Can someone please guide me to where it states under what conditions a bank will not be considered violating the legal lending limit to protect its asset. If I recall correctly if we were to pay taxes, insurance, etc... because our borrower is not able to, that is not considered a violation of the legal lending limit. Any help?

If you are a State bank, you are going to have to refer to State law.

If you are looking for the federal rules, look to 12 CFR 32.2 (k)(2). Some states do utilize the federal rules by incorporating them.

The following items do not constitute loans or extensions of credit for purposes of 12 U.S.C. 84 and this part—

(i) Additional funds advanced for the benefit of a borrower by a bank for payment of taxes, insurance, utilities, security, and maintenance and operating expenses necessary to preserve the value of real property securing the loan, consistent with safe and sound banking practices, but only if the advance is for the protection of the bank's interest in the collateral, and provided that such amounts must be treated as an extension of credit if a new loan or extension of credit is made to the borrower;