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#2118015 - 02/13/17 07:03 PM Taxes on Construction Loans
MScarn6942 Offline
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Land Lacking in Lakes, IL
How is everyone disclosing property taxes on the LE on the permanent financing following a construction loan where the assessor's number is based off of the raw land?

For example, the taxes on the raw land are $40/year, but a $350,000 house is built on it and taxes will likely be in the $7,000/year neighborhood. What number is being disclosed on the projected payments table?
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TRID - TILA/RESPA Integrated Disclosures Rule
#2118016 - 02/13/17 07:08 PM Re: Taxes on Construction Loans MScarn6942
rlcarey Online
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$7,000/year

1026.37(c)5) Calculation of taxes and insurance. For purposes of paragraphs (c)(2)(iii) and (4)(ii) of this section, estimated property taxes and homeowner's insurance shall reflect:

(i) The taxable assessed value of the real property securing the transaction after consummation, including the value of any improvements on the property or to be constructed on the property, if known, whether or not such construction will be financed from the proceeds of the transaction, for property taxes; and

(ii) The replacement costs of the property during the initial year after the transaction, for amounts identified in § 1026.4(b)(8).
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#2118019 - 02/13/17 07:16 PM Re: Taxes on Construction Loans MScarn6942
MScarn6942 Offline
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Land Lacking in Lakes, IL
How do we come up with that figure though? I pulled the $7,000/year out of a hat. Do we treat the appraised value as an assessed value and go from there? That could end up disqualifying someone based on DTI.
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#2118020 - 02/13/17 07:20 PM Re: Taxes on Construction Loans MScarn6942
RR Joker Offline
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If you are lucky, your assessor's site will have an estimator you can use.
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#2118022 - 02/13/17 07:26 PM Re: Taxes on Construction Loans MScarn6942
Truffle Royale Offline

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Or, in states where the taxes will stay low until the property is reassessed with the house up to 18 months after construction (Iowa is one) go with the existing taxes and give a payment shock letter to let them know to expect a big jump in the money to be collected for the tax escrow.

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#2118029 - 02/13/17 07:51 PM Re: Taxes on Construction Loans MScarn6942
RR Joker Offline
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I don't see where the regulation allows for that regarding taxes.

We always estimate what it will be. Besides how can you accurately determine ATR on the perm phase without doing so?


and yes, MScarn...use the best info available to you, which would typically be your appraisal.
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#2118038 - 02/13/17 08:25 PM Re: Taxes on Construction Loans MScarn6942
Truffle Royale Offline

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You cannot overcollect on escrows. In Iowa, the property tax will remain the same for at least 18 months after construction because their tax bill is so wonky and reassessments are delayed. So I would be in violation if I collected for 2017 taxes based on appraisal value when I know that the tax bill will not go up till Sept 2018.

Sorry if this is confusing. I only meant to point out the need to be up on the state laws and practices before you apply a general calculation.

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#2118039 - 02/13/17 08:27 PM Re: Taxes on Construction Loans MScarn6942
MScarn6942 Offline
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Land Lacking in Lakes, IL
So we're in IL and don't do any escrows. It wouldn't affect their payment here, but I don't feel right telling them it'll only be $2 or $3/month when really it should be $700+(in the example above anyway).

Since it doesn't affect escrow, do I still need to be careful of what you're talking about, Truffle?
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#2118054 - 02/13/17 09:03 PM Re: Taxes on Construction Loans MScarn6942
rlcarey Online
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The laws regarding the collection of escrows and the disclosures required under Projected Payments on the LE and CD have no relationship to one another in this situation. The disclosures required for the LE and CD are just that - disclosures. How you have to handle the collection of your initial escrows have no relationship to these disclosures. In standard loan transactions, these just happen to usually work out the same.
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#2118098 - 02/14/17 01:54 PM Re: Taxes on Construction Loans MScarn6942
RR Joker Offline
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This ^^^
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#2142313 - 08/16/17 07:47 PM Re: Taxes on Construction Loans MScarn6942
KPAP Offline
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Bringing this thread back to life.....have there been any changes to this section lately? We're being told by our state banking association that the estimated taxes, insurance, and HOA section on page one of the CD for construction loans only includes the actual costs at that time the property is complete (i.e. taxes for the lot only, not for the total cost of the new property), which is significantly lower than what the costs will actually be because the taxes haven't kicked in yet.

For example, we had a $800,000 construction loan that disclosed $29 p/ month for taxes on the CD. The LE however had the total based on the completion of the project and stated $2,000. Just trying to figure out if we're doing this correctly. It seems odd to me to have the LE and CD be so different. Would love to hear how everyone else is disclosing this. Thanks!

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#2142318 - 08/16/17 07:54 PM Re: Taxes on Construction Loans MScarn6942
rlcarey Online
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Your State Banking Association is wrong.

The taxable assessed value of the real property securing the transaction after consummation, including the value of any improvements on the property or to be constructed on the property, if known, whether or not such construction will be financed from the proceeds of the transaction, for property taxes;
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#2142531 - 08/17/17 10:45 PM Re: Taxes on Construction Loans MScarn6942
KPAP Offline
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Thanks, Randy. I'm in agreement with you. I'm completing our TRID audit and feel that I'm going to have a hard time winning the argument for the recommendation when our "expert advice" says we are doing it correctly.

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#2142548 - 08/18/17 12:15 PM Re: Taxes on Construction Loans MScarn6942
John Burnett Offline
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If you have a contact with those "expert advisors," perhaps sending them a link to this discussion will enlighten them.
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#2142597 - 08/18/17 02:38 PM Re: Taxes on Construction Loans MScarn6942
KPAP Offline
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Midwest
Thanks, John. We sent them a handout that Bankers Compliance Consulting had put together that had a construction loan example that reflected the LE and CD disclosing the same amount of taxes/insurance, and their response was "I wonder if the materials provided by BCC is incorrect, BCC might have overlooked changing the estimate on the CD" Then they sited the OSC to 1026.38 that says to use actual costs associated with the settlement of the transaction.

Knowing how thorough Dave and Jerod are at BCC, I'm having a hard time believe this was an "oversight" by them.

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#2142755 - 08/18/17 08:12 PM Re: Taxes on Construction Loans MScarn6942
RR Joker Offline
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I really don't see how much clearer the regulatory language can be regarding this subject.
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