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#2081034 - 05/28/16 01:03 AM Definition of Dwelling
DAniya Offline
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Hawaii
Hello,

Our commercial loan officers have been raising questions on whether or not the Reg B appraisal requirements are truly triggered by their loans. A recent question was about a loan secured by a commercial property where there were several improvements, one of which we considered a dwelling which triggered the Reg B requirements There were 10 warehouses, one of which was converted to include a “caretaker unit”. When I asked what a “caretaker unit” was, the answer was that it’s intended for someone to live there in a resident manager-type capacity.

Conservatively, we advised that the notice, appraisal, and other written valuations are required since a dwelling is being used as collateral, and we are in a first lien position. Well, they missed the notice because they didn’t feel the Reg B was triggered. The appraisal was ordered for a commercial property and the fact that one of the warehouses was actually a “dwelling” didn’t come up until later. The appraisal was delivered at closing, not any earlier. Their argument was that it wasn’t a “residential structure” because it was a warehouse and the appraisal identified it as a “caretaker unit” on a commercial appraisal in a commercial zoned location.

Any wiggle room to say that we were exempt from the Reg B Appraisal notice and delivery requirements?

Here is the Reg B 1002.14 definition for reference.
(2) Dwelling. The term "dwelling" means a residential structure that contains one to four units whether or not that structure is attached to real property. The term includes, but is not limited to, an individual condominium or cooperative unit, and a mobile or other manufactured home.

Thanks in advance!

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Interagency (Reg Z) and CFPB Reg B Appraisal Rules
#2081037 - 05/28/16 02:39 AM Re: Definition of Dwelling DAniya
Kathleen O. Blanchard Offline

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Unlike other regulations, the appraisal rule in Regulation B does not contain an exemption for mixed use properties that might be primarily commercial. It is faster and safer to just provide the disclosure and comply with the rule.
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#2081096 - 05/31/16 03:46 PM Re: Definition of Dwelling DAniya
Tracey, CRCM Offline
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Agree with Kathleen. We have advised our commercial lenders to just send out disclosure
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#2081214 - 05/31/16 10:47 PM Re: Definition of Dwelling DAniya
DAniya Offline
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Thank you!

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#2106289 - 11/07/16 11:57 PM Re: Definition of Dwelling DAniya
Mel in WA Offline
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If the definition of a dwelling is a residential structure that contains one to four units, does that mean a building with 5 or more units would not be considered a dwelling? In other words, a transaction secured by a four-unit residential building of condos/townhouses would be covered by the rule, but a transaction secured by a complex over four units would not??

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#2106435 - 11/08/16 08:35 PM Re: Definition of Dwelling DAniya
John Burnett Offline
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Correct. If you take a mortgage on a multi-family building (five or more dwelling units) it's not a dwellng, and section 1002.14 won't apply.
Same result if you take two buildings, each of which has four units, for a total of eight.
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#2106768 - 11/09/16 09:58 PM Re: Definition of Dwelling DAniya
Mel in WA Offline
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Thanks John!

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#2118672 - 02/17/17 02:56 PM Re: Definition of Dwelling DAniya
RR Becca Offline
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out of the frying pan...
Tagging on here: what about a transitory residence, like a frat house? Would that be covered under Reg B's definition of dwelling?
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#2118683 - 02/17/17 03:21 PM Re: Definition of Dwelling DAniya
raitchjay Offline
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OK
It wouldn't to me.....but that may just be me.
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#2132650 - 06/01/17 02:12 PM Re: Definition of Dwelling DAniya
It's not easy Offline
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If we received an application for an Ag loan that contained an old farm house but is dilapidated, would the appraisal requirements apply? If yes, does the answer change if there are two old farm houses on the property that are in disrepair?

From what I recall from reading the final rule when it came out is that there really isn't any exemptions. I also wonder if the only appraisal requirement that would apply would be to send out the appraisal disclosure and not that actual appraisal since the value was based on the land only and did not consider the old farm house.

Reg B Definition of Valuation: The term “valuation” means any estimate of the value of a dwelling developed in connection with an application for credit.

Thanks!

