Providing Copy of Appraisal for Multi-Unit Residential Building

Issue/Inquiry

A commercial loan for $4.9 million is to be made for the purchase of 100 condominium units. Does this trigger the Regulation B requirement to provide a notice of the right to receive an appraisal on all 100 units?

Response Summary

The creditor does not have to notify the applicant of the applicant’s right to receive copies of the appraisals, since the condominium is not a dwelling for the purposes of the regulatory requirement.

Response Detail

Under Regulation B, a “creditor shall provide an applicant a copy of all appraisals and other written valuations developed in connection with an application for credit that is to be secured by a first lien on a dwelling.” 12 CFR §1002.14(a)(1). The term “dwelling” means a residential structure that contains one-to-four units, whether or not the structure is attached to real property. It includes, but is not limited to, an individual cooperative or condominium unit. 12 CFR §1002.14(b)(2).

A creditor may provide a copy of an appraisal routinely or upon an applicant’s written request. If the creditor provides an appraisal report only upon request, it must inform the applicant, in writing, of the applicant’s right to receive a copy of the report. 12 CFR 1002.14(a)

When the final rule was published by the CFPB, the commentary considered whether this requirement would apply when a multi-unit residential property was taken as collateral:

With respect to the example raised by a creditor and two national creditor associations—three four-unit buildings operated as a 12-unit apartment complex, the text of the rule makes clear that a four-unit residential building would be a dwelling, but a 12-unit apartment complex is not. Thus a transaction secured by a four-unit residential building would be covered by the rule, but a transaction secured by the entire 12-unit apartment complex would not be. Because this question can be analyzed in a straightforward manner by reference to the text of the rule, the Bureau does not believe that further commentary is needed for this to be apparent. Similarly, the definition of 'dwelling' refers to the example of an 'individual condominium or cooperative unit,' but not to a cooperative building as a whole, even though such a building may contain several individual units. 78 Federal Register 7215 (January 18, 2014), 7236, footnote 79.

As such, an apartment building with four units would be covered by the appraisal rule, but one with more than four units would not. A condominium building with multiple units would be analogous to an apartment building.

Not long after the rule was published, the CFPB was asked by the American Bankers Association whether the appraisal rule would require lenders to provide copies of appraisals to applicants when the applicants were developers with inventories of one-to-four family residential property. The agency replied as follows:

No. Pursuant to Section 1002.14(b)(2), the ECOA Appraisal rule applies to any credit facility involving a dwelling, which means a residential structure that contains one to four units, whether or not that structure is attached to real property. This language is crafted in the singular and is intended to exclude applications involving multifamily dwellings or inventories of homes. If more than one dwelling secures a credit facility, the credit facility is exempt from the rule.

In this case, a condominium with 100 units would not be “a dwelling” for the purposes of the regulatory requirement, since it is secured by more than four residential units. Thus, the requirement to provide a copy of the appraisal or to notify the applicant of the applicant’s right to such an appraisal would not apply.

This entry was posted on Monday, April 10th, 2017 at 1:34 pm.