Are we required to obtain permits?

[Terrel L. Shields]

The certification states that the appraiser will not be responsible for matters of a legal nature. When you (an appraiser)start addressing legal issue you are really asking for trouble.

I totally agree with Clark. Perhaps there is a gray area here, but I am not an abstractor, nor a permit police, and here it would be exceedingly dangerous to interpret any oral statement by the planning commissions because they often will counter themselves and are loathe to provide a written reply.

Now if you provide information to me that a particular situation is in violation of code, that is a different circumstance. To determine that upon my own expertise...not my job.

 

[23Degrees]

Here is the supposed get out of jail free card everyone keeps citing:

1. The appraiser will not be responsible for matters of a legal nature that affect either the property being appraised or the title to it, except for information that he or she became aware of during the research involved in performing this appraisal. The appraiser assumes that the title is good and marketable and will not render any opinions about the title.

My bold above. The statement addresses both the title as well as the property itself. How does the above certification when read in entirety remove all responsibility for matters of a legal nature for those that sign it? It doesn't.

What it does do is give a certain level of protection but not immunity with regard to all matters of a legal nature.

Example - If one outlet in the den was bootlegged without a permit when one was required this is not a readily observable discrepancy from public records and not an anomaly that would be expected to be quantified in any reasonable situation. And if the house burned down because of it there is no question the appraiser would be protected by the presence of statement 1 if any competent council was engaged.

On the other hand, how can a 400 square foot discrepancy from public records, or the presence of a studio apartment in the garage be ignored or not noticed. Situations like this cross the line and Statement 1, this supposed immunity from all things legal, is out the window with regard to that specific item and it needs to be addressed. Putting in a "not my problem" statement, checking "as is", sticking in some BS cost to cure, and checking "legal" regardless of whether it actually is or not may be how we have all been taught to address things like this but that does not mean it is correct or immune from attack from a multitude of avenues.

You don't have to be the "permit police" to work through these issues. I have not pulled a permit in years. But it seems that many prefer to end up being the pretend zoning officer and taking on the responsibility of having unilaterally declared a property to be "legal" in the face of clear and direct evidence that it might not be.

 

[George Hatch]

From a standards perspective the overarching goal is to meet the expectations of the intended users. Meaningful and not misleading. Somebody at the other end of this assignment thinks verifying permit status is meaningful. If that's their policy and if that policy is knowable by an appraiser then they should have known about it and they should have complied with it at the outset. If that requirement was not knowable the its omission can't reasonably be characterized as an error or omission relative to the original SOW.

Bust a deal, face the wheel. If they're adding requirements that - based on your prior experience with them - you couldn't possibly have anticipated then that represents a change to the SOW and from a business perspective may trigger a renegotiation of the fee.

AFAICT the big objection here is the time/effort necessary to run this info down. That's not really an appraisal question, but a fee question - and some fees were made to be renegotiated.

 

[Terrel L. Shields]

how can a 400 square foot discrepancy from public records, or the presence of a studio apartment in the garage be ignored or not noticed.

First off our assessors do not consult any planning commissions - they measure whatever is there and value it accordingly. We have a high percentage of older homes that have some sort of "add on", be it enclosed porch or garage or a separate add on. To determine same would imply we know what year the addition was created and that it was even subject to permits (I don't think even our larger towns were entirely regulated until the 1970s or later.) And I have seen a "finished" in a garage that consisted of a painted floor and little else. Meant as a music room, there was no permit because they did not require a permit if less than $1000... and they spent a couple hundred...the garage interior was already finished..They hung a drapery over the garage door.

Again, I think you have more liability trying to "research" (which implies also that you do what your peers do and it is available during the normal course of business...) things that could take days or weeks to get a valid response upon.

 

[Mike Kennedy]

In reply to several poster's questions, (including the OP):
________
"Subject: USPAP AO-28 / Due Diligence is Required
5. A real property appraiser accepted an assignment to appraise a three-unit residential property. The intended use of the appraisal was for mortgage financing. The client requested that the appraiser not verify the legal status (e.g., compliance with zoning, building codes, use permits) of the three units with municipal officials.
The appraiser withdrew from the assignment because she concluded that the client’s assignment condition limited the scope of work to such a degree that assignment results are not credible in the context of the intended use. The use of an extraordinary assumption about the legal use of the property would not produce credible assignment results in the context of the mortgage financing use."

The above “Case Study” was Issued as an Opinion that the ASB clearly considers municipal verification STANDARD and REQUIRED APPRAISAL PRACTICE (in markets where building & zoning ordinances exist) on Mortgage Financing Appraisal Assignments.

re Both GSE assignments and NON-GSE assignments:
[FONT=&quot]HIGHEST AND BEST USE[/FONT][FONT=&quot]
The reasonably probable and legal use of vacant land or an improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value. The four criteria the highest and best use must meet are legal permissibility, physical possibility, financial feasibility, and maximum profitability.[/FONT]

Applicable to all Assignments:
USPAP Ethics Rule - Conduct,
Competency Rule especially Bullet #3,
Scope of Work Rule Problem Identification especially "subject of the assignment and its' relevant characteristics, and assignment conditions."
SR 1-1 (b),(c)
SR 1-2 (e) (i)physical, legal) (iv "ordinances")
SR 2-2 (b) (iii "legal comments")
SR 2-3 line item #7
Definitions of Extraordinary Assumption and Hypothetical Condition and their practical applications

 

[23Degrees]

First off our assessors do not consult any planning commissions - they measure whatever is there and value it accordingly. We have a high percentage of older homes that have some sort of "add on", be it enclosed porch or garage or a separate add on. To determine same would imply we know what year the addition was created and that it was even subject to permits (I don't think even our larger towns were entirely regulated until the 1970s or later.) And I have seen a "finished" in a garage that consisted of a painted floor and little else. Meant as a music room, there was no permit because they did not require a permit if less than $1000... and they spent a couple hundred...the garage interior was already finished..They hung a drapery over the garage door.

