We believe that disclosing the seller credit for repairs on the LE is optional and that you should list the seller credit in Section N (“Due from Seller at Closing”) of the CD.

For the LE, Regulation Z’s Official Interpretations provide lenders with two options for addressing a seller credit. When the lender knows that the seller has agreed to pay for repairs, we believe the lender may disclose the cost of the repairs with a corresponding seller credit on the LE. Alternatively, the lender may choose not to disclose the repair cost on the LE at all, reflecting the fact that the seller likely will pay for the repairs in full (assuming that you have no reason to believe that the $10,000 will not cover the full amount of the foundation repairs).

If you choose to disclose the cost of repairs in the LE, we believe the amount should be listed in Section H (“Other”) of the Closing Cost Details, which is used for “amounts in connection with the transaction that the consumer . . . has contracted with a person other than the creditor or loan originator to pay at closing and of which the creditor is aware at the time of issuing” the LE. The corresponding seller credit for the repairs would be listed under “Seller Credits” in Section J (“Total Closing Costs”).

Alternatively, you may choose not to disclose the repair credit on the LE. As an example, the Official Commentary to Regulation Z provides that if a seller has agreed to credit a borrower the entire amount of a $100 pest inspection fee, the fee may be disclosed as a $100 cost to the borrower with a $100 credit from the seller, or it may not be disclosed at all — “reflecting that the specific seller credit will cover the entire pest inspection fee.” We believe a credit intended to cover the cost of property repairs may be treated in the same manner as a fee paid entirely by the seller and left off the LE entirely.

For the CD, Regulation Z states that “all other obligations required to be paid by the seller at closing” including “funds to be held by the closing agent for the payment of  . . . repairs” should be disclosed in Section N (“Due from Seller at Closing”). Consequently, we believe the $10,000 repair credit should be listed as a seller credit in Section N.

We do not believe that listing this amount in Section N will offset the amount the borrower will need to bring to the closing — provided you do not disclose a corresponding seller credit in Section L (“Paid Already by or on Behalf of Borrower at Closing”), which would reduce the total amount of borrower’s cash to close. Although Regulation Z provides that “any other obligations of the seller to be paid directly to the consumer” should be listed as a seller credit in Section L, we do not believe the repair credit should be listed here since the credit is being held in escrow rather than being paid directly to the borrower.

For resources related to our guidance, please see:

• Regulation Z, Official Interpretations, Paragraph 37(h)(1)(vi), Comment 2 (“Seller credits for specific charges. To the extent known by the creditor at the time of delivery of the Loan Estimate, specific seller credits, i.e., seller credits for specific items disclosed under § 1026.37(f) and (g), may be either disclosed under § 1026.37(h)(1)(vi) or reflected in the amounts disclosed for those specific items under § 1026.37(f) and (g). For example, if the creditor knows at the time of the delivery of the Loan Estimate that the seller has agreed to pay half of a $100 required pest inspection fee, the creditor may either disclose the required pest inspection fee as $100 under § 1026.37(f) with a $50 seller credit disclosed under § 1026.37(h)(1)(vi) or disclose the required pest inspection fee as $50 under § 1026.37(f), reflecting the specific seller credit in the amount disclosed for the pest inspection fee. If the creditor knows at the time of the delivery of the Loan Estimate that the seller has agreed to pay the entire $100 pest inspection fee, the creditor may either disclose the required pest inspection fee as $100 under § 1026.37(f) with a $100 seller credit disclosed under § 1026.37(h)(1)(vi) or disclose nothing under § 1026.37(f), reflecting that the specific seller credit will cover the entire pest inspection fee.”)

• Regulation Z, 12 CFR 1026.37(g) Loan Estimate (“Under the master heading ‘Closing Cost Details,’ in a table under the heading ‘Other Costs,’ all costs associated with the transaction that are in addition to the costs disclosed under paragraph (f) of this section. The table shall contain the items and amounts listed under six subheadings, described in paragraphs (g)(1) through (6) of this section.”)

• Regulation Z, 12 CFR 1026.37(f) Loan Estimate (“Loan Estimate Under the master heading ‘Closing Cost Details,’ in a table under the heading ‘Loan Costs,’ all loan costs associated with the transaction. The table shall contain the items and amounts listed under four subheadings, described in paragraphs (f)(1) through (4) of this section.”)

