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How does a bank need to disclose construction funds that are not initially disbursed at consummation?

Did the 2017 TRID amendments clarify how a bank discloses construction funds that are not initially disbursed at consummation, i.e., holdbacks for future draws?

Yes, please see the following from the Bureau’s reference, The 2017 TILA-RESPA Rule: Detailed Summary of Changes and Clarifications.

The 2017 amendments explain that the costs of construction or amounts held in reserve for the construction loan (holdbacks) are disclosed:

  • On the Loan Estimate, these amounts are factored into the Funds for Borrower calculation (or the Payoffs and Payments calculation, if using the optional alternative Loan Estimate) as existing debt being satisfied in the transaction.
  • On the Closing Disclosure, these amounts are disclosed in the Summary of Borrower’s Transactions table (or the Payoffs and Payments table, if using the alternative Closing Disclosure), and factored into the Funds for Borrower calculation (or the Payoffs and Payments calculation if using the alternative Closing Disclosure).

The 2017 amendments does not specifically define holdbacks but refers to a portion of a construction loan’s proceeds that a creditor places in a reserve or other account at consummation and clarifies that such an amount may be disclosed separately or as part of the other construction costs. The amount may be labeled with any accurate term, so long as any label the creditor uses is in accordance with the “clear and conspicuous” standard. If the amount is disclosed separately, it may be separately itemized, but the other construction costs must not include the amount of the holdback to avoid double counting in the Calculating Cash to Close calculations. (December 2017)

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