Failed FHA appraisal, need advice.

[hastalavista]

Brother DeSaix, how do you know the lender actually originally sent the appraiser assignment conditions that notified the appraiser it was for FHA? How do we know our poster here has or has not even seen a copy of the appraisal report?

That's a fair question.
My answer is, I'm taking the OP's word for it. I would say if the OP is not being honest in his/her reporting of the situation as he/she understands it, then any advice he/she receives in this thread is worthless.

You may have read my first response to the OP: it mirrors many of the concerns/questions you and others have raised.
But assuming the OP is being honest, then what we have here is a rather simple situation (as I see it):
An FHA appraisal was completed that did not meet a fundamental requirement of the FHA protocol: at least 3-closed sales within the last 12-months (and, FHA states that those three comps should be comps #1-3).

What should an FHA appraiser do in such a situation? I was taught that if the assignment cannot meet this requirement, the appraiser is to stop the assignment and contact the lender.
William K posted that he has been in this situation before and the lender told him to finish the assignment anyway. I wouldn't have done that; the last thing I'd do is finish an assignment knowing that it doesn't meet the FHA requirements. I would have no problem submitting a document to the client stating why the assignment cannot be completed. At a minimum, I'd call the HOC to get some advice from them (and Maybe that's what William K did).

In the OP's case, the lender is 100% correct in asking the appraiser to re-evaluate his process. If I were the appraiser, I'd spend a significant amount of time attempting to just do that, and if I thought I could credibly use competing sales, I would.
As I said before, with rare exceptions, there is a competing market that is appropriate to use for analysis. I also said that many times, that amount of work, research, etc., exceeds the SOW of the assignment and the lender's expectations of what is necessary. Had the appraiser stopped before submission of the original report and informed the client that the appraisal could not be completed consistent with the FHA protocol, then if the lender said "we want you to expand your analysis to consider competing markets if you think you can; we know this may be extra work, and if so, tell us what that additional work will cost us" I don't think anyone on this board would have an issue.
And, had that been done, then the client could have informed the borrower that (a) it doesn't look like his/her property will meet the requirements for FHA programs, (b) the cost of the appraisal just went up significantly, does the borrower want to proceed, or (c) our first appraiser engaged doesn't think he can complete the assignment; we are going to get a second opinion from another appraiser.

Now, could it be that some or all of this has occurred? Sure it can. But based on the OP's feedback to my original post and questions, I've decided that the OP is being forthright and honest; certainly he/she may be missing a piece of the puzzle or could be misunderstanding what he/she was told. If that is the case, if he/she were to follow the advice I gave, then any misunderstanding would be cleared up by the lender when he/she gets their response.

The above is my opinion, and I don't expect anyone else to give the OP any benefit of being honest or forthright. I don't expect the borrower to be an expert on appraisal practice or FHA protocol. I do expect the FHA-approved appraiser and the FHA-approved lender to be experts, and so I wouldn't expect this kind of error to occur. And, as I said, if the original appraiser had a brain lapse, then I would expect the original appraiser to complete additional work to satisfactorily address the issue beyond a reasonable doubt. This could mean providing the lender with his analysis of what he feels are competing markets and showing them that there is no additional data in those markets to provide support. If I were the client, a statement would not be enough. I'd want something showing that; and, it isn't that difficult to do, assuming the appraiser did look at competing markets and decided there wasn't anything available; all the appraiser has to do is communicate to the client the data he analyzed which would show there is nothing more to find.

I think this situation is an issue, and a big one with a consumer.
All the consumer should expect is:
A. The system follows the system's own rules (FHA protocol).
B. If there is a glitch, the system fixes the glitch (in this case, per FHA protocol).
C. If there is no glitch but a fundamental issue with meeting the requirements, then the consumer should be told why the process was stopped.

Based on the OP's information, Steps A & B have not occurred, and Step C is where he/she is at. How much confidence in the system should a consumer have in the system if A & B are not addressed before C occurs?

I said the appraiser coming 45-miles is not an issue.
I said that if the OP has any additional market data, he/she should provide it to the lender who will then give it to the appraiser to consider: reconsideration is not an option with FHA; whether the data results in any change should be dependent on the quality of the data and if it has an affect on the original appraisal results.
I said that a fundamental FHA requirement is 3-closed sales within 12-months (and I'm taking the OP's word that this requirement wasn't met).
I stated that based on what the OP has described, the original appraisal is deficient; this gives the Lender a reason to order a new one.
I stated that if it were me, I'd tell the lender that any new appraisal coast should be on the lender's dime.
I stated that if he/she doesn't get this situation resolved to his/her satisfaction (the situation, as I see it, is an original report which is deficient and no option... so far... for a replacement), the OP should contact FHA, make a complaint, and let FHA determine if the complaint has any merit.