Again, I think you have more liability trying to "research" (which implies also that you do what your peers do and it is available during the normal course of business...) things that could take days or weeks to get a valid response upon.

If you can check off "as is" and "legal" in your area and defend it due to policies of the assessor, record keeping, and other issues specific to your area then that is fine and good.

Everyone needs to read statement 1 and make the decision as to when they have the SOW discussion with the client to determine how to best proceed based on the specifics of their area so that they don't leave that umbrella behind.

What might be no problem in the Ozarks could get you in deep in La La Land.

 

[Mike Kennedy]

Denis,
You should read FNMA and HUD guidelines on permits....basically they dont care.

YES we all should:

"B4-1.4-06, Appraisal Report Review: Subject Property
Zoning (12/01/2010)
Introduction
This topic contains information on subject property zoning, including:
• Subject Property Zoning
• Permissible Use of Land
• Highest and Best Use
Subject Property Zoning
Lenders must ensure that the specific zoning class has been reported in the appraisal, along with a general statement as to what the zoning permits.

The appraisal must include a statement that the subject property presents a legal conforming use, a legal non-conforming (grandfathered) use, or an illegal use under the zoning regulations; or that there is no local zoning.

Permissible Use of Land
Fannie Mae does not purchase or securitize mortgage loans on properties if the improvements do not constitute a legally permissible use of the land.
Certain exceptions to this policy are made provided the property is appraised and underwritten in accordance with the special requirements imposed as a condition to agreeing to make the exception."

* note re OP unfinished to finished basement - is NOT one of the approved "exceptions".

 

[hastalavista]

I can accept without hesitation some appraisers, in there 20+ year experience have not pulled permits. And by doing so, have been able to conclude credible results consistent with the assignment's requirements (certainly I accept that by everyone who has asserted such in this thread).

Most of my assignments are like that... but not all.
Sometimes, to conclude credible results, I need to look at things like specific zoning to a specific property, and specific permits for a specific property.
That's me and my assignments.

It is the weekend, and I'm looking forward to next week to hear if one of the other posters has a case to reference where an appraiser has been sued for doing research on a property. No one has ever been able to cite such a case either specifically or anecdotally.

As to taking on additional liability for doing additional research (not the borrower being mad, but from an appraisal stand point), I find that one hard to believe. I'm not going to issue a "ruling". I'm going to form an opinion of how I considered the data. Sometimes, that opinion will be high-confidence: The planner showed me the variance request and the subsequent denial/approval by the planning commission... therefore, my analysis is based on no approval/approval of X,Y, and Z.
What, am I going to get sued by the lender if later, the planning commission reverses itself? I kinda doubt it (or, better said, I'm not worried about it).
Likewise, if I cannot go any further in drawing a reasonable conclusion, I'm going to stop and call the client, let them know where I'm stopped at an why, and then give them some options on how I think I should proceed (HC, EA, or change the SOW of the assignment, or stop). How is that taking on more liability? It isn't.
Indeed, I see the opposite potential: by not adequately researching an issue and then making an assumption that, with some level of due diligence, would not have been made, that increases lawsuit risk if you ask me.

Trust me: I'm well aware about "standard of care" and "what would your peer do" (and, what the definition of "peer") means. I'm not going to rely on a presumption that "my peer wouldn't research this" if I think I should research the issue. I really see no additional liability for doing research on a specific issue that would reasonably be researched. Until someone shows me a case where that's not true, I'll probably stick with this position.

And, I'm not talking about check-list AMC requirements. My clients don't have those.
My clients expect me to make the determination if something needs to be investigated further or not. I make that determination, and then I proceed appropriately.

 

[Fnbpos]

There is a mixing of zoning compliance issues with permit issues.

Subject: Enclosed Garage into living area

#1) Zoning: Does NOT allow garage conversion. There will be no permit as one would have never been issued by the town. The garage conversion does NOT comply with zoning. Likely a cost to cure issue in the appraisal.

#2) Zoning: Allows garage conversion. Whether or not a permit was issued does NOT impact the zoning compliance.... garage conversions are allowed, the subject has a converted garage....the subject complies with zoning.

The permit is NOT your issue; your job is to describe what is there and to value what is there. What was done, what is the observed quality and is it market accepted.

If anyone out there is pretending something doesnt exist regarding the subject when in fact does exist, then you are providing a mis-leading report. I believe it was Lee Lansford who wrote an excellent article similar to this for IllinoisAppraiser newsletter. It should be mandatory reading.

I dont know about your municipal zoning codes, but here, under the defintion of each code and the allowed uses therein, you would NOT find one word on permits.

Zoning = what is allowed to exist for land and buildings (use)
Permit= "we" (Gov't) are giving you permission to do something under their set of rules.

Disclose what you see, disclose what you do, disclose what you did NOT do. If your client wants to go on a permit hunt, then more power to them.

 

[23Degrees]

There is a mixing of zoning compliance issues with permit issues.

Blame the jurisdictions that link them.

Proceeding "as is" and checking legal in the cases you cite in the jurisdictions where I work would be contradictory and therefore misleading regardless of how many pages you used to describe the illegal garage conversion and how much boilerplate you added to "protect" yourself from the permit issue.

If you can proceed in this manner where you work and not be contradictory or misleading because zoning code could care less about building codes and permits and one can build an entire SFR off the books and still be legal in terms of zoning compliance then that is great but you can't use that brush to paint over the OP's situation or many, many other places.