loan on Construction ChristyB
ChristyB Offline
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Joined: Dec 2009
Posts: 6
Second issue concerns new regs. If we have an application for a house under construction that will not be completed for 4 months, the docs will expire before completion. Do we still keep the original GFE and have a revised GFE or every 60 days the old expires and we complete a whole new one?

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#1314672 - 12/29/09 07:30 PM Re: RESPA concerning Perm loan on Construction ChristyB
CompDat Offline
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Joined: Dec 2005
Posts: 553
USA
That is a good question. Here is my take on it. The intent to proceed can be given at any time during the period that the GFE is good for. It would not mean that if the loan is outside of that GFE, that the GFE is no longer valid. Thus if a changed circumstance happens, you can just issue a new GFE.

I think that you would not make a loan without knowing how the loan will be paid off. So either you know the loan is with you and should get an intent to proceed or you should document that they are going somewhere else for permenant financing and be done with that GFE.

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#1314936 - 12/29/09 10:15 PM Re: RESPA concerning Perm loan on Construction CompDat
Irishguy Offline
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Irishguy
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Kentucky
Originally Posted By: CompDat
Originally Posted By: Irishguy
I'm guessing if you do not have a commitment for permanent financing, RESPA would not apply.


This would not matter if you do make loans for permenant financing, thus RESPA would apply unless you have a take out from another lender.


You are right. My sinuses are getting the best of me. I ment to say exactly what you said. Thank you for setting me straight.

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