Appraisal with different Borrower and different Client

[mahonmg35]

In the process of requesting my loan documents I discovered that my bank never got a "new" appraisal. It appears that they used a two-month old appraisal with a different client (bank) and a different borrower. I asked if they had anyone's approval to do this and their response was that they didn't need anyone's approval - mine, the appraiser, the original bank or the borrower. I suspect they received the appraisal from the developer of the Condo as the original borrower is the guy who backed out of his contract with that developer.

I have searched under other threads, but most of the info was related to either "different borrower" of "different lender" but not both. Disclaimers 21 and 23 in the Appraisal Report seem to suggest that another Lender may only use the Appraisal at the request of the borrower (which is some other guy). Am I making a mountain out of a molehill here or is this practice cusomary? Your insight is greatly appreciated.

 

[Paul Isolda]

Were you charged for an appraisal? # 21 says the report can be given to another lender at the request of the borrower, not the seller. How did your lender get the report? Do they have a relationship with the seller. Right there I'd feel uneasy as a buyer/borrower. I think you have a legitimate complaint, especially if you were charged for an appraisal. I'd ask for my money back immediately if you were.

 

[Bob Ipock]

If this is an FRT and the amont is under $250,000........they don't need an appraisal. All the need is a "valuation product".

The appraisal is not for the buyer nor is it for the seller.....it is FOR the lender that is making the loan. USPAP does not require a "release" for Lender B to use an appraisal prepared for Lender A.



XIV. Validity of Appraisals and Evaluations


The Agencies allow an institution to use an existing appraisal or evaluation to support a subsequent transaction in certain circumstances. Therefore, an institution should establish criteria for assessing whether an existing appraisal or evaluation continues to reflect the market value of the property (that is, remains valid). Such criteria will vary depending upon the condition of the property and the marketplace, and the nature of the transaction. The documentation in the credit file should provide the facts and analysis to support the institution’s conclusion that the existing appraisal or evaluation may be used in the subsequent transaction. A new appraisal or evaluation is necessary if the originally reported market value has changed due to factors such as:
 Passage of time.
 Volatility of the local market.
 Changes in terms and availability of financing.
 Natural disasters.
 Limited or over supply of competing properties.
 Improvements to the subject property or competing properties.
 Lack of maintenance of the subject or competing properties.
 Changes in underlying economic and market assumptions, such as capitalization rates and lease terms.
 Changes in zoning, building materials, or technology.
 Environmental contamination.

 

[Bob Ipock]

http://www.occ.gov/news-issuances/bulletins/2010/bulletin-2010-42.html



Page 24-32

 

[mahonmg35]

Were you charged for an appraisal? # 21 says the report can be given to another lender at the request of the borrower, not the seller. How did your lender get the report? Do they have a relationship with the seller. Right there I'd feel uneasy as a buyer/borrower. I think you have a legitimate complaint, especially if you were charged for an appraisal. I'd ask for my money back immediately if you were.

No, we were not charged. It appears that the developer gave the bank the appraisal. The bank was the developer's lender as well as our lender - on both sides of the transaction. I was an employee of the builder (an insider). They originally told me they couldnt use it "per bank policy" and listed $400 charge on the GFE for an appraisal - though the closing statement omits this charge (i.e. we were never charged). Then it "appeared" in response to my recent document request. Does the nature of the buyer (insider vs arms-length) affect the scope of work and thus require a new appraisal per USPAP?

 

[mahonmg35]

If this is an FRT and the amont is under $250,000........they don't need an appraisal. All the need is a "valuation product".

The appraisal is not for the buyer nor is it for the seller.....it is FOR the lender that is making the loan. USPAP does not require a "release" for Lender B to use an appraisal prepared for Lender A.



XIV. Validity of Appraisals and Evaluations


The Agencies allow an institution to use an existing appraisal or evaluation to support a subsequent transaction in certain circumstances. Therefore, an institution should establish criteria for assessing whether an existing appraisal or evaluation continues to reflect the market value of the property (that is, remains valid). Such criteria will vary depending upon the condition of the property and the marketplace, and the nature of the transaction. The documentation in the credit file should provide the facts and analysis to support the institution’s conclusion that the existing appraisal or evaluation may be used in the subsequent transaction. A new appraisal or evaluation is necessary if the originally reported market value has changed due to factors such as:
 Passage of time.
 Volatility of the local market.
 Changes in terms and availability of financing.
 Natural disasters.
 Limited or over supply of competing properties.
 Improvements to the subject property or competing properties.
 Lack of maintenance of the subject or competing properties.
 Changes in underlying economic and market assumptions, such as capitalization rates and lease terms.
 Changes in zoning, building materials, or technology.
 Environmental contamination.

It was in excess of 250K and a federally related mortgage transaction. I understand that they "may" or are "allowed to" use, but it doesn't change the fact that they don't have a valid contract without having the original borrower in the equation - the consideration (ie. the money is gone) - they didn't pay for the use of the appraisal. The appraisal disclaimers says it may be transferred at the request of the borrower to another lender otherwise it requires specific approval of the appraiser. Seems like the appraisal is really a paperweight - there's no reliance and zero liability for the appraiser since the appraisal was not used in a manner provided for in the appraisal itself (contract). It just seems odd as to why the Bank would do this...

