On a construction loan, is it required that we disclose future construction inspection fees on the Loan Estimate?

bump

Since this isn't technically a closing cost, I question if this is required or not. However, we do know that it will be a cost associated with the loan. But we may not know how many inspections will occur during the construction.

I'm trying to figure this out also. I believe it is required because the cost of the inspections need to be included in the APR and we do require the inspections to calculate the construction draws. On the current GFE we include the estimated inspection cost in Block 1 (because the inspection is done by the bank) and credit the estimated fee (we estimate 5 inspections) in the 200 section of the current HUD to wash the charge. Now, I'm guessing we will need to show the estimated cost in the Services You Cannot Shop For and maybe give a credit to wash the charge (because not collected at closing) in the Adjustments and Other Credits section??

Any ideas?

Unless they are collected at or before closing, they are not closing costs (and won't appear on the LE or CloD as a discrete cost), nor would they be prepaid finance charges. But they are finance charges, and will be included in the total finance charges shown on page 5 of the Closing Disclosure. And, of course, they are a factor in the calculation of the APR.

So, if to be collected at closing, they'd go on the LE as a service you cannot shop for, right?

That's correct for us, since we won't let them shop for that

For us, the construction inspection fee would be collected at closing and put into a designated GL account which will be used later to pay for the future inspections.

Same here awilli. Thanks.

Maybe we need to look at changing our process to collect this at the closing. Currently we collect at the time of the inspection. For those who collect the construction inspection fee at closing, do you charge a flat fee or estimate for a certain number of inspections?

If the bank is doing the inspection rather than an appraiser or 3rd party, would the charge be included in Section A due to being paid to the creditor?

Thanks for the help.

What happens if we collect for "x" number of draws at closing and the construction period drags out for some reason? Can we charge those additional fees in excess of the "x" draws to the borrower down the road?

never mind. found my answer in another thread.

*W*W* what thread are you looking at? I too am struggling on trying to figure out what to do with construction inspection fees and title company date down fees.

Currently the loan officer will come up with some magical number, which we then collect at closing and hold in a LIP account. When a draw is requested, we have an inspector go out and we get a 122 endorsement from the title company. As I understand it we can't overcollect to be safe or else we'll be out of tolerance in some way. We can come up with a pretty good guess, but still, you never know if the builder will need to do 4 draws over a 12 month period, or whether you'll have 6 draws for a 6 month deal.

Help from anyone would be great!

If you want to, you collect at closing what you think you need and disclose it as such. Your loan agreement will set forth the cost of these inspection/draw fees. If you don't exceed the fees collected at closing, you return the extra. If you do exceed them during the course of the loan, you charge them. They are not closing fees. They would be considered a subsequent event.

Frozen Comp Off,
If you do a search for +construction +fees, you'll find other similar threads. Randy's response in those threads was essentially the same as the response to this thread. He's nothing if not consistent wink

Also, are you including the title endorsements in your finance charges? I can't decide if that's correct or not

Thank you rlcarey, I feel a lot better. I have seen threads all over this site and often times people start confusing the inspection fees for the FINAL Home Inspection done and then before I knew it the thread no longer was on the topic I was searching. Or other threads asked the questions I had, but no one responded.

If we collect at closing for the inspections, do we put these as prepaids? This is a fee we will not allow them to shop for. Should the date downs be titled Title - 122 Endorsements?

*W*W* our first inclination has been to not include in our finance charge. We are building them as prepaids as we practice but my head is realing from reading the final ruling and then BankersOnline and other resources if that is in fact the correct course of action.

As to the question above re: how to show title endorsements on the Loan Estimate, does it matter? For example:

Title - 102.5 Foundation Endorsement; or
Title - Foundation Endorsement - 102.5; or
Title - 102.5 Endorsement

We do not collect the inspection fees for a construction loan at closing rather we collect them as we do the inspections. The only way our LOS will include the inspection fees in the APR is by including them on the LE. Since we have to show the inspection fees on the LE in order to include them in the APR how do we show the inspection fees on the CD?

Sounds like you have a LOS problem. How would we know how you have to show them on the CloD? Both documents have to reflect the borrower's legal obligation regardless of the limitations of your LOS.

Question: If collecting fees for construction inspection at closing, and placing them in a G/L account, we are showing those on the LE as cannot shop for fees. If we, the bank, will be doing those inspections, does the fee show on the CD in Section A or B? If the answer is A, any LaserPro users know how to get them there? We're showing construction inspection fees as Cannot Shop for items on the LE, and they seem to automatically carry over to Section B

Lender inspection fee go in Section A

If you are paying a third party, they go in Section B

We use LaserPro, but we always pay 3rd party inspection fees, so it flows to section B of the CD.

Thanks...guess i have some LaserPro digging to do.

Timely question because I just asked this of our outside audit firm, and this is what I was told:

The analysis of inspection fees focuses on when the service is performed and not when the fee is billed or paid. When the Bank arranges for periodic site inspections during the construction phase to verify that the work is being performed prior to releasing a disbursement; this fee constitutes an inspection fee. This classification does not change if the Bank collects all anticipated inspection fees at the time of closing or imposes the applicable inspection fee with each corresponding loan disbursement, as such this fee would still be a part of the pre-paid finance charges. Construction inspection fees would be disclosed on the Loan Estimate in Section B (Services You Cannot Shop For). Because this is a zero tolerance category, the Bank would be precluded from charging additional fees that were not initially disclosed.

If there are fees remaining that are not needed, they should be applied to the principal balance on the loan.

I agree, except for this statement:

" Because this is a zero tolerance category, the Bank would be precluded from charging additional fees that were not initially disclosed"

The collection of additional unanticipated inspection fees after the loan closed would be a matter of the loan agreement. It would be a subsequent event and would not impact the accuracy of the original disclosures.

What you do with left over fees is also a matter of the loan agreement.

Assuming the loan agreement allows for the collection of unanticipated additional inspection fees after closing, what options do we have for collecting the additional inspection fees? Currently, we mail an invoice to the client, but often these mailings go ignored and the bank simply eats the cost. Are there any alternatives methods for collection of these fees?