Do I need to "see" the appraisal report to offer this advice, or can I (after doing my own Q&A on the OP's original post) offer it without seeing the report and under the assumption that the OP is being honest (as he/she understands the situation)?

Well, I don't think I need to see the report to offer the advice. If the OP is incorrect or intentionally misleading in his/her description, then the advice is not appropriate to the situation and will not work.
The OP's description of his/her situation didn't pass my smell test in his/her original post, so I addressed those concerns as I saw them.
Based on the follow-up by the OP, his/her situation has met my threshold, which is: "gee, it sounds like there may be a real issue here that shouldn't have occurred."
If the OP is correct, I agree with him/her a 100% that this issue is centered around an appraiser turning in

a uacceptable FHA appraisal

, which is what I bolded when I cited my agreement. :new_smile-l:

I rest my case. :icon_wink:

 

[Blackguilt]

The reason that i feel that this was an error on the appraiser's part is for a few reasons.

1) There is a 4 unit building 10 miles from my intended purchase that sold for appx. 20k more and is in a similar area. It sold in may, and there is no mention of it in the report.

2)Following Dennis' statement that a 3 unit could be fit for a comparable sale of a 4 unit i expanded my own search parameters and found a few higher and lower than my intended purchase in the general area sold in the last 12 months.

I'm being open and honest here, and to Webbed Feet's point, its not a case of just not hearing what i wanted. I don't know the legality of it, but I'd be more than willing to scan and email my copy of the appraisal to any appraiser who wanted to take a look and either validate my claims or tell me that I'm wrong. Which is why i asked in an earlier post if there was a website or service that i could use to demonstrate legitimate potential comparable sales to support my case for a new or revised appraisal.

I have the appraisers name and contract info from my report, but i was told by my mortgage agent that it was not legal for me to contact them due to the dodd frank laws. Is this true?

 

[Blackguilt]

Had my realtor run MLS search for sales in the last year in our market.
Did not come back with any comparable 4 units, but had (4) 3 units sell, 2 of them for the 120-130k price range and 2 of them for the 70-90k price range all with about 1000 less square footage total.

There also was a 6 unit with 200 more square feet than my intended purchase property that sold for 185k.

This is all within our market area, without going outside to competing markets. Would this be enough to make a case for a faulty appraisal and request a new one?

 

[TxArmadillo]

Sorry, but I do not read anything that indicates the appraisal failed. Appraisers do not create lending guidelines or rules, lenders do.

I have to go with Webbed on this issue. I've seen nothing in the OP's several posts that says the original appraiser did anything insufficient.

We don't make the news, we just report it. If there are no comps for this 4 unit within the previous 12 months, then there are none. Appraiser reported that and was authorized to extend both distance and time to capture any potential sales. The appraiser reported that there still were none.

Why must we always throw the appraiser under the bus? Seems this appraiser followed the rules. It's Wells Fargo's (and FHA's) call whether to underwrite this loan or not.

 

[Blackguilt]

I have to go with Webbed on this issue. I've seen nothing in the OP's several posts that says the original appraiser did anything insufficient.

We don't make the news, we just report it. If there are no comps for this 4 unit within the previous 12 months, then there are none. Appraiser reported that and was authorized to extend both distance and time to capture any potential sales. The appraiser reported that there still were none.

Why must we always throw the appraiser under the bus? Seems this appraiser followed the rules. It's Wells Fargo's (and FHA's) call whether to underwrite this loan or not.

My realtor was able to obtain 6 comps in the last 12 months with similar square footage, structure age and features. Some being 3 units, one being a 6 unit. All of them basically bracketed the assessed value of my property. This was all within my market area. This is why I'm willing to throw Wells Fargo's contracted appraiser under the bus. I know that their appraiser does not represent the profession as a whole, which is very obvious by all the insightful and knowledgeable things that everyone has shared thus far. But I don't understand how a 30-minute MLS search can turn up 6 comparable sales in the market area, yet the appraiser can say that there were none, and that there were none in competing market areas as well.

