(1) The expenditures for the improvement must be greater than the amount carried on the books of the association pursuant to Section 108 hereof for the real property acquired by foreclosure or by deed in lieu of foreclosure. The improvements must be of a type that changes the characteristics of the property, and as such excludes costs of rehabilitation of existing improvements and the costs of completion of partially completed improvements.

(2) Associations wishing to classify such improvements as Section 6705 property must obtain the prior written approval of the Commissioner.

(3) Improvements classified as Section 6705 property may not be reclassified again as Section 6707 property and are subject to all the limitations relating to such property, including the five-year holding period and percent of assets or net worth limitations.