Dumber than a box of rocks

[Ted Martin]

I just got back from doing an inspection of a home on a 7 acre site. The current mortage holder (Countrywide) made the loan based on the house and a 5 acre site and secured the loan based on a five acre legal description. Needless to say the site split wasn't approved and likely wouldn't be approved by the county zoning board. If the property went to foreclosure and the secured legal description was sold rather than the actual legal description, and if the improvements were destroyed no permit would be issued to rebuild because of the unapproved lot split (7acres to 5 acres). The lender will probably drive me nuts when they find out that I won't do the appraisal based on the 5 acre site rather than the 7 acre site. They don't seem to understand that I can't find comparable sales of illegally split lots. This is a 3 to 10 acre market so bracketing the site is no problem whether it's 5 or 7 acres, and in terms of site value it really doesn't make much difference. Site size is a minor issue in this market, it's not uncommon to find smaller sites selling for more than larger sites that are nearly equal in all other factors.

 

[Daniel Williams]

Ted,

I see this quite a bit in this area too.....12 acres, can you do it as 10....6.5 acres can you do it as 5 acres....

I note the LEGAL legal adress and the REAL lot size and dimensions then in the Sales comparable grid (and notes) i adjust per their underwritting guidelines. I DO disclose that this is HYPOTHETICAL, the fair market value may be somewhat (without saying how much) greater.

just my .02


and remember....You can't fix stupid!

 

[Ted Martin]

We handle them the same way if they insist. They usually have a heart attack when we tell than that thier appraisal will be hypothetical if it's on a site less than the legal.

 

[bradellis]

ksappraiser,

Maybe you should refer them to Fannie. It was FAnnie that prohibited buying a loan with more than 5 acres, but that was cancelled LONG AGO.

Fannie will buy the loan on 7 acres so long as you use homes with similar acreage.

Brad Ellis, IFA, RAA

 

[Mike Garrett RAA]

It is what it is!!!!!! If the property cannot be legally subdivided you have no obligation to appraise it as something different.

There is the concept of "excess land" but it doesn't apply in your case. The lender is mis-interpreting the rule.

 

[Ray Ohler]

Once again, falling back into what was "acceptable" practice when lenders dictate to the appraiser HOW to appraise. As far as lenders being "dumb"? Some are some know exactly what they are doing. As far as real estate agents? Well, some are, some aren't (I'm not bashing real estate agents - I still have my broker's license and sold 2 houses in the last 16 years). This one was. I spoke to an agent this morning. I called to verify a sale in a subdivision (maybe 70 homes) of pretty much or SUBSTANTIALLY similar dwellings. THIS one was 25-30% higher than the rest of the sales in the development. LP was $250,000 - SP was $250,000 on market for 1 day, reported as conventional financing no concessions. Noted in public records there was only a $200,000 mortgage recorded (80%), OK. Let me call the agent and see if there was anything EXTRORDINARY about the house. Agent said no...BUT there was "creative financing"....I didn't even ASK that question yet...now I did. "Oh, yes, well the owner TOOK BACK a 20% second mortgage"... I said, "OH. That doesn't show on the public records". She said, "Well, that's because they "forgave it" at settlement". Talk about DUMB. There is DUMB (forgivable) and STUPID (not forgivable).

 

[Richard Carlsen]

Dan hit it right on the head. State in the appraisal that at the expressed request of the client, value for the site is considered only on 5 acres. It is a hypothetical situation but one that is perfectly acceptable. You relly don't need a legal description for the hypothetical site.

BTW, when I have these, I generally find that on a 10 acre parcel in my market, the 5 acres considered represents about 65 to 75% of the value of the 10 acre site. Not much of a drop in value.

What bugs me is situations like exists now where I did a house on 40 acres but only considered 5 acres in the value. They made the loan but encumbered the whole 40 acres in the mortgage. Now the people are in trouble and stand to loose the house and all of their land. I remember telling them when I was there that we would only consider 5 acres and they might want to split it off legally so there was no chance of loosing all of their land. But my advice fell on deft ears I guess.

 

[Ray Ohler]

if they lose the house AND the 40 acres, well..... lawyers are getting pretty quick to advise their clients of EVERYONE they can pull in. You mentioned that YOU explained to the homeowner that only 5 acres would be considered? Well, some lawyers are dumb also. If it was me, I would hope that they get one of the "dumb" ones. Just my opinion based on what was in your post which MAY NOT be the complete story.

 

[Randy Beigh]

"made the loan based on the house and a 5 acre site and secured the loan based on a five acre legal description."

Ksappraiser

Are you sure? They made a loan on an "illegal" legal description? Who made up this legal description? How would they get a title report?

Generally, when this is done the lender encumbers the whole, but only makes a loan on the hypothetical. If they actually did what you say, then it seems to me, there are some huge liability issues.

I have no problem appraising a hypothetical property, if its legal, but one can't create a fake legal description. That defies all logic.

Randy Beigh
Spokane,WA

 

[Ted Martin]

They did in fact file the mortgage on the five acre legal. The legal was generated by a local surveyor based on the lenders instructions to define a five acre site. They did NOT get the split approved, and the county would not go along with a split of this site. Basically it's not my problems since I did the appraisal on the seven acre county approved legal and the lender can do what ever they want. I am however going to keep my eye on this one if it ever goes to foreclosure so I can buy it, and sue the lender and the listing agent for selling me a property that was illegaly split and that a building permit won't be issued on if the improvements are destroyed.