I understand that a closed-end loan for an initial construction is a Residential Mortgage Transaction (RMT) under Reg Z and is exempt from rescission.
My bank is originating a construction-to-perm loan (A single loan whereby construction loan is converted to a permanent financing upon completion of construction). The borrowers lives in house A which they own, and wants to “rebuild” house B which they also partially own.
House B exists as a dwelling today and is currently designated as the primary residence and has another lender’s lien on it (it’s a refinance). At this stage, we’re not quite sure what “rebuild” means as we haven’t inspected their construction plans.
Question 1: If B ends up just being “gutted”, i.e. roof and façade is retained, is this an “initial construction” and if not, is it indeed a rescindable loan?
Question 2: If B is demolished (but they retain parts of the foundation), and then rebuilt, is this an “initial construction”, and therefore a RMT and exempt from rescission?
The only place I found the term “initial construction” defined is in 1026.37(a)(9) commentary which identified it as simply a construction-only loan.