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#2214827 - 06/04/19 02:44 AM Reg B Appraisal Rule
Need2know Offline
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If closing a commercial loan that is to be secured by a 1st lien on a commercial property that also contains a dwelling on the property, does Re-B appraisal rule apply

--if borrower intends to demolish the property after closing?

AND

-- Does Reg-B appraisal rule apply if commercial property appraisal does not assign any value towards the dwelling?

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#2214828 - 06/04/19 11:37 AM Re: Reg B Appraisal Rule Need2know
rlcarey Online
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This is all you have:

"A creditor shall provide an applicant a copy of all appraisals and other written valuations developed in connection with an application for credit that is to be secured by a first lien on a dwelling."

The only question is, is your loan secured by a dwelling.

The term "dwelling" means a residential structure that contains one to four units whether or not that structure is attached to real property.

It is a simple yes or no question. Values, use of the dwelling , tear down plans, etc. are not addressed.
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#2214834 - 06/04/19 12:45 PM Re: Reg B Appraisal Rule Need2know
Dan Persfull Online
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if borrower intends to demolish the property after closing

What's the old saying about "intentions" …………..


From Randy's cite.

that is to be secured by a first lien on a dwelling

At the time the loan is made it is secured by a first lien on a dwelling. Where do you think an exemption exists?
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#2214842 - 06/04/19 01:25 PM Re: Reg B Appraisal Rule Need2know
Adam Witmer Offline
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In other words, it is best to treat it as a dwelling and be done with it. I have seen files where a structure was "to be torn down" that were still standing several years later. Intentions don't always come to fruition and it is just easier to comply with the rules for a dwelling than to have a very difficult uphill battle (at best) with an examiner or auditor.

To answer your second question: "-- Does Reg-B appraisal rule apply if commercial property appraisal does not assign any value towards the dwelling?"

The rule also does not address this, meaning that the Reg B appraisal rule would apply if the loan is to be secured by a first lien on a dwelling, regardless of any value assigned on an appraisal.
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#2214855 - 06/04/19 01:59 PM Re: Reg B Appraisal Rule Need2know
Need2know Offline
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Thank you so much for all of the responses, I appreciate it greatly.

One final question, Just to make sure I address all possible angles,

If at the time the bank "ordered the appraisal" we were not aware that there was a 1-4 dwelling on the property and it was ordered in connection with a commercial loan to be secured by a commercial property and the bank's purpose was to get a value for the commercial building only, have any impact on how you would respond?

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#2214861 - 06/04/19 02:14 PM Re: Reg B Appraisal Rule Need2know
Dan Persfull Online
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No. You don't have to order an appraisal for the notice requirement to be applicable.

In this case you should provide the notice when you learn about the dwelling. Since the notice is required within 3 business days of receiving an application our policy is to provide the notice within 3 business days of learning about the dwelling.
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#2214877 - 06/04/19 03:52 PM Re: Reg B Appraisal Rule Need2know
Need2know Offline
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Thank you so much.

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#2216074 - 06/19/19 09:16 PM Re: Reg B Appraisal Rule Need2know
WABComply Offline
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Dwelling is clearly defined as "residential structure that contains one to four units" It has been awhile since I really looked at this rule and never tested it where I am now. What are your thoughts on mixed-use properties? It has always been my take that the Bank has to define what is "residential". HMDA lets us use 2 tests, but I do not see anything for the Valuations Rule. I would still apply the HMDA tests to figure out 'residential". I am about to test this now so any thoughts would be greatly appreciated.

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#2216105 - 06/20/19 11:46 AM Re: Reg B Appraisal Rule Need2know
Adam Witmer Offline
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The preamble to the final 2013 rule states the following:

"As a result, the requirements of the final rule can apply to transactions involving one-to-four-unit residential structures that may be business or commercial in nature, including for investment purposes. Beyond this, whether a transaction meets the definition will depend on the facts and circumstances. Because transaction structures can vary widely, the Bureau does not believe it would be efficient or appropriate to try to address all such variations in the text of the rule or the commentary."
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#2216113 - 06/20/19 12:50 PM Re: Reg B Appraisal Rule Adam Witmer
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Thanks Adam, so when they use words such as "can" and "depend on facts and circumstances" in your opinion, would you think that justifies usage of the HMDA tests? From what I am getting is that they do not want to define it and gives the Bank right to do so. Am I off base?

