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#2223759 - 10/15/19 11:03 PM Commercial Real Estate Appraisal Rules
TaraTLR Offline
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If a customer applied for a commercial loan and requested to use a residential lot/land as collateral on the loan, and the intent was not to construct a home with the funds, would this loan fall under the commercial real estate appraisal exemption up to the $500,000 transaction value? It is not super clear in the final rule because they bounce back and forth using the term residential property and real property. Your opinions on this will be greatly appreciated.

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#2223866 - 10/17/19 12:12 PM Re: Commercial Real Estate Appraisal Rules TaraTLR
Adam Witmer Offline
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Great question. I agree that the rules aren't very clear as the tricky part with the appraisal threshold rules is that we don't really need to worry about the "purpose" of the loan as the thresholds are actually based on the collateral securing the loan. (NOTE: This is found in the definitions of both "residential real estate transaction" and "commercial real estate transaction.") For example, if the loan is secured by a single 1-4 family residential property, it is considered a residential real estate transaction and subject to the $400,000 threshold. On the other hand, if a loan is secured by anything other than a 1-4 family residential property, it is considered a commercial real estate transaction and subject to the $500,000 threshold.

What will be the collateral on this loan?
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#2223879 - 10/17/19 02:17 PM Re: Commercial Real Estate Appraisal Rules Adam Witmer
TaraTLR Offline
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The collateral is a residential lot with future intentions of building a single family residence, but not with proceeds from this loan. I keep getting hung up on the terminology that is used within the rule of residential property and real property. It would be easier to interpret if they would state dwelling versus residential property. The definition of residential property and real property under Title XI includes lot’s and developed land. So would a residential lot fall under the residential exemption or the commercial exemption in your opinion?

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#2223882 - 10/17/19 02:56 PM Re: Commercial Real Estate Appraisal Rules TaraTLR
rlcarey Online
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I guess I am a little confused. You have a loan secured by bare land. What the future use of the property might be a not relevant. It might be one lot or 100 acres. There is no 1-4 family dwelling on the property.

Residential real estate transaction means a real estate-related financial transaction that is secured by a single 1-to-4 family residential property.
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#2223885 - 10/17/19 03:19 PM Re: Commercial Real Estate Appraisal Rules TaraTLR
TaraTLR Offline
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So then it would fall under the commercial exemption? I just want to make sure that a lot zoned as a residential property would not be exempted from the commercial real estate appraisal rule. I guess I am just hung up on the residential property verbiage. The lot itself is zoned for a 1-4 family residence.

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#2224032 - 10/20/19 01:14 PM Re: Commercial Real Estate Appraisal Rules TaraTLR
Adam Witmer Offline
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Originally Posted by TaraTLR
It is not super clear in the final rule because they bounce back and forth using the term residential property and real property.

So, I was reading through some Federal Register final rules today and saw something that might help. You said you were getting confused between the term use of "residential property" and "real property." Keep in mind that these terms are not defined in the banking appraisal regs, so we don't have much to go on. That said, the NCUA CRE final rule does say this:

"The proposal included an amendment to current § 722.2(g) to add parentheses around the words “or real property” to help clarify for the reader that the terms real estate and real property can be used interchangeably and have the same meaning for purposes of part 722."

Now, I know the two rules aren't the same, but my point is that sometimes, they just use words interchangeably when they don't define them a specific way.
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#2226648 - 12/03/19 08:14 PM Re: Commercial Real Estate Appraisal Rules TaraTLR
TaraTLR Offline
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If a Commercial Loan has five, 1-4 Family properties, and we are increasing the loan amount and adding an additional residence to the loan. Would the transaction value be based on the total loan amount or would each residence get a $500,000 exemption based on the market value of each property? Our total loan amount will be 1 million. This loan does not fall under a QBL, because the primary source of repayment is rental income from the 6 properties. Your advice would be greatly appreciated. Thank you.

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#2226665 - 12/04/19 12:36 PM Re: Commercial Real Estate Appraisal Rules TaraTLR
Adam Witmer Offline
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For the commercial real estate transaction threshold, the transaction amount is generally the loan amount. If the loan does not fall under a QBL as you say, then an appraisal is required as your loan amount is over $500,000.

From comment 17 to the 2018 final rule:

"17.  For loans and extensions of credit, the transaction value is the amount of the loan or extension of credit. For sales, leases, purchases, investments in or exchanges of real property, the transaction value is the market value of the real property. For the pooling of loans or interests in real property for resale or purchase, the transaction value is the amount of each loan or the market value of each real property, respectively."
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Adam Witmer, CRCM

All statements are my opinion, not those of my employer, and should not be taken as legal advice.
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#2226722 - 12/04/19 05:51 PM Re: Commercial Real Estate Appraisal Rules Adam Witmer
TaraTLR Offline
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Thank you for your assistance on this matter.

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