Randy..so you're saying we would still show the amount that we are withholding for construction (again, say $100,000), but we are not showing it as "construction holdback" or the like, but as "payable to ___________" whomever the contractor is?

Sorry if i'm missing a key piece....trying to get something done and also follow this thread.

I think the difference may actually or possibly be regional.

I have a feeling that many of us that are scratching our heads are doing so because we are making a loan to a consumer borrower who is building a house. The loan is to them. The draws are paid to the customer. Not a contractor. The customer controls the payments and payouts to contractor, sub-contractors, supply houses, etc.

If I don't show the cost of construction [construction ] loan in the payoff's and payments, as described, it's going to have an incorrect bottom line.

Could this be the 'disconnect' we are experiencing here? Or, is it Friday the 13th [in October, at that!!!] effect?

For the record, Joker's 2nd paragraph does indeed describe our construction loans.

[if it were a loan where draws were paid to the builder, it would be handled as a pre-sold and of course we wouldn't be discussing it because it wouldn't be TRID]

Raitch - Yes - you show the entire third party contract amount payable to whoever the consumer has already contracted with to complete the construction. That could be one or more contractors. They are going to be getting the money based on the legal obligation involved with the loan transaction.

Joker - yes- it might be somewhat regional, if you are letting the consumer run the show and there are no contracts involved that the bank is requiring to be paid as a condition of the loan. How you preserve your lien position and avoid mechanics liens - well that might be a regional issue also. Not too many bank in regions in which I am familiar operate in that manner when it comes to construction loans.

Right. You have to have your DSD recorded prior to start of construction to perfect your interest. If you were to fund a loan post start, you have to go through a ton of measures to prevent potential materialman's lines from taking precedence, and can still be a carp shoot!

At any rate, I think that solves the discord and I'm really glad this came up on the chance we do have any set up differently! We just LOVE for our customer's 'round here to run the show.

Just want to pipe in that we started disclosing construction loans this way (with the entire amount the borrower is obligated to pay for construction in the Payoffs and Payments section), and it has been both helpful and enlightening. To use Joker's example:

$300,000.00 due for construction costs (we list as payable to builder or construction company), plus
$500.00 due in attorney fees, plus
$187.00 due in closing costs, less
A loan of $250,187.00,

Shows $50,500 cash due from borrower at closing.

More than once we've done this LE for a customer who applied for a construction loan and had them say, wait, I have to come up with that much cash to close? I don't have that right now!

Not sure how they figured they would complete construction . . .

Exactly. I think we were actually all on the same page, but with different ways of how different bank's in different areas handle/deal with construction loans to the consumer.

I want my bottom line to show the consumer what they actually will need. One of the old ways of disclosing construction loans inflated the bottom line and was virtually useless. I never did understand that method.

Another thing a lot of folks don't think about, or at least I feel this way, is that when preparing disclosures for two phase construction and then separate permanent, the estimated payoff needs to include that full last payment, including the estimated interest, and not just a principal balance in an effort to give a better forecast of final out of pocket expenses.

***Bump***

In this scenario, how would you account for a general builder credit towards closing costs in the calculating cash to close table and in the payoffs and payments table?

Closing Cost Credit Provided by "Builder Name" $-$xx,xxx on the P&P Table

Thanks Randy.