Lot Loans & RESPA

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Question:

We have a customer who wants a lot loan. They have stated that they will probably build in the next 12 or 18 months. We are doing a lot loan only, with no advance other than for the lot purchase. In my opinion, this would not be subject to RESPA. Do you agree? Now, let me throw in a curve ball. We have the same scenario, except the customer is going to build utilizing their own funds. We still only finance the purchase of the lot; there are no proceeds advanced for construction building will be in the next 18 months. Is this subject to RESPA? Do you know of any good cheat sheets that would help with these type questions??

Answer:

It would appear that the answer to this question is found in HUD's Regulation X Section 3500.5(b)(4). In that section it states that any loan secured by vacant or unimproved property is exempt from the coverage of RESPA unless, within 2 years from the settlement date, "a structure or manufactured home will be constructed or placed on the real property using the loan proceeds." If the proceeds of the loan will not be utilized to improve the property in this fashion then it would appear that the transaction is exempt from RESPA coverage.

Tom Quinn, Esq. is Vice President and Regulatory Compliance Counsel for Citizens Financial Group, a multistate, multibank holding company headquartered in Providence, Rhode Island. Tom has eight years experience in bank regulatory compliance and risk management. He is a graduate of Fairfield University, the Case Western Reserve University School of Law, and the ABA's National Compliance School.

First published on BankersOnline.com 2/11/02