Lender says give no vale to illegal accessory unit

[Mr Rex]

I suggest you search the "let's pretend" section of FHA protocol,

 

[hastalavista]

I am still a little confused ( and frustrated). If this assignment is not eligible for FHA financing is that my decision to make? Or is it the lenders?

I recommend you call your client and tell them what your zoning-compliance conclusion is. They will likely tell you to stop the assignment. Charge them for the work you've done.
In rare cases, they might tell you to proceed. This would not necessarily be unusual as some lenders will want the appraisal as "proof" that the property did not qualify for an FHA program so no one can accuse them of redlining a borrower or property.

Good luck.

 

[CANative]

Zoning Compliance

• Determine whether the current use is in compliance with the zoning ordinances. Mark whether it is Legal, Legal Non-Conforming (Grandfathered Use), No Zoning, or Illegal Use.

• If the existing property does not comply with all of the current zoning regulations (use, lot size, improvement size, off street parking, etc.) but is accepted by the local zoning authority, enter “Legal Non-Conforming” and provide a brief explanation.

• If the use is not legal, the property is not eligible for FHA mortgage insurance.

Communicate with your client before proceeding. Tell them that the accessory structure, as configure and when you observed it, represents what you believe is an illegal use. Tell them why if you like (just like you told us.)

 

[The Bob]

You are appraising for Market Value.

As to the physical components, you are appraising what exists...you can't ignore the accessory unit at the request of the lender.

Lenders ask for a whole lot of things...every once in a while, what they ask of the appraiser is actually appropriate ...but not this time.

He didn't say they wanted him to ignore it, he said they don't want it valued. Why can't he comply with that request?

 

[hastalavista]

He didn't say they wanted him to ignore it, he said they don't want it valued. Why can't he comply with that request?

What if it has value in the market... how can the request be completed when the appraisal is as-is, and the fee simple (presumably) ownership interest of the land + improvements (as-is) is being appraised? :mellow:

 

[hastalavista]

He didn't say they wanted him to ignore it, he said they don't want it valued. Why can't he comply with that request?

And, just to carry the thought a little further....
Assume the appraiser didn't ignore it, but didn't 'give' it any value as requested.
Would that change the H&BU conclusion ("Illegal", in the OP's opinion)? I'd say it wouldn't.

 

[JSmith43]

The unit is an illegal use (verified by the city) and cannot be rebuilt as is.

More than likely it could be rebuilt, however, to the original footprint & to the original function of the permitted structure.

It sounds like a great home office or place of refuge when the spouse wigs out, etc

 

[The Bob]

What if it has value in the market... how can the request be completed when the appraisal is as-is, and the fee simple (presumably) ownership interest of the land + improvements (as-is) is being appraised? :mellow:

Std Rule 1-1, e, v.

"whether the subject property is a fractional interest, physical segment, or partial holding".

I really don't see how "as is" prevents him from valuing something other than the whole.

 

[Mike Kennedy]

Std Rule 1-1, e, v.

"whether the subject property is a fractional interest, physical segment, or partial holding".

I really don't see how "as is" prevents him from valuing something other than the whole.

1-2(e),(i),(iv) "ordinances"

1-2(v) An appraiser is not required to value the whole when the subject of the appraisal is a fractional interest, a physical segment, or a partial holding.

Intended Use is mortgage lending - unless the client stipulated "fractional, "segment" or "partial holding" (doubtful) - the fee simple interest in the real property as-improved is the subject of the assignment. OMV must be based on HABU (SR 1-3(a),(b)) which, for the Intended Use, must be legally permissible ON the Effective Date of Appraisal.

 

[hastalavista]

Std Rule 1-1, e, v.

"whether the subject property is a fractional interest, physical segment, or partial holding".

I really don't see how "as is" prevents him from valuing something other than the whole.

I thought I framed my question:

...and the fee simple (presumably) ownership interest of the land + improvements (as-is) is being appraised?

so that it was clear I'm presuming the assignment is for the fee simple ownership interest of the land + improvements. Not part of the land or part of the improvements, or a disaggregation of the components, but as-is (as in "whole, entire, complete, as you see it" ).

Out of curiosity, Jim, other than a lot-line adjustment (which typically involves land and not improvements, but I could imagine a scenario where it could include land + improvements) when the entire parcel is encumbered by a mortgage, how many "fractional interest, physical segment, or partial holding" appraisals have you done for mortgage lending work?

I've done a total of zero for a residential mortgage lending assignment (and this is FHA, so it is safe to assume it is a residential mortgage loan). :new_smile-l:


EDIT TO ADD: There is no doubt that segments can be identified and valued separately from the whole. And, depending on the intended use, I'm not as strict as some on the forum who require a survey, etc. (I'm not arguing that isn't a good idea and necessary for many assignments, but I can envision assignments when it isn't necessary).
But I haven't seen fractional interest or a physical segment valuation done for a mortgage loan, and certainly not for FHA.
I'm adding this comment because when I re-read my original post, it sounds a bit snarky; that isn't my intent and I apologize for coming off like that.