Federal Banking Agencies Finalize and Clarify Appraisal Deferral Rule

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As previously reported, the federal banking agencies announced an interim final rule in April 2020 due to COVID-19 that allows for appraisals and evaluations of homes and other real property to be obtained up to 120 days after closing. The federal banking agencies are the Comptroller of the Currency, Federal Deposit Insurance Corporation, and Federal Reserve Board. The banking agencies recently issued a final version of the rule that clarifies what loans are excluded from the rule.

The interim final rule provides that it does not apply to “transactions for acquisition, development, and construction of real estate.” In response to comments seeking clarification of the excluded transactions, the banking agencies in the final rule provide additional detail. The final rule specifies that the following transactions are excluded:

  • Loans secured by real estate made to finance
    • land development (such as the process of improving land – laying sewers, water pipes, etc.) preparatory to erecting new structures, or
    • the on-site construction of industrial, commercial, residential, or farm buildings;
  • Loans secured by vacant land (except land known to be used or usable for agricultural purposes);
  • Loans secured by real estate to acquire and improve developed or undeveloped property; and
  • Loans made under Title I or Title X of the National Housing Act that
    • conform to the definition of “construction” as defined in the rule (see below), and
    • are secured by real estate.

The final rule provides that the term “construction” includes not only construction of new structures, but also additions or alterations to existing structures and the demolition of existing structures to make way for new structures.

The final rule will be effective upon publication in the Federal Register and may be relied on for transactions closed on or before December 31, 2020, although the banking agencies may extend such date.

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