• Regulation Z, 12 CFR 1026.37(g)(4) Loan Estimate (“Under the subheading ‘Other,’ an itemization of any other amounts in connection with the transaction that the consumer is likely to pay or has contracted with a person other than the creditor or loan originator to pay at closing and of which the creditor is aware at the time of issuing the Loan Estimate, a descriptive label of each such amount, and the subtotal of all such amounts.”)

• Regulation Z, Official Interpretations, Paragraph 37(g), Comment 1 (“The items listed under the heading of ‘Other Costs’ pursuant to § 1026.37(g) include services that are ancillary to the creditor's decision to evaluate the collateral and the consumer for the loan. The amounts disclosed for these items are: Established by government action; determined by standard calculations applied to ongoing fixed costs; or based on an obligation incurred by the consumer independently of any requirement imposed by the creditor. Except for prepaid interest under § 1026.37(g)(2)(iii), or charges for optional credit insurance provided by the creditor, the creditor does not retain any of the amounts or portions of the amounts disclosed as other costs.”)

• Regulation Z, 12 CFR 1026.37(h)(1)(vi), Loan Estimate (“Under the master heading ‘Closing Cost Details,’ under the heading ‘Calculating Cash to Close,’ the total amount of cash or other funds that must be provided by the consumer at consummation, with an itemization of that amount into the following component amounts: . . . (vi) Seller credits. The total amount that the seller will pay for total loan costs as determined by paragraph (f)(4) of this section and total other costs as determined by paragraph (g)(5) of this section, to the extent known, disclosed as a negative number, labeled ‘Seller Credits’; . . .”)

• Regulation Z, 12 CFR 1026.38(k)(2)(viii) Closing Disclosure (“Under the heading ‘Summaries of Transactions’ required by paragraph (j) of this section, a separate table under the subheading ‘Seller's Transaction,’ that includes the following information and satisfies the following requirements: . . . (2) Itemization of amounts due from seller. . . . (viii) A description and amount of any and all other obligations required to be paid by the seller at the real estate closing, including any lien-related payoffs, fees, or obligations; . . .”)

• Regulation Z, 12 CFR 1026.38(k)(2) Closing Disclosure (“Under the heading ‘Summaries of Transactions’ required by paragraph (j) of this section, a separate table under the subheading ‘Seller's Transaction,’ that includes the following information and satisfies the following requirements: . . . (2) Itemization of amounts due from seller.

(i) The total amount due from the seller at the real estate closing, calculated as the sum of items required to be disclosed pursuant to paragraphs (k)(2)(ii) through (xiii) of this section, excluding items paid from funds other than closing funds as described in paragraph (k)(4)(i) of this section, labeled ‘Due from Seller at Closing’;

                                                   *     *     *     *     *

(vii) The total amount of money that the seller will provide at the real estate closing as a lump sum not otherwise itemized to pay for loan costs as determined by paragraph (f) of this section and other costs as determined by paragraph (g) of this section and any other obligations of the seller to be paid directly to the consumer, labeled ‘Seller Credit’;

(viii) A description and amount of any and all other obligations required to be paid by the seller at the real estate closing, including any lien-related payoffs, fees, or obligations; . . .”)

• Regulation Z, Official Interpretations, Paragraph 38(k)(2)(viii), Comment 3 (“Funds to be held by the closing agent for the payment of either repairs, or water, fuel, or other utility bills that cannot be prorated between the parties at closing because the amounts used by the seller prior to closing are not yet known must be disclosed under § 1026.38(k)(2)(viii). Subsequent disclosure of the actual amount of these post-closing items to be paid from closing funds is optional.”)

• Regulation Z, 12 CFR 1025.38(j)(2)(v) Closing Disclosure (“Under the heading ‘Summaries of Transactions,’ with a statement to ‘Use this table to see a summary of your transaction,’ two separate tables are disclosed. The first table shall include, under the subheading ‘Borrower's Transaction,’ the following information and shall satisfy the following requirements: . . . (2) Itemization of amounts already paid by or on behalf of borrower.

(v) The total amount of money that the seller will provide at the real estate closing as a lump sum not otherwise itemized to pay for loan costs as determined by paragraph (f) of this section and other costs as determined by paragraph (g) of this section and any other obligations of the seller to be paid directly to the consumer, labeled ‘Seller Credit’; . . .”)