Appraisal Required for Commercial Loans

I understand that the Appraisal Notice and a copy of an appraisal is required if the loan is to a business secured by the owners home or a rental house, the question that is coming up is if the notice and a copy of the appraisal is required if the loan is to build a 1-4 dwelling or to "develop" an area. Currently we make a loan to a builder secured by the lot and house to be built, it is one loan and one piece of collateral. The customer may have one loan or several loans at one time. Each loan is secured by the dwelling being built, nothing is crossed collateralized. Is this customer exempt from Reg B appraisal disclosure or should they receive the disclosure and a copy of the appraisal?

No. 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.

Sounds like your loans meet the criteria. It is pretty straight forward.

I agree with Randy. Business purpose loans are not exempt from Reg. B requirements. From the Commentary to 1002.1.


1(a) Authority and scope.

1. Scope. The Equal Credit Opportunity Act and Regulation B apply to all credit—commercial as well as personal—without regard to the nature or type of the credit or the creditor, except for an entity excluded from coverage of this part (but not the Act) by section 1029 of the Consumer Financial Protection Act of 2010 (12 U.S.C. 5519). . . . . . .

Thanks for the information. One more question, if the customer is a developer and we do a "master" note that will be secured by all the dwellings he is building, would this be exempt from the notice and copy of the appraisal requirements?

If the dwellings are 1-4 family residences then the answer is 'no'.

If the loan is secured by a farm that includes their dwelling, is the disclosure required?

Yes.

No. See footnote 79 in the Federal Register document publishing the rule: http://www.federalregister.gov/a/2013-01384/p-245

The 1002.14 requirement uses the language "secured by first lien on a dwelling" (see 1002.14(a)), If the security interest for the loan is multiple dwellings, the rule does not apply.

Is an appraisal notice needed if the lender is taking a first lien on a 1-4 family dwelling but the collateral is being taken as abundance of caution and no appraisal is ordered or required?

Yes.

We gave the notice (annually) when the master note was executed. In our opinion, there was one application for credit and each individual loan executed under the master note wasn't a new application for credit; therefore, the notice was not required.

If the application is for credit to be secured by multiple dwellings under a master note as you have described, kmenard, section 1002.14 will not apply, period. See my 2/25/2016 post in this thread.