Drive-by on 1004C form

[Peter LeQuire]

I'll play devil's advocate on this one.

Suppose you get a call from Bob at the local credit union. You have a good, long relationship with Bob, who explains to you that they are foreclosing on a loan involving a manufactured home with a hostile occupant. Since the CU is familiar with the MH form they want the assignment reported on a 1004C but realize that it will be exterior only. They want the form transmitted electronically and stripping off the last three pages is not an option. The CU is the only intended user.

You explain that you will have to make a very clear and prominent countermanding statement that despite what the form says in the preprinted language on pages 5 and 6, the scope of work did not include an interior inspection, given the inability to access the interior due to a hostile occupant.

You also explain that you will be including prominent statements that even though the 1004C form was designed for use with an interior inspection, the reporting format used was chosen by the client as the best alternative and was used at the specific request of the client.

Finally, you explain there will be prominent statements to the effect that there are no other intended users and that the report is not intended to be used in any transaction involving Fannie Mae, Freddie Mac or any other entity with similar requirements.

Bob is good with all this and you write up a short engagement letter in which Bob stipulates to all these issues.

If I missed any certifications or such that would not apply, let's assume, for the sake of this discussion, that those would be countermanded as well.

I'm not saying that there are not better alternatives, such as a short narrative, but that's not my point. I just don't see a USPAP violation here.

The "modifications and deletions...not permitted" has to be viewed within the . What it says is that if a lender wants to sell a loan to Fannie or Freddie, they will not accept an appraisal report with such modifications or deletions. To my knowledge, there is no legal authority that would prevent an appraiser from countermanding anything on the form. The forms are not copyrighted and Fannie has acknowledged that folks are gonna do what they're gonna do with the forms.

For the record, I'm not a fan of countermanding statements for a number of reasons, but USPAP violations are not one of them.

I'll play devil's advocate with this one.

It is confusing in the extreme to suggest that scope of work, assumptions and limiting conditions of a GSE form can be modified or gainsaid at will simply because a client wishes it. While I understand the circumstances, I don't understand why it isn't incumbent on the appraiser to relate to the client that the scope of work specified (exterior only inspection) is not permitted by the report format required. If the client can't arrange for the appraiser to comply with the scope of work dictated by the form, and refuses to accept another report format, how is this any different from any other unacceptable assignment condition?

How does the "context of the form's intent and design" nullify the plain language statements of the SOW and the certifications? Particularly in the circumstance outlined, the lender is sophisticated and knowledgeable user of appraisals, and is (or ought to be) conversant with the forms. The only reason I can think of is so that the appraisal report will go through the GSE-driven compliance matrix: while that may make review of the appraisal easy for the client, but is irrelevant to the intended use of the appraisal. Seems a "wink wink, nod nod" approach to compliance, one that IMO is not worth the risk of having to respond to a regulatory inquiry or sanction.

 

[Rich Heyn]

I'll play devil's advocate with this one.

It is confusing in the extreme to suggest that scope of work, assumptions and limiting conditions of a GSE form can be modified or gainsaid at will simply because a client wishes it. While I understand the circumstances, I don't understand why it isn't incumbent on the appraiser to relate to the client that the scope of work specified (exterior only inspection) is not permitted by the report format required. If the client can't arrange for the appraiser to comply with the scope of work dictated by the form, and refuses to accept another report format, how is this any different from any other unacceptable assignment condition?

How does the "context of the form's intent and design" nullify the plain language statements of the SOW and the certifications? Particularly in the circumstance outlined, the lender is sophisticated and knowledgeable user of appraisals, and is (or ought to be) conversant with the forms. The only reason I can think of is so that the appraisal report will go through the GSE-driven compliance matrix: while that may make review of the appraisal easy for the client, but is irrelevant to the intended use of the appraisal. Seems a "wink wink, nod nod" approach to compliance, one that IMO is not worth the risk of having to respond to a regulatory inquiry or sanction.