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#2132740 - 06/01/17 06:33 PM Re: Definition of Dwelling DAniya
MyBrainHurts Offline
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As to the first part, if it has a dwelling, even an ugly one, I'd send the notice. It's just easier than arguing why we didn't consider what was built to be a dwelling is no longer a dwelling. As far as sending the valuation, I would assume any appraiser is going to at least make reference to the existence of the dwelling, and even if he says the structure adds no value, he has still assigned a value ($0).
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#2132782 - 06/01/17 08:51 PM Re: Definition of Dwelling DAniya
It's not easy Offline
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Thanks My Brain Hurts. How do you feel if the evaluation reads:

There are older buildings on the site, which provide little to no value based upon condition and will not be included in the evaluation.

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#2132870 - 06/02/17 02:34 PM Re: Definition of Dwelling DAniya
John Burnett Offline
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Spending time trying to split hairs over whether one technically needs to provide a copy of the appraisal isn't worth the effort, IMHO. What do you suppose is the cost of making the copy and dropping it in the mail? I do understand the question and don't intend any offense, but why not "just do it"?
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#2132931 - 06/02/17 05:08 PM Re: Definition of Dwelling DAniya
It's not easy Offline
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I absolutely agree. I have always advised when in doubt to just send it, however when a LO gets dinged for not providing a copy they will dispute like crazy. smile

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#2137968 - 07/13/17 05:42 PM Re: Definition of Dwelling DAniya
John Burnett Offline
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That's when you tell the LO -- OK. You got dinged. It's not the end of the world. But don't get dinged again on this rule.
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#2137975 - 07/13/17 06:06 PM Re: Definition of Dwelling It's not easy
Beachbum, CRCM Offline
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"There are older buildings on the site, which provide little to no value based upon condition and will not be included in the evaluation."[i]
Tell your LO there is a valuation in the dwelling "[i]Little to No
"
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#2148198 - 09/29/17 08:22 PM Re: Definition of Dwelling DAniya
Christine81 Offline
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What if you are doing development lending, so there are 15 lots and the purpose of the loan is to finance the land development and the construction of 15 single family homes? Of course the homes are not all being built at one time, and will be built and sold, so there could be one home, three homes, five homes at a time. I am getting a lot of pushback from our Commercial department also.

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#2148203 - 09/29/17 08:37 PM Re: Definition of Dwelling DAniya
rlcarey Online
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Is this one loan that is being made or are the house loans made one by one?
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#2272105 - 06/24/22 10:29 PM Re: Definition of Dwelling John Burnett
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John, I've been searching for this answer, and just want to confirm. Our collateral is one parcel with a triplex and a duplex on it, so was listed as multifamily due to the 5 units, and not provided the appraisal notice. I am concerned that it should have been considered as subject to the ECOA appraisal requirements.

Your post makes me think that you would NOT consider this a 1-4 family dwelling for the purpose of the ECOA Appraisal?

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#2272109 - 06/26/22 11:53 AM Re: Definition of Dwelling DAniya
rlcarey Online
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From footnote79 of the original 2013 Federal Register:

79 With respect to the example raised by a creditor and two national creditor associations—three four unit buildings operated as a 12-unit apartment complex, the text of the rule makes clear that a four unit residential building would be a dwelling, but a 12-unit apartment complex is not. Thus a transaction secured by a four-unit residential building would be covered by the rule, but a transaction secured by the entire 12-unit apartment complex would not be. Because this question can be analyzed in a straightforward manner by reference to the text of the rule, the Bureau does not believe that further commentary is needed for this to be apparent.
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#2272225 - 06/28/22 10:23 PM Re: Definition of Dwelling DAniya
CRL Offline
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Thank you Randy. So one step further for clarification, would a loan secured by six single family residences on six separate parcels also be exempt? Each are clearly a 1-4 family dwelling, but the borrower is requesting one loan, secured by one DOT listing each property.

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#2272229 - 06/29/22 10:52 AM Re: Definition of Dwelling DAniya
rlcarey Online
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Six houses on six lots are not a multi-unit complex.
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#2272332 - 06/30/22 06:11 PM Re: Definition of Dwelling DAniya
CRL Offline
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Exactly. I guess I'm trying to find the logic, it's not structure that makes it exempt, it's number of units on one parcel?

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#2272341 - 06/30/22 07:41 PM Re: Definition of Dwelling DAniya
rlcarey Online
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Correct? That is what the preamble set forth.
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