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bank made a loan to a local builder for a "spec house" construction that was
for 12 months. Now the
builder and his wife have moved into the house and want to keep the home as
their principal dwelling. Can we do a
modification of the note and deed of trust?
The bigger question is: has your bank
provided the necessary disclosures? Think about it like this - the construction
is complete and the house has sold, it just so happens that the builder is also
the buyer. This should be treated as a
purchase money transaction and is now subject to Truth in Lending, and the Real
Estate Settlement Procedures Act because it is being converted to a residential
mortgage transaction. It is also HMDA
reportable as a purchase.
The fact they are already living in the
house also complicates things. If the builder is a sole proprietorship you
should provide the right to rescind as you are taking a security interest in what
is now the borrowers principal dwelling. If the builder is a company treat it
as a sale from the builder to the consumer borrower because a purchase money
loan is not subject to the right of rescission.
Have the builder (and his wife!), now
the purchasers, submit a Residential Loan Application and proceed as you would
for any other purchase money transaction. Because the home is now their
homestead, there should NOT be any additional funds unless it is a home equity
loan.
As for doing a
modification of the existing note and deed of trust you will want to get with
your counsel about that. Anytime you can
tie your security interest back to the start of construction the better off you
are as far as your risk goes.