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#2216122 - 06/20/19 01:24 PM Re: Reg B Appraisal Rule Need2know
rlcarey Online
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Instead of pulling your hair out and then having to argue your reasoning with a regulator because it is undefined in the regulation, would it not just be easier to comply anytime you have 1-4 family units, mixed use or not? I would think that makes compliance a lot easier then having someone determine what "mixed use" really is. All you are exchanging is an internal argument of what a "dwelling" might be to one that involves what "mixed-use " means. The secret to a good compliance program is picking the most common denominator and training on it.
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#2216123 - 06/20/19 01:34 PM Re: Reg B Appraisal Rule Need2know
Skittles Online
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I'm going to tag onto this thread.

We have been asked by our Director of Operations if it's acceptable to always give the appraisal notice on our Home Equity Lines of Credit. We do many 1st liens along with 2nd lien transactions. My concern is would we be tying ourselves to the 3 day receipt requirement on 2nd lien loans?
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#2216124 - 06/20/19 01:36 PM Re: Reg B Appraisal Rule WABComply
Adam Witmer Offline
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WABComply: The problem with completely aligning with the Reg C/HMDA guidance is that the preamble to the 2013 final rule had a commenter suggest alignment with Reg C. The final rule explained that the definition they used was already in place at the time of Dodd-Frank, meaning that the Reg B definition is considered sufficient. In other words, they seemed to leave the definition ambiguous on purpose. Therefore, the conservative approach will always be best, but I could definitely see aligning with Reg C as reasonable - at least in some cases.

From the 2013 final rule:
"Finally, one commenter suggested the definition of “dwelling” be harmonized with the definition in Regulation C promulgated under the Home Mortgage Disclosure Act (HMDA), which is not limited to one-to-four-family structures, while another commenter suggested the definition be limited to single-family housing."

And...

"The final rule adopts the definition of “dwelling” as proposed. When describing the transactions subject to section 701(e) of ECOA, Dodd-Frank Act section 1474 used the term “dwelling”, which has been defined in § 1002.14(c) as follows: “[T]he term dwelling means a residential structure that contains one to four units whether or not that structure is attached to real property. The term includes, but is not limited to, an individual condominium unit, and a mobile or other manufactured home.” [78] Given that this definition was in place when Congress amended ECOA section 701(e) and used the term “dwelling” in specifying the scope of the requirement, the Bureau believes that it is appropriate to continue to use the existing definition of “dwelling.”"

Originally Posted By WABComply
From what I am getting is that they do not want to define it and gives the Bank right to do so. Am I off base?

To answer your specific question, I don't think you are off base as the final rule does seem to give financial institutions some discretion. That said, it is important to keep the "facts and circumstances" comment in mind as you will want to have justification ready for the examiners. Again, the conservative approach would be to just provide it when anyone lives in the structure, but I do think that isn't necessarily a hard requirement.
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#2216126 - 06/20/19 01:47 PM Re: Reg B Appraisal Rule Skittles
Adam Witmer Offline
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Originally Posted By Skittles
I'm going to tag onto this thread.

We have been asked by our Director of Operations if it's acceptable to always give the appraisal notice on our Home Equity Lines of Credit. We do many 1st liens along with 2nd lien transactions. My concern is would we be tying ourselves to the 3 day receipt requirement on 2nd lien loans?


Good question. I wouldn't think you would be tying yourself to a hard 3 day receipt, but some may disagree since the disclosure says you will promptly give them a copy of their appraisal. This probably becomes a legal question since you are disclosing this and could have potential UDAAP consequences if you are delaying delivery (or not providing it at all).
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#2216127 - 06/20/19 01:53 PM Re: Reg B Appraisal Rule Need2know
Skittles Online
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Interesting interpretation Adam. I'll have to discuss this with our Compliance Officer to determine our best move.

