Life estate VS fee simple

[Fred]

There is no fee simple estate holder on that date.

I agree with you in principle, but not in terminology. I don't know why you think the estate in remainder as you like to call it, isn't fee simple. I have seen three deeds creating life estates. All three granted fee simple to the remainderman, while reserving a life estate for another party.

It's part of a larger issue that crept in before with Pete's post about whether "leased fee" is actually a separate "estate" or just a slang label made up by appraisers for "fee simple as leased." The deeds that convey the real estate say "fee simple" (both for properties encumbered by leases and life estates) and one of the three defining criteria of fee simple is that it is perpetual. However, you can always find an appraiser who will argue that, as you say, "there is no fee simple." If it's perpetual, how can it disappear on appraiser fiat?

 

[Webbed Feet]

Here is a stip I received where the subject's ownership is that of a life estate.

"1. Appraiser to mark "Property Rights Appraised" to "Fee Simple" on the appraisal.... the lender's appraisal review dept said that even thought it is in a life estate, it is still considered fee simple and that if you would feel more comfortable, you can add a comment regarding the Life Estate. "

I'm thinking that life estate ownership doesn't have the same bundle of rights as a fee simpl estate.

Any thoughts?

Mr. Seward,

Yes, see my posts and my post 89. What in the ding dong did your original SOW call for? The "ownership" is not just a "Life Estate." There is an Estate(s) in Remainder or one(s) in Reversion also. Your post means that you delivered an appraisal report when you had not properly identified the SOW as per the SOW Rule. There is no way possible (not that I can imagine) that the market value of a Fee Simple Estate = the M.V. of a Life Estate = the M.V. of an Estate(s) in Remainder or Revision.

IN FACT, it is very doubtful that (M.V. of a Life Estate + M.V. of Estate(s) in Remainder or Reversion would = M.V. of a Fee Simple Estate) as it is highly dubious that the sum of the market values of the parts are going to equal the market value of the whole.

This is really simple. You could not have possibly identified your SOW correctly or you'd already know the answer to this. Here are the most likely answers.

A) Sorry. My SOW was to provide the M.V. of a Life Estate. I can't just check that box for you.
B) Sorry. My SOW was to provide the M.V. of the Estate in Reversion or Remainder. I can't just check that box for you.
C) Sorry. My SOW was to provide the M.V. of a Life Estate and the separate M.V. of the Estate in Reversion or Remainder. I can't just check that box for you. (But then I doubt this would be on any simple form report only needing one checkbox corrected. Huh?)

D) Sorry. My SOW was to provide the M.V. of a Fee Simple Estate. Since I failed to provide/use a HC for that, and left incorrect boxes on the form checked, I seriously messed up. Let me correct that for you for free.

So where are we really on this? A, B, C, or D? .. Or perhaps some other interesting combination?

Webbed.

 

[The Warrior Monk]

The slippery slope of your argument tells me I cannot check "Fee Simple" for a deed restricted community either; so then a PUD project would be, by extention, a red flag we should contact our client about too.

What's slippery about my argument? Forms don't dictate the appraisal process...what is on "the form" is not relevant. Describe the property rights being appraised; it is encumbent upon the appraiser to do so. Because a form has a checkbox is not an excuse to say one thing and do another.

But we know Fannie will lend in deed restricted projects; so your argument lacks consistency.

There is a big difference from an investment viewpoint: A property that can be occupied has a different value from a property that cannot be occupied nor produces an income stream. The market value of the latter is not the same as the former. I've seen real world examples of foreclosed properties with tenants...While the tenants can be evicted, it is a long an arduous process here in NY, and thus the properties are typically listed for much less than other unoccupied properties.

The property rights being appraised are being identified: Fee Simple

Since they don't exist as of the date of value, a hypothetical condition is clearly required. The rights are split amongst different owners. They must be identified as such.

It is not being ignored, it is being disclosed, just like when we appraise a 55 and older community and we disclose the fact that there are deed restrictions.

You're comparing apples to oranges. Don't forget about SOW. Fannie will lend on the above situation, but not on a remainderman interest. Not only Fannie, BTW, but most lenders...investors might but with the appropriate interest rate to reflect the risk.

