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4000 - Advisory Opinions

Whether Property Held in a Land Trust and Assigned as Collateral for Credit Line Which is Subsequently Increased Requires an Appraisal Under 12 C.F.R. §323.


February 15, 1991

Walter P. Doyle, Counsel

Thank you for your February 1 letter describing a line of credit by your bank that is to be increased from $200,000 to $275,000 and is used to finance purchases of realty at tax sales for amounts normally ranging from $4000 to $20,000. The various properties so purchased are held in a land trust that is assigned to the bank as collateral for the credit.

Per our January 28 telephone conversation as summarized in the third paragraph of your letter, I believe the way this transaction is presently structured would require appraisals of the properties in the land trust if the line of credit is increased since the exception in §323.3(a)(4) of our regulation would not then apply and the "transaction value" on these facts would be the limit established under the line of credit (see §323.2(k)(1)).

On the other hand, if each takedown of $50,000 or less under the credit were represented by a separate note to finance the purchase of a specific piece of realty of comparable value, then in our opinion no appraisal would be required to support the addition of such realty as collateral under the land trust to the line of credit, since the "transaction value" of the individual loan would be within the de minimis exception in §323.3(a)(1) of the FDIC appraisal regulation. However, prudent banking and supervisory standards would still require such loans and other real estate-related transactions to be supported by adequately prepared estimations of collateral value.

Please let us know if we can be of any further assistance.

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