Our bank is contemplating offering a one-time close construction loan product. I understand this product will be subject to RESPA. My question is regarding inspection fees. We will disclose 5 inspection fees on the GFE and collect at closing. Can we charge the borrower post closing for any additional inspections above the 5 initially disclosed?For construction only loans not subjject to RESPA we have been able to do this under Reg Z sec 1026.59(c). Thanks

bump

1026.59(c) deals with credit card accounts and open-end credit to students. How have you been collecting inspection fees relying on this section of the Reg?

IMO you would have to contract for the inspections fees before you could collect them.

The section is actually 1026.17(c).

That section deals with your ability to estimate your disclosures based on the information you have at the time you make them. It does not give you the authority to collect a fee you did not contract for.

We contract for inspection fees in our construction loan agreement

But are you only contracting for the 5 fees you disclose? The language in the contract will dictate whether you can collect 5 or 15 fees. If you are not 100% certain of the language get your attorney involved.

Our contract states the borrower will be responsible for all inspection fees. For RESPA and TIL we estimate 5 but may need additional unforeseen inspections. If we offer one-time close construction loans we will need to disclose this on the GFE and as a ppfc on the TIL. If we disclose 5 on the GFE and collect 5 at closing can we still charge an additional fee later if needed? I don't think we can under RESPA due to the tolerance issues. Just wanted to get your thoughts.

Thanks for your response!

RESPA would not dictate if you can collect a subsequent fee. The contract language will be the guide there. However, if you need more than 5 inspections then it must be one heck of a construction project, or poor planning on the loan officer's part for controlling the disbursements.

Because they are a finance charge and are addressed within that section of Reg Z, I would say you can ONLY charge for the number of inspections you have calculated for.

In contrast, the following items are finance charges:

A. Inspection and handling fees for the staged disbursement of construction-loan proceeds.

As long as they are contracted for any fee above those disclosed would be subsequent fees and not subject to the disclosures. Now this is not saying that if you know there will be at least 5 inspections you can only disclose one to avoid including the other 4. .17(c) makes it pretty clear you have to disclose based on the known facts at the time.

From .17:

e) Effect of subsequent events. If a disclosure becomes inaccurate because of an event that occurs after the creditor delivers the required disclosures, the inaccuracy is not a violation of this part, although new disclosures may be required under paragraph (f) of this section, §1026.19, §1026.20, or §1026.48(c)(4).

However, reverting back to my comment about poor planning, the construction agreement should spell out the estimated # of inspections and at what stage of the construction they will take place. How disbursement are to be paid should also be spelled out in the agreement.