Tenn. Comp. R. & Regs. 0180-12-.17 - REQUIREMENTS OF LOAN TRANSACTIONS

Current through March 20, 2022

All loans eligible for investment by an association under the Tennessee Savings and Loan Act shall be subject to the following requirements.

(1)

(a) Application - An association shall obtain on every loan a written application signed by the applicant or applicants which shall contain such necessary and pertinent information with respect to the borrower and/or borrowers and the security as the circumstances may require.

(b) Appraisal - No real estate loan in excess of $5,000 shall be made until a person or persons authorized by the Board of Directors to perform appraisals for the association has made a physical inspection and submitted a signed appraisal of the value of the real estate securing such loan.

The signed appraisal shall be governed in writing by the Board of Directors or the loan committee of the association prior to making the investment in the loan and such report shall be kept in the loan record of the association. The appraisal must meet at least the standards as set out by the industry.

As a general rule, the appraisal should contain the essential data to permit an intelligent and informed decision by a person not otherwise acquainted with the property.

1. The person or persons making an appraisal must meet the minimum qualifications which have been approved by the Board of Directors. The person or persons making an appraisal shall have no interest, direct or indirect, in the real estate security for the loan or in any loan on the security of such real estate and shall not receive compensation which is affected in any way by the approval or declining of the loan. All persons making appraisals must be approved by the Board of Directors.

(c) Fees and Charges - Every association may require borrowers to pay all reasonable expenses incurred in connection with the making, closing, disbursing, extending, readjusting, or renewing of real estate or other loans. Without limiting the generality of the foregoing, such expenses may include appraisal, attorney, abstract, recording and registration fees, title examination, title insurance, loan insurance, credit reports, surveys, drawing of papers, escrow services, loan closing costs and taxes or charges imposed upon or in connection with the making and recording of any loan. Every association also may require borrowers to pay the cost of all other necessary and incidental services rendered by the association or by others in connection with all loans authorized by the Tennessee Savings and Loan Act in such reasonable amounts as may be fixed by the Board of Directors. Without limiting the generality of the foregoing, such costs may include the costs of services of inspectors, engineers and architects. Such initial charges may be collected by the association from the borrower and paid to any persons, including any director, officer, or employee of the association rendering such services, or paid directly by the borrower. In lieu of such initial charges to cover such expenses and costs, an association may make a reasonable charge, part or all of which may be retained by the association to be paid to others who render such services; provided, however, that the balance of such charge after all payments are made shall be returned to the borrower. The fees and charges authorized by the Tennessee Savings and Loan Act shall be in addition to the interest collected or agreed to be paid on such loans within the meaning of any law of this State which limits the rate of interest which may be exacted in any transaction. No director, officer, or employee of an association shall receive any fee or other compensation of any kind in connection with procuring any loan for an association, except for services actually rendered as provided for in the Tennessee Savings and Loan Act.

(d) Late Charge - An association may charge a delinquent charge not to exceed five percent (5/%), or amount allowable by the Federal Home Loan Mortgage Corporation, in any one (1) installment more than fifteen (15) days in arrears.

(e) Loan Register - Every association must maintain a loan register showing at least the following: loan number, borrower, type of loan, amount, sale price, purchased or refinanced and type of property.

(f) Commitment Fee - A fee collected by an association for its commitment to make a loan, by whatever name such charge may be known, shall be retained as a deferred credit by the association until the loan shall be made, when it shall be included in Initial Loan Charges as above provided. If the loan shall not be made for any reason, the association shall thereupon take into current income such amount of the fee as shall remain after such reimbursement as the commitment agreement may require.

(g) Exclusions from Initial Loan Charges - Any charges collected by an association in connection with making of a loan, in which the association merely collects the charge and pays the amount so collected to another, shall not be included in the computation of Initial Loan Charges as above required. Such charges may include such officers' fees as are provided by the by-laws of the association, and fees for title examination, appraisal and inspection fees, recording costs, documentary stamps and other charges of a similar nature.

(h) Current and Deferred Income - These regulations shall not be construed as enlarging, changing, modifying or amending the usuary laws of the State of Tennessee, but rather as establishing accounting principles.

(i) Sale or Payment of Loan - When any loan shall be sold, or paid in advance of maturity, any profit on the sale, and any deferred credit not then taken into income, shall be thereupon taken into current income.