I have sent an email to my mortgage agent, the underwriting handler as well as their distinct manager with Dennis' suggestion verbatim (THANKS!) as well as a .pdf file of the MLS print out of the comps with final closing sale prices.

 

[hastalavista]

Ok, sometimes it pays to go to the source.

I called the FHA HOC (Santa Ana) which is the center that takes care of my markets. I spoke with an appraiser in their appraisal department. Here is what I asked:

Denis: If an appraiser has an assignment for a 4-unit property, and it is for a FHA loan program (purchase), and the appraiser discovers that there are no closed sales within the last 12-months, should the appraiser:
1. Stop the assignment and contact the lender, or
2. Complete the assignment, and submit it to the lender with 12-month + comparables, and let them determine what to do?

FHA Appraiser: Appendix D for the 4150.2 Handbook clearly states that comparables 1-3 must be no more than 12-months as of the effective date of the value; further, it states that if the comparables are more than 6-months old from the effective date of the appraisal, the appraiser should include commentary explaining why they are more than 6-months old. Comps in excess of 12-months can be used as additional, supplemental comparables.
If there are no comparables less than 12-months old, then our concern is that the property may not be marketable.
If no comparables exist that meet our requirements, the appraiser should stop the assignment and contact the lender.

Denis: Should the appraiser complete the assignment without contacting the lender?

FHA Appraiser: No, the appraiser should stop the assignment and contact the lender.

Denis: What if the lender instructs the appraiser to complete the assignment anyway?

FHA Appraiser: If the assignment is not completed consistent with our guidelines, it is going to be unacceptable for our programs.
If the lender instructs the appraiser to complete the assignment anyway, the appraiser should make a clear [the FHA appraiser suggested to put it in bold] statement that the appraiser has contacted the lender and informed the lender that there are no comparables that closed within the last 12-months, and that the lender has instructed the appraiser to complete the assignment using older sales and that the use of older sales is contrary to FHA guidelines. This way, it is clear to everyone that the appraiser understands what the requirements are, and that it is the lender who is instructing the appraiser to complete the assignment contrary to the guidelines.

(So, in William K's case, this would be the right way to do it).


This is not "throwing the appraiser under the bus."
FHA is an intended user of the appraisal and FHA's protocol are the engagement-requirements.
The appraiser cannot just disregard the engagement-requirements and complete the report using some alternative standard. The appraiser cannot do this with FHA, or any assignment.
FHA does not require the appraiser to complete the assignment using non-comparables (which would be an unacceptable assignment-requirement); FHA simply says, if you don't have 3-comps within the last 12-months, stop (and, at a minimum, contact the lender).
If the lender then tells the appraiser to proceed, make sure that is noted in the report because if there is an issue later, it will be clear that the appraiser understands his/her requirements and that the instructions were given by the lender (who should also understand the requirements).

If the appraiser did this, then it is shame on the lender.
If the appraiser did not do this, then what is the cause for the situation that is the topic of this post?
Is it: (a) the market- there just aren't any comps, (b) a borrower not being happy with this result, or (c) the appraiser not following FHA protocol? :icon_neutral:

a- The market is the market; had the appraiser stopped and informed the lender at that point, this situation would be moot.
b- The borrower may or may not be happy. Had the appraiser stopped and informed the lender at the beginning that there were no comps, the lender could then decide to proceed (knowing that it wouldn't meet FHA guidelines), stop the assignment and give the bad news to the borrower, or tell the appraiser to proceed and take the responsibility itself.
c- This situation could have been avoided or the responsibility for proceeding could have been assumed 100% by the lender if the appraiser contacted the lender in the first place.

If one is going to complete FHA appraisals (and I haven't done one in a while, but I have the handbook, the appendices, and the HOC phone number at my desk), one should be sure what the requirements are, no?

 

[Webbed Feet]

That's a fair question.
My answer is, I'm taking the OP's word for it. I would say if the OP is not being honest in his/her reporting of the situation as he/she understands it, then any advice he/she receives in this thread is worthless.

I don't believe any honesty is in question here beyond lender staff honesty.

You may have read my first response to the OP: it mirrors many of the concerns/questions you and others have raised.
But assuming the OP is being honest, then what we have here is a rather simple situation (as I see it):
An FHA appraisal was completed that did not meet a fundamental requirement of the FHA protocol: at least 3-closed sales within the last 12-months (and, FHA states that those three comps should be comps #1-3).

