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Construction Loan with Wrong Maturity Date

We found two construction loans which have the wrong maturity date and we need to update them. Is it acceptable to update the documents and have the customer initial the change on the Note or do we need to do anything else to be compliant?

by Randy Carey:

It appears that you need to modify your loan to set a new maturity date. You need a loan modification agreement which will require you to engage legal counsel to determine all that entails on a construction loan.


by Richard Insley:

Being "compliant" is not your objective.

First and foremost, you want to have an enforceable contract that is secured by a properly perfected lien on the property--i.e., good contract documents. Nothing in your question implies that there's a problem with the promissory language or the deed of trust recordation. If that's accurate, then you have a good contract. It may not be the terms you intended, but what's there is binding.

Assuming you disclosed these terms accurately, then you complied with Reg. Z at the time the loan was consummated.

Now, for whatever reason, you (and/or the borrower) have decided that the contracted terms do not reflect your original or evolved needs. As Randy advises, the only way you should change any of the terms of an active contract is with a modification agreement that is drafted (or reviewed and blessed) by the bank's attorney. S/he can also advise you whether or not the contractual amendment affects your lien position or rises to the level of a "refinancing" that would trigger new TIL disclosures (ref: Section 1026.20(a)).

First published on 08/04/2019

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