TRID and the 60 Day Construction Notice

Issue/Inquiry

If the Bank is making a loan where the property is new construction, but it is not financing the construction portion, does it need to provide a disclosure notifying the borrower that it could issue another Loan Estimate more than 60 days after the initial disclosure?

Response Summary

The Bank should provide the 60 day construction notice if it is providing the Loan Estimate while the property is under construction and it reasonably expects that the settlement will take place more than 60 days after the disclosure is provided.

Response Detail

Under the TILA RESPA Integrated Disclosures (“TRID”) rules of Regulation Z, if a creditor reasonably expects that settlement in a transaction involving new construction will occur more than 60 days after the Loan Estimate has been provided, it can provide revised disclosures if the original disclosures clearly stated that, at any time prior to 60 days before consummation, the creditor may issue revised disclosures. If the creditor fails to provide this statement, it may not issue revised disclosures, unless there is another valid changed circumstance permitting the issuance of a revised Loan Estimate. 12 CFR §1026.19(e)(3)(iv)(F).

The question of whether the 60-day construction notice can be provided depends on the nature of the loan. If it is for the purchase of a home to be constructed or a loan under construction (i.e., construction is currently underway), then it is a construction loan for the purposes of providing the notice. However, if a use and occupancy permit has been issued for the home prior to the issuance of the Loan Estimate, then it is not considered to be under construction and the transaction would not be a construction loan to build a home for the purpose of giving the notice. Official Interpretations, ¶1026.19(e)(3)(iv)(F) – 1.

In this case, if the Bank is providing the Loan Estimate before the home is constructed or while it is under construction, and a use or occupancy permit has not been issued prior to the issuance of the disclosure, then the loan is subject to the 60 day notice rule. Therefore, the Bank should include the 60-day construction notice in the Loan Estimate, if it reasonably expects that the settlement will take place more than 60 days after the Loan Estimate has been provided.

 

This entry was posted on Monday, August 29th, 2016 at 3:00 pm.