I wonder if FHA would like comps with pending dates 1.5 years old but closing dates within their 12 month nonsense stupidity. Never mind, I just like to ponder things. Like substituting rules and guidelines, that get manipulated, for requiring good appraisal reports.

What should an FHA appraiser do in such a situation? I was taught that if the assignment cannot meet this requirement, the appraiser is to stop the assignment and contact the lender.

How do you know the appraiser did not?

William K posted that he has been in this situation before and the lender told him to finish the assignment anyway. I wouldn't have done that; the last thing I'd do is finish an assignment knowing that it doesn't meet the FHA requirements.

Again, how do we know the lending staff actually ordered the appraisal with FHA use notification to the appraiser? What if they ordered using a boilerplate "Conventional" use order form, got what they ordered, and they are not being honest about their mess up with the poster?

I would have no problem submitting a document to the client stating why the assignment cannot be completed. At a minimum, I'd call the HOC to get some advice from them (and Maybe that's what William K did).

Maybe that is what the involved appraiser did too.

<....snip......>

Yes, all things are possible.

Now, could it be that some or all of this has occurred? Sure it can. But based on the OP's feedback to my original post and questions, I've decided that the OP is being forthright and honest; certainly he/she may be missing a piece of the puzzle or could be misunderstanding what he/she was told. If that is the case, if he/she were to follow the advice I gave, then any misunderstanding would be cleared up by the lender when he/she gets their response.

Agreed

The above is my opinion, and I don't expect anyone else to give the OP any benefit of being honest or forthright.

Because we are all mean and grumpy.

I don't expect the borrower to be an expert on appraisal practice or FHA protocol. I do expect the FHA-approved appraiser and the FHA-approved lender to be experts, and so I wouldn't expect this kind of error to occur.

Wow, you ARE optimistic! With what I see all the time I've come to expect most of both parties to be a bunch of bozos, when I see work from someone that looks to be an expert I'm mildly shocked. Different worlds I suppose.

<...snip....> all the appraiser has to do is communicate to the client the data he analyzed which would show there is nothing more to find.

How do we know your above was not done?

I think this situation is an issue, and a big one with a consumer.
All the consumer should expect is:
A. The system follows the system's own rules (FHA protocol).
B. If there is a glitch, the system fixes the glitch (in this case, per FHA protocol).
C. If there is no glitch but a fundamental issue with meeting the requirements, then the consumer should be told why the process was stopped.

Agreed.

Based on the OP's information, Steps A & B have not occurred, and Step C is where he/she is at. How much confidence in the system should a consumer have in the system if A & B are not addressed before C occurs?

I would think we should be asking why any consumer left in the U.S. should have any faith at all left in lending or the independent appraisal trade whatsoever. The only reason any of them should have any confidence in any "system" involved with lending on Realty is they just are not informed, have lived in a Hobbit hole for the last five years, and put too much faith in sound bites and advertising.

I said the appraiser coming 45-miles is not an issue.

Agreed. And, why bother with that one when there are so many other lovely issues to focus on?

<...snip....> the OP should contact FHA, make a complaint, and let FHA determine if the complaint has any merit.

I agree. While all that is going on the O.P. will have plenty of time to go on shopping for other properties.

<....snip....>

I rest my case. :icon_wink:

Ok, but I'll have to ask the Judge if you can be recalled for additional cross later.

 

[Webbed Feet]

The reason that i feel that this was an error on the appraiser's part is for a few reasons.

1) There is a 4 unit building 10 miles from my intended purchase that sold for appx. 20k more and is in a similar area. It sold in may, and there is no mention of it in the report.

A "similar area" in your opinion. I'm sure the report doesn't mention hundreds of things that other people might want mentioned.

2)Following Dennis' statement that a 3 unit could be fit for a comparable sale of a 4 unit i expanded my own search parameters and found a few higher and lower than my intended purchase in the general area sold in the last 12 months.

I'm being open and honest here, and to Webbed Feet's point, its not a case of just not hearing what i wanted. I don't know the legality of it, but I'd be more than willing to scan and email my copy of the appraisal to any appraiser who wanted to take a look and either validate my claims or tell me that I'm wrong. Which is why i asked in an earlier post if there was a website or service that i could use to demonstrate legitimate potential comparable sales to support my case for a new or revised appraisal.

I have the appraisers name and contract info from my report, but i was told by my mortgage agent that it was not legal for me to contact them due to the dodd frank laws. Is this true?