There is no hypothetical condition placed on the appraisal of a property in an age restricted community;

Because the appraiser describes the property rights being appraised, not something other than what exists.

nor is there one needed in the house encumbered by a life estate.

We do not appraise the market value of houses (maybe contributory value of improvements); we appraise property rights. The fee simple estate does not exist as of the date of value: period. Even if the owners of both properties (remainderman and life estate) agree to sign the necessary documentation to obtain a mortgage, the fee simple interest still doesn't as of the date of value. The parties have to take the necessary legal action to make that happen.

 

[Mztk1]

Well, it should. It's a keystone in the credibility of the results. Because if you appraise the wrong "property," you cannot possibly have credible results.

So, when did the OP say there was documentation to show the two had already come together and rejoined he divided inteest, as of the time of the appraisal.

There doesn't have to be a document on a mortgage appraisal using the URAR (i.e., a mortgage appraisal), the assumption of fee simple interest is built into the assignment and I am certifying that I will not render any opinion on title. Stating that the assignment results reflect the Fee Simple interest in the property and disclosing the current ownership as a life estate is adequate. There is still a fee simple ownership available on the property, the rights did not go 'poof' and disappear as Webbed says. Structuring the loan is the job of the lender, not the appraiser. I simply state what I know and state which rights I am appraising.

 

[Fred]

There doesn't have to be a document on a mortgage appraisal using the URAR (i.e., a mortgage appraisal), the assumption of fee simple interest is built into the assignment

That doesn't work in this case because it is known fact that the divided interest exists. When you assume what is known to be false, the appraisal is no longer "as is."

I advise you with the strongest urgency to abandon this idea that a URAR controls the scope of work. Using an URAR does not void the competency rule, does not void the scope of work rule and does not void standard one. What is required of development, is required of development - regardless of the form of the report.

It is not being ignored, it is being disclosed,

I still see the same confusing of development and reporting. I think when it is suggested you ignored reality in your appraisal, it means in the development of the appraisal. If it is an error to use (in this instance, a hypothetical condition) in the development of an appraisal, that is an error in the context of development rules. I don't see how "disclosure" of the facts somewhere in the report voids the development requirements and the development error.

 

[The Warrior Monk]

With the life estate you have three values that can be determined:

1. The value of the Life Estate

Actually exists as of the date of value

2. The value of the Remainder interest

Actually exists as of the date of value

3. The value of both of these held jointly, which is the Fee Simple interest.

Does not exist as of the date of value - Purely hypothetical

The fee simple interest does apply. The two can get together and sell the house in fee simple title if they both agree to sell their interest together.

This is what I like to refer to as "forcing the ideal."

For example, when many appraisers appraise properties with "problems," say systems in a home don't work or house is gutted, there seems to be a need to appraise the property to an ideal, such as determine the "subject to completion" value. The starting point for any appraisal is "as is," i.e., what actually exists. Some clients may have different requirements, but that is a client decision, not the appraiser's.

With regard to the issue under discussion, the fee simple does not apply, unless the client needs to know those particular hypothetical property rights appraised.

When doing an appraisal for such a sale, the fee simple interests are not hypothetical. The two can also come together and take out a mortgage jointly on the fee simple interest of the property. The fee simple interest, when they do come together, applies. In such a case, if the house is foreclosed on, both parties are responsible for the mortgage and both interests are foreclosed on with the lien holder taking fee simple title.

Theoretically, they could come together at a future date, but clearly and legally are separate as of the date of value.

This is not only true of this particular issue, but with any property owners. The owners of a leased fee and leasehold interest could come together and agree to combine their interests to create the fee simple interest. Two owners of abutting vacant land can come together and combine their rights to create one parcel. The scenarios are limitless.

In whatever scenario occurs, the appraiser must properly identify the rights being appraised, and if they don't exist as of the date of value, identify that the rights are hypothetical.

 

[Mztk1]

What's slippery about my argument? Forms don't dictate the appraisal process...what is on "the form" is not relevant. Describe the property rights being appraised; it is encumbent upon the appraiser to do so. Because a form has a checkbox is not an excuse to say one thing and do another.

There is a big difference from an investment viewpoint: A property that can be occupied has a different value from a property that cannot be occupied nor produces an income stream. The market value of the latter is not the same as the former. I've seen real world examples of foreclosed properties with tenants...While the tenants can be evicted, it is a long an arduous process here in NY, and thus the properties are typically listed for much less than other unoccupied properties.

