4000 - Advisory Opinions
Whether Institution Must Aggregate Indebtedness Owed to It by Same Borrower and Secured by Same Real Property in Determining "Transaction Value" Under 12 C.F.R. § 323.3(a)(1)
February 14, 1992
Walter P. Doyle, Counsel
Thank you for your February 3 letter inquiring whether a regulated institution must aggregate indebtedness (junior and senior debt) owed to it by the same borrower and secured by the same real property, in determining "transaction value" under the exemption for loans of $50,000 or less in § 323.3(a)(1) of the FDIC appraisal regulation.
"Transaction value" is defined in § 323.2(k)(1) as "the amount of the loan or extension of credit.'' In explaining this definition at page 33883 of the Federal Register of August 20, 1990, it is stated that "FDIC will consider a series of related transactions as one transaction if it appears that a regulated institution is attempting to evade the requirements of title XI of FIRREA or this regulation." One example of such an intent to evade would be the structuring of a $150,000 real estate loan transaction in three tranches of $50,000 each in an effort to qualify for the $50,000 exemption. Where the three $50,000 "loans" are, in reality, one transaction and the primary purpose is to evade the Part 323 requirements for an appraisal, the FDIC would look to substance rather than form and would aggregate the three "loans" for purposes of the regulation.
However, FDIC would not aggregate two or more loans to the same borrower secured by the same place of real estate where the loans were, in substance, separate transactions and no intent to evade the regulation was apparent. Thus, FDIC would not aggregate junior and senior debt secured by the same real estate where the first mortgage lender subsequently makes a home equity loan to the same borrower, so long as the home equity loan is not an integral part of the credit exended to finance the purchase of the common collateral.
The key as to whether junior and senior debt will be aggregated is whether or not, based on a careful review of all the attendant facts and circumstances, there appears to be an intent to evade the appraisal requirements by breaking up what is essentially one transaction into several parts. If not, then each loan will be treated as a separate transaction for the purposes of Part 323.
Please let us know if we can be of further assistance.