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§ 541.1

Board.

The term "Board" means the Federal Home Loan Bank Board or one or more of its officials who has been duly authorized by the Federal Home Loan Bank Board to act in its behalf.

§ 541.2 Federal association.

The term "Federal association" means a Federal savings and loan association chartered by the Board as provided in section 5 of the Home Owners' Loan Act of 1933, as amended. As used in §§ 546.1, 546.2, 546.3, and 546.4 of Part 546, and in Parts 547, 548, 549, and 550 of this subchapter, the term "Federal association" also includes any incorporated or unincorporated building, building or loan, building and loan, savings and loan, or homestead asso

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ciation, which has been organized or incorporated under or pursuant to the laws of the District of Columbia.

[As amended eff. 6-6-68 and 8-24-68.]

§ 541.3 Capital.

The term "capital" means the aggregate of the payments on savings accounts in a Federal association, plus earnings credited thereto, less lawful deductions therefrom.

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§ 541.4 Savings account.

The term "savings account" means the monetary interest of the holder thereof in the capital of a Federal association and consists of the withdrawal value of such interest.

$541.5 Short-term savings account.

The term "short-term savings account" means a savings account in a Federal association which is to be withdrawn in less than twenty-four months from the date on which such account is opened, or a savings account in a Federal association established for the purpose of accumulating funds to pay taxes or insurance premiums, or both, in connection with a loan on the security of a lien on real estate.

See also ¶¶ 771, 772, 1053.3.

Escrow funds accumulated by a mortgage company for taxes and insurance on mortgage loans can be accepted by a Federal association as a short-term savings account pursuant to section 541.5 of the Regulations Op. G.C., 4/11/68.

.3 Federally chartered associations are permitted to pay or not to pay interest on escrowed funds (as short-term savings accounts) under § 10 of Charter N and § 10 of Charter K (Rev.), Op. G.C., 8/5/70.

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§ 541.6 Withdrawal value.

The term "withdrawal value" means the amount paid on a savings account in a Federal § 541.6 91

471-183 - 72 - 2

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§ 541.8-1 Net worth.

The term "net worth" means the sum of all general reserves, surplus, and any other accounts of a Federal association which may be designated as part of net worth pursuant to the provisions of this subchapter.

[Added eff. 6-30-72]

§ 541.9 Loans on the security of first liens. (a) The term "loans on the security of first liens" means loans on the security of any instrument (whether a mortgage, deed of trust, or land contract) which makes the interest in the real estate described therein (whether in fee or in a leasehold or subleasehold extending or renewable automatically or at the option of the holder (or at the option of the Federal association) for a period of at least 10 years beyond the maturity of the loan) specific security for the payment of the obligation secured by such instrument: Provided, The instrument is of such nature that, in the event of default, the real estate described in such instrument could be subjected to the satisfaction of such obligation with the same priority as a first mortgage or a first deed of trust in the jurisdiction where the real estate is located.

[Paragraph (a) revised eff. 2-12-71]

(b) The term "loans on the security of first. liens" includes loans secured by the assignment, as collateral, of loans described in paragraph (a) of this section.

[Reserved]

[11-13-68; 2-12-71]

A Federal association may lend on the security of a first lien on a long term lease (extending or renewable automatically for a period of at least 50 years) on an

apartment and the common areas and facilities in a cooperative project. Op. G.C., 6/10/65.

.3 A deed of trust securing a construction loan made by a Federal association is executed both by the fee holder and the lessee-borrower. The deed of trust specifically grants the trustee the fee title for the purpose of subordinating the same to the construction loan. Does the fact that the promissory note evidencing the loan is executed only by the lessee and not by fee holder result in a violation of § 541.9? No, provided that the deed of trust is not subordinate to any other lien. On foreclosure a deficiency judgment could be obtained against the lesseeborrower; the fee holder's liability would be limited to his interest in the property. Op. G.C., 7/8/65.

.4 A lease which provides that it may be cancelled by the lessor whenever the lessor needs the land for construction or other purposes is terminable almost at the will of the fee owner, even though it recites a term of 99 years, and it cannot qualify as security for a loan by a Federal association under § 541.9(a). Op. G.C., 2/24/67.