Confusing to whom? In this example, the client and appraiser have agreed to use a form that has some preprinted language that will be clearly countermanded.

I don't believe that Scope of Work can be "dictated" by a form because Scope of work must be determined by the appraiser after appropriate problem identification based on communication with the client.

The "context of the form's intent and design" don't nullify the statements on the form. The countermanding statements by the appraiser nullify the statements on the form.

I did not develop my example with any "wink wink, nod nod" in mind so I don't understand how it's possible to read that into the example. Perhaps you were referring to the OP.

As I said, I'm not a fan of countermanding statements, state board reaction being one of the reasons for that. But from a USPAP perspective, I fail to see a violation. But to each their own.

And thanks, Peter, for adding a new word (gainsaid) to my vocabulary today. Had to look that one up.

 

[Lee Lansford]

Confusing to whom? In this example, the client and appraiser have agreed to use a form that has some preprinted language that will be clearly countermanded.

I don't believe that Scope of Work can be "dictated" by a form because Scope of work must be determined by the appraiser after appropriate problem identification based on communication with the client.

The "context of the form's intent and design" don't nullify the statements on the form. The countermanding statements by the appraiser nullify the statements on the form.

I did not develop my example with any "wink wink, nod nod" in mind so I don't understand how it's possible to read that into the example. Perhaps you were referring to the OP.

As I said, I'm not a fan of countermanding statements, state board reaction being one of the reasons for that. But from a USPAP perspective, I fail to see a violation. But to each their own.

And thanks, Peter, for adding a new word (gainsaid) to my vocabulary today. Had to look that one up.

Mr. Heyn's thoughts on this are fairly well my own thoughts.

I feel smarter already.

 

[Spartagirl]

I had a client demand I use the 2055. I told them I couldn't as it was misleading to the client. That I could and have for many clients used the 1004c and you comment extensively that it is an exterior only and list extraordinary assumptions just as you do a stick built. This is for asset valuation/REO mortgage servicing purposes only. The client refused and cancelled the order if I wouldn't use the 2055.

 

[Peter LeQuire]

Believe thee me, I took and take a contrary position on this with a great deal of trepidation. I've sat under your instruction, Rich, and know Lee from our involvement with NAIFA: I respect you both.

Perhaps mine above suffers a lack of clarity, for which I apologize.

The "wink wink, nod nod" comment was directed at the knowledgeable lender requiring a GSE form and limiting the appraiser's SOW because, given the intended use of the appraisal, it would never go to one of the GSEs. It was not directed at you, Rich: I know better. And stating that the SOW was "dictated by the form" was just sloppy.

USPAP compliance aside, there are a couple of issues that bother me about what would be, in a 1004C report with additional certifications, limiting conditions and modified SOW. First is that, as I understand it, lenders are required by Dodd-Frank to report to the appropriate regulatory agency USPAP violations. Second, (I don't know about 49 states, but at least in Tennessee) the REAC uses contract review appraisers to review files when a complaint is made. An appraiser must respond to any complaint, and probably can expect to pay whatever deductible is required by her E&O and to pay to hire her own attorney, whether the complaint is set aside or not. If sanctions issue, a fine will probably be required, as will remedial education, and I would suppose higher E&O would be inevitable.

Whether the 1004C report can be hammered into shape to satisfy USPAP in this circumstance becomes secondary to the prudence of accepting such an assignment for the fee typically paid for a drive by. Even with higher fee, I struggle to understand how accepting such as assignment as that described can be made immune to a charge that the resulting work product is misleading.

But I can be remediated.

 

[Deleted member 128537]

I've done a manufactured REO on a 2055. As long as there is a disclosure about what you are doing the form can be changed or amended. The report just can't be misleading.

 

[CANative]

And thanks, Peter, for adding a new word (gainsaid) to my vocabulary today. Had to look that one up.

You don't remember the Argument Clinic by Monty Python?

M: I came here for a good argument!

O: AH, no you didn't, you came here for an argument!

M: An argument isn't just contradiction.

