Disclosing Borrower Funds for Construction

A customer is buying a lot and constructing a home for $220,000. We are lending $160,000. The customer will be paying $60,000 - $20,000 will cover the lot purchase and $40,000 will be placed in a deposit account taken as security. The initial costs of the construction will be paid out of the $40,000 of the borrower's own money first, then after that money is all paid out, construction costs will be paid out of the loan proceeds.

If we disclose the construction "holdback" as $160,000 the cash due from the borrower at closing will equal $20,000. If we show the holdback as $200,000, the cash to close from borrower will show $60,000.

The borrower does not currently bank with us so there is no account with the funds to be held for construction. It would have to be collected at closing and the new deposit account opened simultaneously with the closing.

Is it correct to show the holdback as $200,000 with a cash to close as $60,000 and open the new account simultaneously with the closing or should the new deposit account be opened before closing and we just take a security interest in the new deposit account at loan closing and do not disclose anything about the new deposit account funds on the LE and CD?

Also, what do we disclose as the disbursement date on the CD since we have no idea when the construction funds we lend will be utilized?

Thanks in advance.

Take a look at Dan Persfull's post 2182270 on June 19 for an easy "go-by" -- https://www.bankersonline.com/forum/ubbthreads.php/topics/2182051

"Also, what do we disclose as the disbursement date on the CD since we have no idea when the construction funds we lend will be utilized?"

Your disbursement date will be your closing date if no ROR is involved. It doesn't matter that they may not make a draw that day. It's simply available at that time.

"open the new account simultaneously with the closing or should the new deposit account be opened before closing and we just take a security interest in the new deposit account at loan closing and do not disclose anything about the new deposit account funds on the LE and CD?"

I would open it in conjunction with the closing by depositing the funds collected for that purpose at closing. This also firms up your disbursement date question above.

[adding the missing pieces not necessarily covered in the other thread]

You don't disclose the "holdback." You disclose the purchase ($20,000) and construction cost ($200,000) and closing costs (not given in your narrative). That will be funded by your loan.

$20K + $200K +CC - $160K = $60K + CC cash from borrower at closing. The "holdback" doesn't get disclosed.