 

[Bob Ipock]

I agree. If it was an FRT and over the threshold of $250,000 then it would seem they would need a new appraisal in order to meet requirements.


I am not sure what you mean about the "valid contract, borrower, consideration etc".
The appraisal is not a contract, the borrower does not own the appraisal and payment for the appraisal is a non issue. If the original appraiser received his fee for this appraisal.....the first lender/bank can give it away if they wish. That would be fine if all that was needed was a "valuation".

Backing up a step.....the whole game changes when the FRT status requires an appraisal not a valuation.

USPAP governs appraisers....not bankers or lenders. Th requirements of the Fannie Mae form and the certification apply to the appraiser....not the borrower, buyer, seller or lender.

What is the issue? They did not charge you for the appraisal so that is not issue.
There must be something bothering about this.

Did your loan close or was it denied? You requested the documents which you should have been given at closing. None of us want to assume anything here so .....just trying to get all the facts.

 

[mahonmg35]

I agree. If it was an FRT and over the threshold of $250,000 then it would seem they would need a new appraisal in order to meet requirements.


I am not sure what you mean about the "valid contract, borrower, consideration etc".
The appraisal is not a contract, the borrower does not own the appraisal and payment for the appraisal is a non issue. If the original appraiser received his fee for this appraisal.....the first lender/bank can give it away if they wish. That would be fine if all that was needed was a "valuation".

Backing up a step.....the whole game changes when the FRT status requires an appraisal not a valuation.

USPAP governs appraisers....not bankers or lenders. Th requirements of the Fannie Mae form and the certification apply to the appraiser....not the borrower, buyer, seller or lender.

What is the issue? They did not charge you for the appraisal so that is not issue.
There must be something bothering about this.

Did your loan close or was it denied? You requested the documents which you should have been given at closing. None of us want to assume anything here so .....just trying to get all the facts.

It closed. They closed another transaction in the building post appraisal (other non-arms length buyers) but prior to us buying (and underwriting) that wouldnt support the price I paid. They underwrote that loan too. I believe they needed a new appraisal, but were worried that it wouldn't appraise. Since they were holding the construction loan as well and my employer was putting down the 20% - it was a simple strategy to mitigate their risk on the construction loan. I believe not getting a new appraisal allowed them to do this - they effectively stripped the equity. I tried to sell 10 months later (even with 20% down and couldn't). While I agree that the appraisal is for the Bank many courts have said that a buyer does have the right to rely on it. I want to be clear - this is not at all the appraisers issue.

Remember, the first bank didnt give it to the second bank - they disavow any knowledge of the transfer. It likely came from the developer. The appraisal seems to be a contract between the original bank and the appraiser and potentially any other party specifically named in the appraisal. The appraiser is paid to offer an opinion upon which the lender can rely on. I believe the appraisal does govern who can use - it specifically says "at the borrower's request" as it relates to another lenders use. It is my assumption that portability is for the benefit of the borrower (as it relates to a new lender). Allowing the bank to use an appraisal at its discretion (without consent of any party) potentially allows for the events that I describe above. Perhaps I am wrong about all of this, but I don't think this is the outcome they were thinking of when they made rules to allow for appraisal portability.

 

[Paul Isolda]

No, we were not charged. It appears that the developer gave the bank the appraisal. The bank was the developer's lender as well as our lender - on both sides of the transaction. I was an employee of the builder (an insider). They originally told me they couldnt use it "per bank policy" and listed $400 charge on the GFE for an appraisal - though the closing statement omits this charge (i.e. we were never charged). Then it "appeared" in response to my recent document request. Does the nature of the buyer (insider vs arms-length) affect the scope of work and thus require a new appraisal per USPAP?

The value of the property has nothing to do with who is buying it or whether the transaction is arms-length. The market value is the market value, the parties to the transaction don't affect that. Since you have/had a relationship with the builder then you would not be uncomfortable with the builder/seller using the same lender. Re-reading your original post, I'm wondering how the builder/seller got the copy of the appraisal. He had no right to it. Be that as it may, what is your real concern? If the I's aren't dotted and the T's not crossed, it's highly unlikely to come back and bite you. It may cause the lender a problem when selling the loan but that is of no concern to you. Is there something that you think might be a problem for you in this situation?

 

[Bob Ipock]

Yes, some courts have said a borrower could rely on the appraisal.

Then the question becomes...."was there something wrong with the appraisal"?


You can't have it both ways. You want to "rely" on the appraisal and at the same time say the 2nd bank had no right to use it.

Most judges and lawyers don't know much about USPAP....nor do they care as a judge or statute overrides USPAP. Judges tend to lean toward a homeowner. Your close association with he builder could send the judge in the other direction.


I hope you retain an attorney and see if you have any options.

None of us give legal advice here....we just spout off as if we know what we are talking about.