O: Well! it CAN be!

M: No it can't!

M: An argument is a connected series of statements intended to establish a proposition.

O: No it isn't!

M: Yes it is! 'tisn't just contradiction.

O: Look, if I *argue* with you, I must take up a contrary position!

M: Yes but it isn't just saying 'no it isn't'.

O: Yes it is!

M: No it isn't!

O: Yes it is!

M: No it isn't!

O: Yes it is!

M: No it ISN'T! Argument is an intellectual process. Contradiction is just the automatic gainsaying of anything the other person says.

O: It is NOT!

 

[Rich Heyn]

Believe thee me, I took and take a contrary position on this with a great deal of trepidation. I've sat under your instruction, Rich, and know Lee from our involvement with NAIFA: I respect you both.

Perhaps mine above suffers a lack of clarity, for which I apologize.

The "wink wink, nod nod" comment was directed at the knowledgeable lender requiring a GSE form and limiting the appraiser's SOW because, given the intended use of the appraisal, it would never go to one of the GSEs. It was not directed at you, Rich: I know better. And stating that the SOW was "dictated by the form" was just sloppy.

USPAP compliance aside, there are a couple of issues that bother me about what would be, in a 1004C report with additional certifications, limiting conditions and modified SOW. First is that, as I understand it, lenders are required by Dodd-Frank to report to the appropriate regulatory agency USPAP violations. Second, (I don't know about 49 states, but at least in Tennessee) the REAC uses contract review appraisers to review files when a complaint is made. An appraiser must respond to any complaint, and probably can expect to pay whatever deductible is required by her E&O and to pay to hire her own attorney, whether the complaint is set aside or not. If sanctions issue, a fine will probably be required, as will remedial education, and I would suppose higher E&O would be inevitable.

Whether the 1004C report can be hammered into shape to satisfy USPAP in this circumstance becomes secondary to the prudence of accepting such an assignment for the fee typically paid for a drive by. Even with higher fee, I struggle to understand how accepting such as assignment as that described can be made immune to a charge that the resulting work product is misleading.

But I can be remediated.

Appraisers shouldn't accept assignments with which they are uncomfortable, and sanctions from a state board is a very valid consideration. I was involved in helping defend an appraiser in another state and was absolutely dumbfounded by the lack of USPAP knowledge by the state's "USPAP compliance reviewer." I later learned he/she was a member of the board.

FYI, Peter, I remember you well. Johnson City, TN. Second or third row on my left. Distinguished looking fellow with a full head of silver hair asking intelligent questions.

 

[Lee Lansford]

...

...I struggle to understand how accepting such as assignment as that described can be made immune to a charge that the resulting work product is misleading.

...

Peter, first, thank you for the kind words.

As we look at this situation (loss mitigation or something near the same as I understand; sole intended user is the lien-holder/client), with agreement between the appraiser and the client from the get-go as to identifying and rectifying the inherent conflicts between the embedded language and the actual service etc. as laid-out in the 'letter of engagement' (which is then incorporated in the appraisal report), which of the two parties to the appraisal might be misled? The one and easy answer: neither.

Now, if the question is "MIGHT there be other folks who are not parties to the appraiser-client relationship who MIGHT struggle with all of this?" Well, perhaps and maybe even likely, but, if what we do as appraisers and for our clients is subject to scrutiny by "unknown others" so that they "understand" and are not "misled"--good luck with meeting that standard.

 

[Peter LeQuire]

Appraisers shouldn't accept assignments with which they are uncomfortable, and sanctions from a state board is a very valid consideration. I was involved in helping defend an appraiser in another state and was absolutely dumbfounded by the lack of USPAP knowledge by the state's "USPAP compliance reviewer." I later learned he/she was a member of the board.

FYI, Peter, I remember you well. Johnson City, TN. Second or third row on my left. Distinguished looking fellow with a full head of white hair asking intelligent questions.

I think you have the row right - I thought I was "greying" but I do appreciate the "distinguished" descriptor.