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4000 - Advisory Opinions

Whether the Taking of Additional Real Estate Collateral Meets the Definition of "Real Estate-Related Transaction" under 12 C.F.R. §323.2(g)


December 3, 1990

Walter P. Doyle, Counsel

Thank you for your November 20 letter requesting written confirmation of our phone conversation of November 19 to the effect that the taking of additional real estate collateral by an FDIC-regulated institution in "workout" situations to shore up the lender's security position in connection with a previous loan, where no new credit is provided in exchange for the mortgage, would not meet the definition of "real estate-related financial transaction" under §323.2(g) of our regulation.

While a literal reading of §323.2(g)(3) might suggest that such a taking of additional collateral is a "use of real property. . .as security for a loan," we believe that the fact that no new credit is provided in exchange for the mortgage obviates the need for requiring an appraisal in these circumstances. To conclude otherwise would likely deter the lender from taking the additional real estate collateral in some cases and, thereby, vitiate the purposes of requiring an appraisal in the first place.

Accordingly, it is our opinion that simply taking additional collateral for an existing loan previously made in good faith, that did not violate Part 323 when originally made, would not require an appraisal under the regulation if no new credit is made available in exchange therefor. However, there may be supervisory concerns that should be factored into an institution's decision whether or not to obtain an appraisal. If the institution intends to rely in any way on the additional collateral to sway an examiner from criticizing the loan or from listing it for charge off, a competently prepared appraisal almost certainly would be necessary and the loan officer should be so advised.

Please let us know if we can be of further help.

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