Construction Loans -Servicing Disclosure Statement

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Question:

Under the provisions of RESPA, I have always given a servicing disclosure statement. Others in my department feel that this form does not need to be given for a construction loan, even though the loan is a RESPA transaction. Your opinion?

Answer:

If the loan is subject to RESPA the disclosure is required. Temporary loans, such as construction loans, are exempt. However, if the the financial institution may make the permanent loan or if any of the loan proceeds are used to transfer title to the first user (purchase the lot) then the loan loses its temporary exemption and is subject to the provisions of RESPA. Mortgage servicing loan means a federally related mortgage loan, as that term is defined in Section 3500.2, subject to the exemptions in Section 3500.5, when the mortgage loan is secured by a first lien. The definition does not include subordinate lien loans or open-end lines of credit (home equity plans) covered by the Truth in Lending Act and Regulation Z, including open-end lines of credit secured by a first lien.

First published on BankersOnline.com 7/02/07