Since they don't exist as of the date of value, a hypothetical condition is clearly required. The rights are split amongst different owners. They must be identified as such.

You're comparing apples to oranges. Don't forget about SOW. Fannie will lend on the above situation, but not on a remainderman interest. Not only Fannie, BTW, but most lenders...investors might but with the appropriate interest rate to reflect the risk.

Because the appraiser describes the property rights being appraised, not something other than what exists.

We do not appraise the market value of houses (maybe contributory value of improvements); we appraise property rights. The fee simple estate does not exist as of the date of value: period. Even if the owners of both properties (remainderman and life estate) agree to sign the necessary documentation to obtain a mortgage, the fee simple interest still doesn't as of the date of value. The parties have to take the necessary legal action to make that happen.

A simple example: You have a house that is selling by the remainder interest holder and the life estate holder and the buyer willl be moving into the house once the sale goes through, obtaining title in fee simple. If the fee simple bundle of rights does not "exist", how can a buyer have any interest in buying them? The fee simple rights to that property must "exist" in the ether somewhere or they would not be saleable. When you do an appraisal on a sale between a life estate/remainder and a fee simple buyer, do you make that report subject to the "existence of these fee simple rights"? Is there a final inspection?

 

[Pittsburgh Pete]

I agree with you in principle, but not in terminology. I don't know why you think the estate in remainder as you like to call it, isn't fee simple. I have seen three deeds creating life estates. All three granted fee simple to the remainderman, while reserving a life estate for another party.

It's part of a larger issue that crept in before with Pete's post about whether "leased fee" is actually a separate "estate" or just a slang label made up by appraisers for "fee simple as leased." The deeds that convey the real estate say "fee simple" (both for properties encumbered by leases and life estates) and one of the three defining criteria of fee simple is that it is perpetual. However, you can always find an appraiser who will argue that, as you say, "there is no fee simple." If it's perpetual, how can it disappear on appraiser fiat?

Never seen a deed specify what property interest is conveyed. Leased fee is a property interest; a property subject to long term leases is conveyed as a leased fee interest not fee simple. I don't believe I've ever seen that specified in the deed but that is the reality of the situation.

Estate is defined as "a right or interest in property."

Not disagreeing Steve, merely clarifying.

 

[PropertyEconomics]

Quote:
When doing an appraisal for such a sale, the fee simple interests are not hypothetical. The two can also come together and take out a mortgage jointly on the fee simple interest of the property. The fee simple interest, when they do come together, applies. In such a case, if the house is foreclosed on, both parties are responsible for the mortgage and both interests are foreclosed on with the lien holder taking fee simple title.

If they must come together (or can as you state come together) obviously they each own separate interests dont they? And therein lies the answer to your question. The whole bundle of rights did not exist as of the date of the appraisal .. even by your own admission. That being the case, the fee simple interest can only be appraised under the hypothetical condition that a fee simple estate exists as of the effective date of value.
As you can see, the hypothetical condition is necessary as it it contrary to what exists as of the date of appraisal.

 

[The Warrior Monk]

A simple example: You have a house that is selling by the remainder interest holder and the life estate holder and the buyer willl be moving into the house once the sale goes through, obtaining title in fee simple. If the fee simple bundle of rights does not "exist", how can a buyer have any interest in buying them? The fee simple rights to that property must "exist" in the ether somewhere or they would not be saleable.

First, you're mixing up dates. Just because a buyer can buy a the fee simple rights in a property at a future date, even if tomorrow, does not mean that the property rights exist today.

If you are appraising a fee simple property today where the fee simple does not exist, you are appraising a hypothetical property.

If you are appraising a fee simple property as of a future date (propective), you may be able to appraise the fee simple interest without the hypothetical condition, and use the necessary extraordinary assumptions (e.g., parties have agreed on the date of value to combine their interests to create the fee simple estate).

When you do an appraisal on a sale between a life estate/remainder and a fee simple buyer, do you make that report subject to the "existence of these fee simple rights"? Is there a final inspection?

I've been in the business since 1990, appraise plenty of wacky things, but have never come across this situation for a lender.