.5 In connection with a loan made by a Federal association on the security of a long term lease, a waiver of the priority of the lease to the new first mortgage lien is executed by the lessee and filed of record. Does a supplemental agreement from the mortgagee assuring the lessee of quiet enjoyment of the premises so long as the lessee is not in default violate the requirement of § 541.9(a) that loans shall be "on the security of first liens"? In prior opinions this Office has taken the position that a Federal association may lend on the security of a first mortgage or, a fee simple title, even though the real estate is subject to a long term lease. In such a case, the mortgagee can still foreclose on the real estate and sell subject to the lease, satisfying the proviso contained in § 541.9(a). Although the presence of the lease might adversely affect the market value of the security property on foreclosure sale, this factor would be relevant only in determining the amount of the loan and not relevant as to whether the loan could be made at all. Accordingly, the practice described does not violate any statutory or regulatory requirements. Op. G.C., 4/24/67.

.6 A second secured loan to borrowers presently indebted to the association under a loan secured by a first mortgage on the same property as would secure the second loan, would not result in a second lien, provided that the association retains the first loan, and there are no intervening liens. In these circumstances no other party would have priority over the association upon foreclosure, and the second loan would result in a (permissible) first lien. Op. G.C., 10/22/71.

.7-.50 [Reserved.]

Digests of opinions concerning prior forms of the regulation

.51 [Ed. Note] [The following opinion was written when the minimum period for a qualifying leasehold prescribed by § 541.9 was "at least 50 years from the date the loan is executed or such shorter period, but at least 10 years beyond the maturity of the loan, as may be approved by the Board in accordance with § 545.6-19 of this chapter"] Where the extension of a lease for thirty years is conditioned upon an event that is not certain to happen within that period, the lease does not meet the requirements of § 541.9. Op. G.C., 9/6/67.

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§ 541.10 Single-family dwelling.

The term "single-family dwelling" means a structure designed for residential use by one family, or a unit designed for residential use by one family, the owner of which unit owns an undivided interest in the underlying real estate. The term also includes property, owned

.1 See also ¶¶ 720, 721.

2 Loans on Leasehold Apartments. A long term lease on an apartment and an undivided percentage leasehold interest in "common areas and facilities" (remaining property after all apartments have been leased) should be classified as security for a loan on a "dwelling unit" and a "home". Op. C.G., 6/10/65.

3 Subdivision of tracts. If a developer wishes to build ten single-family dwellings on a single tract of land, which is to be subdivided into ten lots, each with a house on it, the real estate should be classified as "homes", since it will meet the definition when development is completed. To avoid treatment of the real estate as "other dwelling units”, the loan could be broken up into several separate loans, each for the construction of less than four single-family dwellings, so that the higher loan-to-value ratio for loans on the security of homes could be obtained. Since the use of separate loans to achieve this end would result in some degree of inconvenience, it would be pointless, as a practical matter, to require such a circumvention rather than permit the higher loan-to-value ratio on a single loan for the entire tract.

Therefore, where a tract of real estate is to be subdivided into individual lots and the loan contract provides for the separate release of such lots, a loan for the construction of a single-family dwelling on each such lot would be regarded as a loan on the security of a "home" within the meaning of this section of the Regulations and not as a loan on "other dwelling units" as defined in section 541.103 whether or not the loan covers the construction of more than four dwellings. Op. G.C., 1/24/66.

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§ 541.10-3 Other dwelling units.

The term "other dwelling units" means real estate upon which there is located or which comprises or includes any of the following improvements:

(a) A structure or structures designed primarily for residential use and consisting of single-family dwellings or dwelling units for more than four families in the aggregate;

(b) A structure or structures, or parts thereof, designed or used as fraternity or sorority houses which include sleeping accommodations for students of a college or university; or

(c) A structure or structures, or parts thereof, designed or used principally for the provision of living accommodations for students, employees, or members of the staff of a college, university, or hospital.

[As amended eff. 11-3-65.]

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Combination of dwelling units, including homes, and business property involving only minor or incidental business use.

The term "combination of dwelling units, including homes, and business property involving only minor or incidental business use" means real estate upon which there are located other dwelling units (and upon which there may or may not be located homes) and business property involving only minor or incidental business use: Provided, That, the business use of such property shall not be deemed minor or incidental when the value of that part of the property which is attributable to the business use of such property exceeds 20 percent of the total value of such property.

§ 541.12 Other improved real estate.

The term "other improved real estate" means either:

(a) Real estate other than that defined in § 541.10, 541.10-1, § 541.10-2, § 541.10-3, § 541.11, or § 541.11-1 improved by (1) a permanent structure or structures having a value of at least 25 percent of the value of the real estate as a whole, or (2) improvements which render the real estate usable by a business or industrial enterprise; or

(b) Building lots or sites which, by reason of installations and improvements that have been completed in keeping with applicable governmental requirements and with general practice in the community, are building lots or sites ready for the construction on each such building lot or site or a structure designed for residential use for one family.

[As amended eff. 8-24-68.]