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#2118015 - 02/13/17 07:03 PM
Taxes on Construction Loans
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Platinum Poster
Joined: Aug 2015
Posts: 756
Land Lacking in Lakes, IL
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How is everyone disclosing property taxes on the LE on the permanent financing following a construction loan where the assessor's number is based off of the raw land?
For example, the taxes on the raw land are $40/year, but a $350,000 house is built on it and taxes will likely be in the $7,000/year neighborhood. What number is being disclosed on the projected payments table?
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#2118016 - 02/13/17 07:08 PM
Re: Taxes on Construction Loans
MScarn6942
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10K Club
Joined: Jul 2001
Posts: 83,363
Galveston, TX
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$7,000/year
1026.37(c)5) Calculation of taxes and insurance. For purposes of paragraphs (c)(2)(iii) and (4)(ii) of this section, estimated property taxes and homeowner's insurance shall reflect:
(i) The taxable assessed value of the real property securing the transaction after consummation, including the value of any improvements on the property or to be constructed on the property, if known, whether or not such construction will be financed from the proceeds of the transaction, for property taxes; and
(ii) The replacement costs of the property during the initial year after the transaction, for amounts identified in § 1026.4(b)(8).
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#2118019 - 02/13/17 07:16 PM
Re: Taxes on Construction Loans
MScarn6942
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Platinum Poster
Joined: Aug 2015
Posts: 756
Land Lacking in Lakes, IL
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How do we come up with that figure though? I pulled the $7,000/year out of a hat. Do we treat the appraised value as an assessed value and go from there? That could end up disqualifying someone based on DTI.
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#2118020 - 02/13/17 07:20 PM
Re: Taxes on Construction Loans
MScarn6942
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10K Club
Joined: Nov 2002
Posts: 20,656
The Swamp
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If you are lucky, your assessor's site will have an estimator you can use.
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#2118029 - 02/13/17 07:51 PM
Re: Taxes on Construction Loans
MScarn6942
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The Swamp
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I don't see where the regulation allows for that regarding taxes.
We always estimate what it will be. Besides how can you accurately determine ATR on the perm phase without doing so?
and yes, MScarn...use the best info available to you, which would typically be your appraisal.
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My opinion only. Not legal advice. Say you'll haunt me - Stone Sour
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#2118039 - 02/13/17 08:27 PM
Re: Taxes on Construction Loans
MScarn6942
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Platinum Poster
Joined: Aug 2015
Posts: 756
Land Lacking in Lakes, IL
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So we're in IL and don't do any escrows. It wouldn't affect their payment here, but I don't feel right telling them it'll only be $2 or $3/month when really it should be $700+(in the example above anyway).
Since it doesn't affect escrow, do I still need to be careful of what you're talking about, Truffle?
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#2118054 - 02/13/17 09:03 PM
Re: Taxes on Construction Loans
MScarn6942
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10K Club
Joined: Jul 2001
Posts: 83,363
Galveston, TX
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The laws regarding the collection of escrows and the disclosures required under Projected Payments on the LE and CD have no relationship to one another in this situation. The disclosures required for the LE and CD are just that - disclosures. How you have to handle the collection of your initial escrows have no relationship to these disclosures. In standard loan transactions, these just happen to usually work out the same.
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#2118098 - 02/14/17 01:54 PM
Re: Taxes on Construction Loans
MScarn6942
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10K Club
Joined: Nov 2002
Posts: 20,656
The Swamp
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This ^^^
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My opinion only. Not legal advice. Say you'll haunt me - Stone Sour
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#2142313 - 08/16/17 07:47 PM
Re: Taxes on Construction Loans
MScarn6942
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Member
Joined: Dec 2014
Posts: 59
Midwest
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Bringing this thread back to life.....have there been any changes to this section lately? We're being told by our state banking association that the estimated taxes, insurance, and HOA section on page one of the CD for construction loans only includes the actual costs at that time the property is complete (i.e. taxes for the lot only, not for the total cost of the new property), which is significantly lower than what the costs will actually be because the taxes haven't kicked in yet.
For example, we had a $800,000 construction loan that disclosed $29 p/ month for taxes on the CD. The LE however had the total based on the completion of the project and stated $2,000. Just trying to figure out if we're doing this correctly. It seems odd to me to have the LE and CD be so different. Would love to hear how everyone else is disclosing this. Thanks!
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#2142318 - 08/16/17 07:54 PM
Re: Taxes on Construction Loans
MScarn6942
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10K Club
Joined: Jul 2001
Posts: 83,363
Galveston, TX
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Your State Banking Association is wrong.
The taxable assessed value of the real property securing the transaction after consummation, including the value of any improvements on the property or to be constructed on the property, if known, whether or not such construction will be financed from the proceeds of the transaction, for property taxes;
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com
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#2142531 - 08/17/17 10:45 PM
Re: Taxes on Construction Loans
MScarn6942
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Member
Joined: Dec 2014
Posts: 59
Midwest
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Thanks, Randy. I'm in agreement with you. I'm completing our TRID audit and feel that I'm going to have a hard time winning the argument for the recommendation when our "expert advice" says we are doing it correctly.
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#2142548 - 08/18/17 12:15 PM
Re: Taxes on Construction Loans
MScarn6942
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10K Club
Joined: Oct 2000
Posts: 40,086
Cape Cod
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If you have a contact with those "expert advisors," perhaps sending them a link to this discussion will enlighten them.
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#2142597 - 08/18/17 02:38 PM
Re: Taxes on Construction Loans
MScarn6942
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Member
Joined: Dec 2014
Posts: 59
Midwest
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Thanks, John. We sent them a handout that Bankers Compliance Consulting had put together that had a construction loan example that reflected the LE and CD disclosing the same amount of taxes/insurance, and their response was "I wonder if the materials provided by BCC is incorrect, BCC might have overlooked changing the estimate on the CD" Then they sited the OSC to 1026.38 that says to use actual costs associated with the settlement of the transaction.
Knowing how thorough Dave and Jerod are at BCC, I'm having a hard time believe this was an "oversight" by them.
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#2142755 - 08/18/17 08:12 PM
Re: Taxes on Construction Loans
MScarn6942
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10K Club
Joined: Nov 2002
Posts: 20,656
The Swamp
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I really don't see how much clearer the regulatory language can be regarding this subject.
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My opinion only. Not legal advice. Say you'll haunt me - Stone Sour
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