Oregon Administrative Rules › Chapter 441 - DEPARTMENT OF CONSUMER AND BUSINESS SERVICES, FINANCE AND SECURITIES REGULATION › Division 720 - CREDIT UNIONS › Section 441-720-0355 - Construction and Development Lending

Current through Register Vol. 63, No. 7, July 1, 2024
In addition to the foregoing, the following requirements apply
				to a construction and development loan made by a credit union.
(1) For the purposes of this section, a
			 construction or development loan means any financing arrangement to enable the
			 borrower to acquire property or rights to property, including land or
			 structures, with the intent to construct or renovate an income producing
			 property, such as residential housing for rental or sale, or a commercial
			 building, such as may be used for commercial, agricultural, industrial, or
			 other similar purposes. It also means a financing arrangement for the
			 construction, major expansion or renovation of the property types referenced in
			 this section. The collateral valuation for securing a construction or
			 development loan depends on the satisfactory completion of the proposed
			 construction or renovation where the loan proceeds are disbursed in increments
			 as the work is completed. A loan to finance maintenance, repairs, or
			 improvements to an existing income producing property that does not change its
			 use or materially impact the property is not a construction or development
			 loan.
(2) A credit union that
			 elects to make a construction or development loan must ensure that its
			 commercial loan policy includes adequate provisions by which the collateral
			 value associated with the project is properly determined and established. For a
			 construction or development loan, collateral value is the lesser of the
			 project's cost to complete or its prospective market value.
(a) For the purposes of this section, cost to
			 complete means the sum of all qualifying costs necessary to complete a
			 construction project and documented in an approved construction budget.
			 Qualifying costs generally include on-site or off-site improvements, building
			 construction, other reasonable and customary costs paid to construct or improve
			 a project, including general contractor's fees, and other expenses normally
			 included in a construction contract such as bonding and contractor insurance.
			 Qualifying costs include the value of the land, determined as the lesser of
			 appraised market value or purchase price plus the cost of any improvements.
(A) For land that has been held for an
			 extended period, generally more than 12 months, by a borrower or principal, the
			 credit union may use the market value of the land, as documented by a current
			 appraisal.
(B) Any appreciation
			 represented in the real estate valuation must be realistic and well-supported
			 by current market conditions in an appraisal.
(C) Qualifying costs also include interest, a
			 contingency account to fund unanticipated overruns, and other development costs
			 such as fees and related pre-development expenses. Interest expense is a
			 qualifying cost only to the extent it is included in the construction budget
			 and is calculated based on the projected changes in the loan balance up to the
			 expected "as-complete" date for owner-occupied non-income producing commercial
			 real estate or the "as-stabilized" date for income producing real estate.
			 Project costs for related parties, such as developer fees, leasing expenses,
			 brokerage commissions, and management fees, are included in qualifying costs
			 only if reasonable in comparison to the cost of similar services from a
			 third-party. Qualifying costs exclude interest or preferred returns payable to
			 equity partners or subordinated debt holders, the developer's general corporate
			 overhead, and selling costs to be funded out of sales proceeds such as
			 brokerage commissions and other closing costs.