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4000 - Advisory Opinions

Whether an Appraisal Is Required Pursuant to 12 C.F.R. §323 Where Additional Credit May be Advanced at Lender's Option Under Loan Agreement


March 6, 1991

Walter P. Doyle, Counsel

Your February 26 letter describes a $6.3 million real estate loan made in April 1987 on the basis of an appraisal done by officers of your bank. The loan has been paid down to about $1.9 million and has a due date of February 22, 1991, with about $274,000 of the original loan amount yet to be drawn down. The question is whether an additional $840,000 could be advanced in conjunction with a renewal of the credit, under a "future advances" provision in the original agreement, without an appraisal being required under the FDIC's appraisal regulation that became effective last September.

My conclusion on the facts as I now understand them is that under §323.3(a)(4)(ii) a drawdown of the $274,000 in conjunction with a renewal of the outstanding balance would not necessitate obtaining an appraisal under the regulation if the other criteria of §323.3(a)(4) are met, since that amount appears to have been part of the original loan amount as previously agreed. However, after having read the future advances provision you sent, I believe the contemplated $840,000 advance would be "new monies" not previously agreed to, thus necessitating an appraisal. I base this conclusion first upon the complete discretion afforded the lender in deciding whether to make any further advances under the agreement and also upon my understanding that the $840,000 advance is for a purpose not specifically envisaged under the original loan arrangement.

I believe this conclusion may not be fully consistent with my expressed view in our phone conversation on February 20 because, as I recollect, I did not then understand that future advances under paragraph 21 of the agreement were exclusively "at the Lender's option." I apologize for my obtuseness.

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