We require draws on construction loans be done through a title company. The member is charged $500 inspection fee from the title company. Because we require this as a condition of our construction loan we have always treated it as a finance charge and reflected it in the APR. Are we doing this incorrectly?

I should add... I'm asking this under the TRID section because with the new addendum on the LE, when we put them is as post-consummation they no longer factor into our APR. I thought it still should be factored into the APR even if its included in the addendum.

Those post-closing inspection fees are finance charges and must affect the APR. If they are paid at or before closing, they are prepaid finance charges. If paid after closing, they are still finance charges, but not prepaid FCs. Read 1026.4(c)(7)(iv) carefully.

Check how you are entering those post-closing fees or talk with your software provider to correct how they are being handled.

And also, because the inspection fees collected post-closing are finance charges, when you disclose them on the addendum, don't forget that they must be included as a loan cost in the "In 5 years" disclosure on page 3 of the LE and in the Total of Payments and Finance Charge disclosures on page 5 of the CloD.

If we order an appraisal after closing on a construction loan because the cost of the construction will now be less, do we need to disclose the appraisal fee on the addendum? Can we collect it from the customer or do we have to eat the fee?

Thank you

Be glad to give you an opinion but I do not understand the question. If this is occurring after closing - what addendum are you talking about?

Yes, it's occurring after closing. The addendum that is reference in the above posts. but I think I misunderstood the use of the addendum. I thought the addendum is to disclose costs (not aware that will be incurred) after the loan has closed for a construction loan.

Thank You.

The addendum is used for fees that are known at the time of closing that the consumer will be required to pay after loan closing. If you knew when the loan closed that you were needing another appraisal that you were going to charge the borrower for and they were going to pay for it after closing, then yes, that would be disclosed on the addendum to the closing disclosure. It would also have to be added to the loan as a finance charge - but not a pre-paid finance charge.

We did not know that another appraisal was needed when the loan closed. We are not sure whether we can charge the customer since it was not disclosed to them.

Well, whether you can charge for unexpected costs after a loan closing is a legal question for your counsel and will be based on your loan agreement. A subsequent event sometime down the road not contemplated before a loan closes does not invalidate your final disclosures.

Thank you