State Certified Appraisal Required?

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Question:

If you have a commercial interim construction loan for $200,000 (the property will be sold at completion) and then you do an additional loan for $100,000 secured by the same property would the new loan now require a full state certified appraisal because of the total dollar amount on the two loans are now over the $250,000 threshold?

Answer:

This does not really fall under the exemption for existing extensions of credit unless somehow loan #2 is for a completely different purpose. Otherwise, it would be possible for banks to break loans up into small parts to evade the requirements. The existing extension of credit exemption, which can be found at 12 CFR 34 states:

(a) Appraisals required. An appraisal performed by a State certified or licensed appraiser is required for all real estate-related financial transactions except those in which: ... (7) The transaction involves an existing extension of credit at the lending institution, provided that: (i) There has been no obvious and material change in market conditions or physical aspects of the property that threatens the adequacy of the institution's real estate collateral protection after the transaction, even with the advancement of new monies; or (ii) There is no advancement of new monies, other than funds necessary to cover reasonable closing costs.

First published on BankersOnline.com 2/12/07