We have a commercial customer we are making a $725,000 loan to; however, the appraised property value is only $540,000. We are being advised by our title insurance agency to obtain a mortgage/deed of trust against the property for the full loan amount rather than the property value alone. By doing so, if the property value increases the amount of our unsecured position decreases, benefitting us in the event of a foreclosure. The borrower would be signing off on the mortgage/deed of trust agreeing to do this. Would there be any regulatory compliance issues with this practice? Again, this is a commercial transaction, not a consumer. Could an examiner say a UDA(A)P issue applies to commercial transactions?

I have never seen a DOT or mortgage filed for less than the note amount regardless of the property value unless it was a very strange circumstance.