RESPA Exemptions and Temporary Financing

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Question:

I need some clarification on RESPA exemptions. We are making a consumer construction loan. The borrower already owns the lot but has it financed at another bank. Our construction loan will be refinancing the lot and constructing the dwelling. There is a permanent take out. It qualifies as temporary financing but the second part of the vacant lot exemption is confusing me. Exemption: A loan secured by vacant or unimproved property where no proceeds of the loan will be used to construct a 1- 4 family residential structure. However, if the proceeds will be used to locate a manufactured home or construct a structure within two years from the date of settlement, the loan is covered. Would this loan be subject to RESPA because within 2 years, the proceeds will be used to finance the construction of 1-4 family dwelling or is it exempt because of the "temporary financing"?

Answer:

First, refer to Section 3500.5(b)(3) concerning temporary financing. The exemption you are referring to is Section 3500.5(b)(4) concerning vacant land. This is referring to your loan proceeds purchasing a lot and constructing a residence.

Since the borrower already owns the lot, there won't be a title transfer with the proceeds of your loan. You indicate there is also a permanent take out from another lender. Therefore, it sounds like you qualify for the temporary financing exemption.

First published on BankersOnline.com 11/21/11