As a side note: Another concern of mine is that it appears we don't know what the regulation requires or that we don't want our front line to have to determine if/when this notice is required.
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#2216128 - 06/20/19 02:18 PM Re: Reg B Appraisal Rule rlcarey
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Randy, that does make total sense but many times in my experiences commercial lenders do not want to do more than they have. Many times they even argued that my usage is HMDA testing wasn't appropriate. Most of these appraisals (if not all) , for mixed-use properties, are narrative appraisals so the cost to print and mail out is probably the reason for the hesitation. I do like the approach however.

Adam: Thank you for the incite.

As this does not seem to be something to have been tested in the past I am very curious as to their reaction if I have to write this up. Thanks again all.

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#2216593 - 06/27/19 11:32 AM Re: Reg B Appraisal Rule WABComply
theloanbug Offline
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Is there a issue if you give the notice on a land only loan?

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#2216598 - 06/27/19 01:03 PM Re: Reg B Appraisal Rule Need2know
Adam Witmer Offline
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That would be over disclosing, and I wouldn't think there would be a huge issue in an isolated case. If you did it for a large number of loans that didn't require the notice, I could see and auditor/examiner questioning whether you really understood the rules, but I still don't think it would be a violation of Reg B to provide it. That said, the other concern with over-disclosure would be a potential contract issue in that if you don't deliver a timely copy of the appraisal as you disclosed - even though it technically isn't required under Reg B - you would be disclosing something you didn't do. This could lead to contract/legal concerns and even potential UDAAP violations due to not doing what you disclose.
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#2216607 - 06/27/19 01:58 PM Re: Reg B Appraisal Rule Need2know
Inherent_Risk Offline
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If your language mimics the model language, then you might owe them a copy of their appraisal, but besides that I don't think there's any issues. It's similar to providing it with 2nd liens. Adam's response to Skittles would apply to your question as well [edit - he also responded directly to you while I was writing this :)]. My opinion is if you give someone a peice of paper saying you'll do something, you should do it. Whether you've created a legal obligation to provide a copy of the appraisal is certainly something lawyers would love to debate. Why give them a chance?

I've also seen variations to the model language to limit the rights granted to avoid this issue:

"We may order an appraisal to determine the property’s value and charge you for this appraisal. [If this transaction would create a 1st lien on a dwelling, w]e will promptly give you a copy of any appraisal, even if your loan does not close.

You can pay for an additional appraisal for your own use at your own cost."
Last edited by Inherent_Risk; 06/27/19 01:59 PM.
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#2256512 - 07/09/21 06:22 PM Re: Reg B Appraisal Rule Need2know
Compliance504 Offline
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I'm working on some E-SIGN training and want to clarify something for my understanding....

You must follow consumer E-SIGN rules for the Reg B appraisal disclosure rules.....so we would need to follow E-SIGN for consumer transactions.....for commercial transactions we would not need to follow E-SIGN....is this correct?

We use an E-SIGN compliant system for the appraisal disclosures in all cases....this is just for my understanding of what the regulation says...

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#2256519 - 07/09/21 09:03 PM Re: Reg B Appraisal Rule Need2know
rlcarey Online
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The only difference between a consumer and a commercial customer to send these documents electronically is that you do not need demonstrable consent from a commercial customer. You still need consent in some manner however.
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#2256529 - 07/09/21 10:23 PM Re: Reg B Appraisal Rule Need2know
Compliance504 Offline
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Thanks, Randy!

I hope something gets passed sometime soon doing away with the demonstrable consent provision...have you seen anything on that lately?

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#2256531 - 07/09/21 10:33 PM Re: Reg B Appraisal Rule Need2know
Andy_Z Offline
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While Randy is correct, that's the short answer. 7001(c) addresses demonstrable consent and consumer disclosures, neither of which are necessary for commercial transactions. So it's more than just the DC procedure. But state laws address contracts and you'll still have to meet those basic requirements for commercial accounts.

https://www.bankersonline.com/regulations/esign-7001

A bill has been resubmitted after not gaining traction last session that eliminated DC is the 21 year old law. I haven't heard that it had any additional support this session though. If it isn't viewed as positive to consumers, some may ask "why pass it?" And consumers haven't complained, and the ESIGN industry is booming after 2020, so some may still ask why, and it it may reduce consumer protections. I'm not sure it's going anywhere in its current state.
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