(j) Wash Sale or Refinancing - If any loan shall be sold, and shall be repurchased within one year, any profit on the sale, and discount on the repurchase, shall be taken into ratably over the remaining term of the loan.

(k) Term of Loan - Definition - Where the phrase "term of the loan" is used in the above sections, it means the period of time from making of the loan, or extension, until the loan is to be paid in full under the terms of the documents evidencing the loan, or the extension.

(l) Evidence of Loan - Every loan shall be evidenced by a note or instrument of obligation for the amount of the loan. The note or instrument shall specify the amount, rate of interest and terms of repayment including any penalty or charge for late payment, and may contain all other terms of the loan contract.

(m) Insurance - An association shall require the mortgagor to maintain at the mortgagor's expense, so long as his loan may be outstanding, fire and extended coverage insurance upon the improvements on the real or leasehold property securing such loan, in an amount at least sufficient to protect the interest of the association, in a company qualified to do business in the State of Tennessee, and approved by the association. Such insurance shall be appropriately endorsed to reflect the interest of the association in any proceeds payable under such policy; and further provided that an association shall be exempt from the earlier provisions hereof as to any loan or loans where the appraised value of unimproved land upon which its lien is secured equals or exceeds the unpaid principal balance on said loan.

(n) Payments - Payments on real estate loans shall be applied first to the payment of interest on the unpaid balance of the loan and the remainder on the reduction of principal; provided, however, that if the loan is in default in any manner, payments may be applied by the association as provided in the loan contract. Unless otherwise agreed in writing, any prepayment of principal may, at the option of the association, be applied on the final installment of the note or other obligation until fully paid, and thereafter on the installments in the inverse order of their maturity.

(o) Provisions for Taxes, Insurance, etc. - An association may require the borrower to pay monthly in advance, in addition to interest or interest and principal payments, the equivalent of one-twelfth (1/12) of the estimated annual taxes, assessments, insurance premiums and other charges upon the real estate or other collateral securing a loan, or any of such charges, so as to enable the association to pay such charges as they become due from the funds so received. The amount of such monthly charges may be increased or decreased so as to provide reasonably for the payment of the estimated annual taxes, assessments, insurance premiums and other charges. The association, at its option, may hold such funds in trust and commingle them with its own funds and advance like amounts for such purposes, or credit such funds as received to the real estate or other loan account and advance a like amount for the purposes stated. If such funds are held in trust or invested in deposit accounts, the amounts shall be pledged to further secure the indebtedness and, if held in open account or credited to the loan account, the amounts when advanced for the purposes stated shall be secured by the deed of trust, mortgage or other instrument with the same priority as the original amount advanced. Every association shall keep a record of the status of taxes, assessments, insurance premiums (unless covered by an umbrella insurance policy), and other charges on all real estate or other collateral securing its loan and on all real and other property owned by it.

(p) Advances for Taxes, etc. - An association may pay taxes, assessments, insurance premiums and other similar charges for the protection of its interests in properties securing its real estate or other loans. All such payments shall be added to the unpaid balance of the loan and shall be equally secured by the first lien on the property. An association may require life insurance to be assigned as additional collateral upon any real estate loan. In such event, the association shall obtain a first lien upon such policy and may advance premiums thereon. Such premium advances shall be added to the unpaid balance of the loan and shall be equally secured by the first lien on the property as provided above.

(q) Title Certification - Before an association, its agent, or attorney, shall pay out any money upon a mortgage loan, it shall secure proper assurance that, upon closing, it will receive a title certification from its attorney, or a title insurance policy from a qualified title company, to the effect that:

1. Title is good and merchantable in the mortgagor; and,

2. The association has a first lien or that it has a second lien. In the event that there are liens or encumbrances on the property prior to settlement, the association shall satisfy itself (a) that the encumbrances do not affect the marketability of its security or the amount of its appraisal, and (b) that all prior liens will be discharged, or appropriate provisions made therefor. Promptly after settlement the association shall secure the written title certification, together with a statement of the steps taken to protect the association against any prior liens not then released of record.

3. The certification or opinion must disclose the date and name of the prior title holder or conveyor.

Notes

Tenn. Comp. R. & Regs. 0180-12-.17

Original rule certified June 10, 1974. Repeal and new rule filed June 30, 1980; effective September 15, 1980. Transferred from the Department of Commerce and Insurance by Executive Order Number 38; effective February 11, 1983.

Authority: T.C.A. §§ 45-3-402 and 45-3-801.