Compliance Q&A: Homebuilders and Lines of Credit

Q: We provide lines of credit to home builders using a ‘master note’ and then use sub-notes for each specific construction loan. Our question stems from the appraisal notice that is required to be given within 3 days of application. Is the bank required to provide an appraisal notice for each subsequent note – or would one be sufficient when the master note is signed by the customer?

A: Typically, with this loan structure, each “sub-note” is its own separate extension of credit. Therefore, for Reg. B appraisal purposes, as long as an appraisal or valuation is being developed in connection with each sub-note (and of course assuming it is to be secured by a first lien on a 1-4 dwelling) then each would be subject. Regulation B, § 1005.14(a),

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