Lis pendens

[Mark K]

Trying to "prove" how much value diminution there was associated with short sales was difficult as well. It got worse as publicity spread, tales of people waiting four months or longer to close made those properties almost the stigmatized as black mold did. We had some here that were selling below REO values for the same floor plan in the same neighborhood because buyers's for them simply didn't want to wait. I never used one of those as comparables because they almost always closed substantially below market value. Now, if you had to appraise one of those for a private party, would you tell your client that they should offer as much for it as one that didn't suffer from that legal matter? I contend that the most probable price that property would bring is considerably below its unstigmatized "market value", and I would have the data to back it up.

Short sales don't meet the definition of MV; they are distressed, unequal motivation. And there's generally plenty of data to support a 'bargain' short sale or repo.

How many comps do you have to support a value with an LP?

 

[Mike Ault]

Short sales don't meet the definition of MV; they are distressed, unequal motivation. And there's generally plenty of data to support a 'bargain' short sale or repo.

How many comps do you have to support a value with an LP?

Well it's the same situation, isn't it? You can't get clear title until the matter is resolved up. Just as you couldn't get clear title to the short sale until the secondary lien holder gave up their position. Which not very many of them were in any hurry to do. They stuck out like sore thumbs in the MLS. Why don't you consider these LP sales to be "distressed", unequally motivated as well?

 

[Sadie]

You guys need to read the definition of market value as defined by Fannie. The assumption is a clear and transferrable title. And as Mark K says we are not responsible for items of a legal nature.

Do you know, just suspect, or did someone tell you there is a cloud on the title? You can mention it, but make sure that you don't state for a fact something that you just suspect. Underwriting a loan involves clearing title encumbrances. So mention it if you must, but dollars to donuts, the lender already knows and is probably in the process of clearing title.

 

[Mike Ault]

You guys need to read the definition of market value as defined by Fannie. The assumption is a clear and transferrable title. And as Mark K says we are not responsible for items of a legal nature.

Do you know, just suspect, or did someone tell you there is a cloud on the title? You can mention it, but make sure that you don't state for a fact something that you just suspect. Underwriting a loan involves clearing title encumbrances. So mention it if you must, but dollars to donuts, the lender already knows and is probably in the process of clearing title.

I believe we both know the definition quite well. Mark (and apparently you) believe that we should just soldier on and ignore the stigma associated with clouded titles. If I were advising a borrower on what to offer for a property like that, I certainly wouldn't advise them to pay retail price because I believe those almost invariably transact at a substantial discount due to the uncertainty and inconvenience involved.

 

[Mark K]

Acting as a consultant or broker (advocate) advising a client to offer a lower price is different than appraising (D3P) the property within the bounds of assumptions inherent in the vast majority of appraisals.

Well it's the same situation, isn't it? You can't get clear title until the matter is resolved up. Just as you couldn't get clear title to the short sale until the secondary lien holder gave up their position. Which not very many of them were in any hurry to do. They stuck out like sore thumbs in the MLS. Why don't you consider these LP sales to be "distressed", unequally motivated as well?

Are you saying that you ignore the assumption of clear title when/if you appraise a property with LP or short sale?

 

[Mike Ault]

Acting as a consultant or broker (advocate) advising a client to offer a lower price is different than appraising (D3P) the property within the bounds of assumptions inherent in the vast majority of appraisals.




Are you saying that you ignore the assumption of clear title when/if you appraise a property with LP or short sale?

I ask the client what type of value they need when I run into questions like that. Market value, fair market value, condemnation value, distressed/REO value, quick sale value, anticipated sales price (my favorite), etc. I wouldn't make the statement in my report that matters of a legal nature don't affect what properties bring on the open market, because they do. Widely proven fact. They constrict the market for such properties to people interested in dealing with headaches like that, not the typical borrower. Now, if they want a "market value appraisal" on distressed properties, I can certainly come up with that as well. By constraining the market to people interested in buying distressed properties. Those are not "typically motivated transactions", and we shouldn't pretend that they are.

 

[Tom D]

I believe we both know the definition quite well. Mark (and apparently you) believe that we should just soldier on and ignore the stigma associated with clouded titles. If I were advising a borrower on what to offer for a property like that, I certainly wouldn't advise them to pay retail price because I believe those almost invariably transact at a substantial discount due to the uncertainty and inconvenience involved.

Do you understand the difference between a real estate broker with a sale price and a appraiser with a value, as defined by fannie. You cannot mortgage without a clear title. so it's a cash deal. I was a real estate broker. Your thinking is a little clouded on what the 2 jobs do. If the appraisal is for the owner, then you can adjust for any stigma. But typically, a small lis pendis would be paid off at the mort closing. So what affect is that, none. It's just like a lien on the property.

 

[Mike Ault]

Do you understand the difference between a real estate broker with a sale price and a appraiser with a value, as defined by fannie.

I course I do. That's the same problem we run into when clients that want to shoehorn their REO assignments onto the Fannie forms with the Fannie definitions. In that case I add a disclaimer similar to this… "Any prospective borrower or lender should be aware that per client instruction the subject was valued in average condition with no disount applied for REO condition or stigma, lender should take these factors into consideration when evaluating their position", or "client should be aware that properties that have been repossessed and are corporate/government owned have a significant temporary stigma which affects marketability, no such sales were utilized in this report per client instruction". I don't pretend that the stigma doesn't exist, I just notify the reader that I didn't attempt to quantify it. And by the way, how do you know what "the small lis pendens" is regarding? It could be a huge lawsuit that we're being advised that it's okay to just ignore because "we are not responsible for matters of a legal nature". Lots of condo projects in Florida probably have huge lawsuits associated with them at the present time and I don't believe a jury would let an appraiser off the hook for simply ignoring them so the loan could sail through underwriting.

 

[Mark K]

I ask the client what type of value they need when I run into questions like that.

And that's proper. Again, for the vast majority of the appraisals discussed on this forum, F/F regs/guidelines are the elephant in the room.

I still say that attempting to temper a value on a property subject to a LP is a fool's errand. Assumptions are in place to allow appraisers to complete a report. When the assumptions say 'subject to clear title', LP's, taxes, judgements, etc. have no effect on the value of the real estate. If your assumptions say the same thing and yet you try to come up with a value from rectal extraction, you are producing a misleading report.

 

[Sadie]

Well it's the same situation, isn't it? You can't get clear title until the matter is cleared up. Just as you couldn't get clear title to the short sale until the secondary lien holder gave up their position. Which not very many of them were in any hurry to do. They stuck out like sore thumbs in the MLS. Why don't you consider these LP sales to be "distressed", unequally motivated as well?

Not at all the same. A short sale needs the approval of shorted lender before it can close. Technically a property can be sold with lis pendes, but who would want to purchase something they may lose in a lawsuit that they have nothing to do with. I sincerely doubt you could get financing with it. And not conventional.

Actually some of the shorted lenders are the ones in second position.

I believe we both know the definition quite well. Mark (and apparently you) believe that we should just soldier on and ignore the stigma associated with clouded titles. If I were advising a borrower on what to offer for a property like that, I certainly wouldn't advise them to pay retail price because I believe those almost invariably transact at a substantial discount due to the uncertainty and inconvenience involved.

Mike, you need to read what I wrote. And Mark. Like a disco ball, there are several sides to this situation.