This month we have a couple of refinance situations where the loan was declined however the loan officer did not collect for the appraisal fee up front, therefore the bank covered the appraisal expense.

Pre Dodd-Frank I would have deducted the appraisal expense from the loan officer's commissions. I believe that under Dodd-Frank we are still allowed to do this as this was an expense the LO incurred on the Bank's behalf and no profit was derived from the loan.

Can we deduct these amounts from LO commissions? Thanks in advance for your feedback.

Allowable or not, I don't think that it is a good practice. This would have a chilling effect on loans moving forward based on the LO's opinion on whether or not the appraisal is going to support the loan request, especially if they are going to get stuck with the fee. Why are you not collecting this fee after the intent to proceed is received from the borrower?

Point well taken, thank you. Trying to figure out what exactly we can do now with the amounts.

I totally agree with Randy. This is a bank process issue. Once you know the application is going to proceed, don't order the appraisal until you have the fee. Many banks learn that the hard way.