Understanding HC's and EA's

[ZZGAMAZZ]

I invoke the HC that my EA is correct. Or would it be the other way? I invoke an EA based on my HC...

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All kidding aside, those are the type of issues that confuse me.

 

[ZZGAMAZZ]

The definitions are plain. Explanation is unnecessary.

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That having been said . . . The FHA assignment is of a SFR with attached garage that has been converted in workmanlike manner that is compatrible with the original dwelling unit to create an additional bedroom. Based upon FHA instructions to consider the conversion as what it has been converted to, without regard for legal permits, would the appraiser need to invoke an EA to consider the current improvements as HBU because the conversion isn't LEGALLY PERMITTED, and the safety of the conversion can't be confirmed unquestionably, or an HBU-bassed HC because the existing improvements are not LEGALLY PERMISSIBLE, because the conversion effectively removed the enclosed garage that is required per current building code? O

This post digresses from the Original Post although most every FHA assignment, in the ghetto . . . "entry level neighborhood" . . . where I work, involves non-permitted conversions that affect HBU and non-conforming improvement.

 

[George Hatch]

EA - you think it's true but you're not quite sure (I refer to them as an assignment-specific assumption, similar to the general assumptions we always make except this one only applies to this assignment).

HC - you know it's not true, but if it was then this is what it's value would be. This is NOT an assumption, but is a hypothetical.

Examples:

EA - You see an obvious addition and the borrower tells you there are permits. Therefore you think it's true but you're not quite sure so you'll proceed under the assumption that it is so. In the event that assumption doesn't hold up it would have an effect on your conclusions.

HC - You see an obvious addition and the borrower tells you there are no permits but there's an application pending. You know the permitted status is untrue but have reason to believe the addition can be permitted after the fact so you proceed to based on the hypothesis that this is what you think would be the value "subject to obtaining permits". In the event that hypothetical isn't completed it would have an effect on your conclusions.

 

[Tim The Enchanter]

According to yesterdays USPAP class if you use an EA or HC the report should be subject to said EA or HC.
After that my eyes start to glaze over like a glazed donut. Mmmm, donuts.

 

[ZZGAMAZZ]

EA - you think it's true but you're not quite sure (I refer to them as an assignment-specific assumption, similar to the general assumptions we always make except this one only applies to this assignment).

HC - you know it's not true, but if it was then this is what it's value would be. This is NOT an assumption, but is a hypothetical.

Examples:

EA - You see an obvious addition and the borrower tells you there are permits. Therefore you think it's true but you're not quite sure so you'll proceed under the assumption that it is so. In the event that assumption doesn't hold up it would have an effect on your conclusions.

HC - You see an obvious addition and the borrower tells you there are no permits but there's an application pending. You know the permitted status is untrue but have reason to believe the addition can be permitted after the fact so you proceed to based on the hypothesis that this is what you think would be the value "subject to obtaining permits". In the event that hypothetical isn't completed it would have an effect on your conclusions.

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A school of thought often expressed on the AF is that although the appraiser can and should report pertinent issues "subject to," he or should are going beyond the SOW by indicating what needs to be done. If so, is the "Subject To" written, e.g., "The POS covered patio that is falling apart is being conditioned 'Subject To' . . . " . . .but I don't know how to finish the statement without indicating what needs to be done to rectify the problem; and if I don't indicate how the issue needs to be addressed, it seems likely that the follow-up inspection will be ordered without the issue being satisfactorily resolved. So if the appraiser just calls out problems without providing potential solution(s), who advises the borrower what needs to be done?????

 

[ZZGAMAZZ]

EA - you think it's true but you're not quite sure (I refer to them as an assignment-specific assumption, similar to the general assumptions we always make except this one only applies to this assignment).

HC - you know it's not true, but if it was then this is what it's value would be. This is NOT an assumption, but is a hypothetical.

Examples:

EA - You see an obvious addition and the borrower tells you there are permits. Therefore you think it's true but you're not quite sure so you'll proceed under the assumption that it is so. In the event that assumption doesn't hold up it would have an effect on your conclusions.

HC - You see an obvious addition and the borrower tells you there are no permits but there's an application pending. You know the permitted status is untrue but have reason to believe the addition can be permitted after the fact so you proceed to based on the hypothesis that this is what you think would be the value "subject to obtaining permits". In the event that hypothetical isn't completed it would have an effect on your conclusions.

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I appreciate the insight but don't "like" the analogies because the appraiser should conduct further due diligence regarding the permit status.

 

[ZZGAMAZZ]

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All kidding aside, those are the type of issues that confuse me.

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I appreciate the insight but don't "like" the analogies because the appraiser should conduct further due diligence regarding the permit status.

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Here's one: I understood from a recent thread that the appropriate treatment of a covered in-ground pool is to impose an Extraordinary Assumption that the pool is being winterized at present but that the pool is functional and the pool equipment functioning appropriately . . . although before reading that post I conditioned an empty pool that was waiting to be reglazed as "Subject to" the pool being filled with water and the pool equpiment working; and the DEU required the borrower to do so, which she did. So . . . . . . . . does the DEU ever over-ride the appraiser's "subject to," and if so, is the appraiser notified, towards it being a learning experience that improved Public Trust?

 

[George Hatch]

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I appreciate the insight but don't "like" the analogies because the appraiser should conduct further due diligence regarding the permit status.

I just used that variable because it's one everybody is familiar with. You can swap out that variable for any other and it would work the same.

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A school of thought often expressed on the AF is that although the appraiser can and should report pertinent issues "subject to," he or should are going beyond the SOW by indicating what needs to be done. If so, is the "Subject To" written, e.g., "The POS covered patio that is falling apart is being conditioned 'Subject To' . . . " . . .but I don't know how to finish the statement without indicating what needs to be done to rectify the problem; and if I don't indicate how the issue needs to be addressed, it seems likely that the follow-up inspection will be ordered without the issue being satisfactorily resolved. So if the appraiser just calls out problems without providing potential solution(s), who advises the borrower what needs to be done?????

The appraiser isn't making demands that something be done. The appraiser is simply saying that "this is the value if this property is brought into compliance with the lender's underwriting criteria".

 

[CANative]

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Here's one: I understood from a recent thread that the appropriate treatment of a covered in-ground pool is to impose an Extraordinary Assumption that the pool is being winterized at present but that the pool is functional and the pool equipment functioning appropriately . . . although before reading that post I conditioned an empty pool that was waiting to be reglazed as "Subject to" the pool being filled with water and the pool equpiment working; and the DEU required the borrower to do so, which she did. So . . . . . . . . does the DEU ever over-ride the appraiser's "subject to," and if so, is the appraiser notified, towards it being a learning experience that improved Public Trust?

The DEU can override virtually any requirement. There used to be (or still is) a "form" for this that they use. And no, they don't tell the appraiser. Why would they?

The FannieForms® are what's confusing you and many others. In FannieWorld, the truth of the extraordinary assumption must be verified before the appraisal is valid for it's intended use. That what all this "subject to" stuff is all about. For non-lending situations, it is up to the client/intended user to verify the truth, if that's what they want or need to do.

 

[Renee Healion]

Understanding the two definitions is the place to start. Just read them. You ask for explanations of basics but sometimes the scripture is the best source.

I have always found the jargon phrase "subject to" to be really confusing. It just does not communicate well, probably because it leaves off the rest of the thought. But the definitions themselves are clear.

So get the distinction down from the definitions. Then, if you are doing a Fannie form report, go look at the various checkbox texts and pick the one that fits what you wish to communicate as the context of your value opinion. You are using them to put your opinion in context. It is actually your friend and only came about like that in 2005 as an improvement.