In TRID 2.0 it indicates that if we are going to collect inspection and handling fees after closing we need to included them on an addendum. If our LOS system hasn't been updated to create the addendum, do we have to collect the inspection and handling fees in section B on the LE/CD? How were inspection and handling fees being collected after closing handled prior to TRID 2.0?
Today, we collect at closing but the business line would like to change it.

I have also been told by the business line that in some case they don't know the dollar amount of the inspection fee, and they are wondering if they can disclose a lump sum for inspection and handling fees and anything above it would be paid by the creditor? Would we disclose this as an origination fee if we know the fee is paid to a third party? What about if we charge a lump sum, and end up needing additional inspections, would this prevent us from collecting an inspection fee as a subsequent event? I would assume that the lump sum would mean that we pay for anything even if it exceeds the number of inspections we anticipated.

I'm new to construction loans, so any help you can provide would be greatly appreciated.

Thanks!

How, when, and how much you collect is a business decision. As with all estimated fees collected, it will be based on a good faith estimate. If you collect inspection fees after closing, they will continue to be finance charges, however they will not be prepaid finance charges. There is no change in that requirement whether the post closing fees were previously disclosed or not. Collecting additional fees or refunding fee will be a matter of your loan contract and State law

May I ask a followup question that is similar to Vivian's April question in relation to construction inspection fees.

In looking at page 131 of the CFPB's Small Entity Guide, it indicates that inspection fees collected after consummation are disclosed on a separate addendum and not included in the Calculating Cash to Close table on the LE. The side note on this page also says these fees are Loan Costs and subject to the good faith tolerance regardless of whether collected at or before consummation. Then, that side note continues to state that if the fees are collected after consummation and become inaccurate due to an event that occurs after the disclosures are provided, the inaccuracy is NOT a tolerance violation.

So, I'm confused. If 3 inspection fees are collected after consummation, disclosed on the addendum, and then something comes up that requires an additional (4th) inspection, can the bank collect the additional fee since this falls in Section B of Loan Costs, which has a 0% tolerance?

They are not Section B charges since they would never go on an LE since they are collected after closing. Whether you can collect 4 versus 3 is a matter of your construction loan agreement.

They may not be section A or B charges (depending on who does the inspections) if they are collected post closing, but they are treated as section A or B charges in the calculation of total of payments and finance charges (prepaid FC if collected at or before closing).

Your estimate of the number of post-closing inspections and the cost for them must be made in good faith. You can base it on your history of similar construction loans involving similar building types, size, complexity, etc. It needs to be better than a SWAG. Your loan agreement should spell out the cost of the inspections (how many and a total cost) and the cost of additional inspections if required. The disclosure is based on best estimate of what's likely to happen.

If you have to exceed that estimate because extra inspections are needed (change orders, weather delays, unanticipated problems, etc.), you will have allowed for that in the loan agreement, and you will bill for them (or deduct them from disbursements). But they are post-consummation changes that don't affect the accuracy of the FC, APR or Total of Payments calculations.