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We made a construction loan to a client several months ago. The client has now realized they had cost over runs of approximately $70,000. Can we do a modification agreement to increase the amount of the Deed of Trust and note and NOT do a loan estimate or a closing disclosure?? Or do we need a new note and disclosures?
I’d talk with the bank’s attorney in regards to the note and DOT. It may be possible, but you may decide the best course of action for the bank is to do a new transaction. Recognizing all of the issues involved will help your bank make the best decision. 1026.20(a) is where you’ll find the requirement to provide new new LE and CD disclosures for refinancings (existing obligation that is satisfied and replaced by a new obligation or increasing the rate based on a variable-rate feature that was not previously disclosed or adding a variable-rate feature). If it isn’t a refinancing under 1026.20(a) you would not be required to provide new TIL disclosures. Also, keep in mind, the flood rules apply if you make, increase, renew, or extend a loan… doesn’t matter if it is a modification or refinancing – if it is a MIRE event the flood rules are triggered.
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