Jump to Content
ABA: The American Bankers Association
Skip Section Navigation

Can my bank's loan processor order a construction progress update on a closed-end construction loan?

When my bank makes a closed-end construction loan to a customer, prior to funding draw requests, it orders updates from an appraiser on the construction progress to make sure the building is being constructed as reported. The bank’s loan processor orders these appraisal updates. Is this a violation of the appraisal ordering independence rules of any of the appraisal regulations since she is part of the loan production staff?

It appears not, as such inspection reports typically would not qualify as an “appraisal’ or ‘valuation” that is subject to the rules. For example, Regulation Z at §1026.42(b)(3) defines “valuation” subject to the ‘valuation independence’ requirements as “an estimate of the value of the consumer's principal dwelling in written or electronic form, other than one produced solely by an automated model or system.” Since ‘inspection reports typically would not provide an “estimate of the value” and instead simply a statement on the progress of construction it would arguably not be covered. In addition, if the request is simply made to an appraiser or other person who provided an initial estimate in conformance with the applicable provision then this, too, could be argued as not covered due to the fact that the ‘loan production staff’ was not involved in the selection of the initial appraisal/valuation. (March 2017)

Compliance Hotline

Have a compliance-related question? We're here to help. Members, reach us by phone or email.