Submit what you've researched to your lender. Don't call the appraiser.

 

[Webbed Feet]

My realtor was able to obtain 6 comps in the last 12 months with similar square footage, structure age and features. Some being 3 units, one being a 6 unit. All of them basically bracketed the assessed value of my property. This was all within my market area. This is why I'm willing to throw Wells Fargo's contracted appraiser under the bus. I know that their appraiser does not represent the profession as a whole, which is very obvious by all the insightful and knowledgeable things that everyone has shared thus far.

No, it is not very obvious. Why? Because we don't have either the appraisers story or the lenders story, just yours. Your story is based upon what you know or have been told. I'm sure you're being honest, it is the parties telling you things, and not here posting, that I don't trust.

But I don't understand how a 30-minute MLS search can turn up 6 comparable sales in the market area, yet the appraiser can say that there were none, and that there were none in competing market areas as well.

I have sent an email to my mortgage agent, the underwriting handler as well as their distinct manager with Dennis' suggestion verbatim (THANKS!) as well as a .pdf file of the MLS print out of the comps with final closing sale prices.

A six unit property is NOT comparable. It is considered in a different class of property by all of lending, appraisal licensing agencies, and by most appraisers. Personally, I don't see the big deal either. The cut off is a man-made up rule with little to no rationalization for it other than turf protection of commercial appraisers. But this latter is another story.

 

[Webbed Feet]

Ok, sometimes it pays to go to the source.

I called the FHA HOC (Santa Ana) which is the center that takes care of my markets. I spoke with an appraiser in their appraisal department. Here is what I asked:

Denis: If an appraiser has an assignment for a 4-unit property, and it is for a FHA loan program (purchase), and the appraiser discovers that there are no closed sales within the last 12-months, should the appraiser:
1. Stop the assignment and contact the lender, or
2. Complete the assignment, and submit it to the lender with 12-month + comparables, and let them determine what to do?

FHA Appraiser: Appendix D for the 4150.2 Handbook clearly states that comparables 1-3 must be no more than 12-months as of the effective date of the value; further, it states that if the comparables are more than 6-months old from the effective date of the appraisal, the appraiser should include commentary explaining why they are more than 6-months old.

LMAO! So that really came out of the brains of HUD/FHA "appraiser" employees? "Dear HUD/FHA.... After many hours of careful research, and requests for information from the involved parties, the replies all said the reasons why those were more than six months old is all the sellers didn't want to wait another year to sell their properties."

Dang, I just really enjoy meaningless requirements for as much additional mindless commentary as the GSE folks can get their hands on.

Comps in excess of 12-months can be used as additional, supplemental comparables.
If there are no comparables less than 12-months old, then our concern is that the property may not be marketable.

And, regarding if the property is really marketable or not just isn't our concern as our arbitrary rules take precedence over anything and everything any appraiser might say about it. After all, we've found out what Webbed says is true, there are not enough real appraisal "experts" to be found to trust anything any of them would say to us anyway.

If no comparables exist that meet our requirements, the appraiser should stop the assignment and contact the lender.

Who, after three or four times of this will kick the appraiser off their roster without notifying the appraiser and for vague made up anything they want to claim about it. Of course, HUD/FHA won't care about this.

Denis: Should the appraiser complete the assignment without contacting the lender?

FHA Appraiser: No, the appraiser should stop the assignment and contact the lender.

Denis: What if the lender instructs the appraiser to complete the assignment anyway?

FHA Appraiser: If the assignment is not completed consistent with our guidelines, it is going to be unacceptable for our programs.
If the lender instructs the appraiser to complete the assignment anyway, the appraiser should make a clear [the FHA appraiser suggested to put it in bold] statement that the appraiser has contacted the lender and informed the lender that there are no comparables that closed within the last 12-months, and that the lender has instructed the appraiser to complete the assignment using older sales and that the use of older sales is contrary to FHA guidelines. This way, it is clear to everyone that the appraiser understands what the requirements are, and that it is the lender who is instructing the appraiser to complete the assignment contrary to the guidelines.

Then the lender, after once or twice of the above will kick the appraiser off their roster without notifying the appraiser and for vague made up anything they want to claim about it. Of course, HUD/FHA won't care about this.

(So, in William K's case, this would be the right way to do it).

This is not "throwing the appraiser under the bus."
FHA is an intended user of the appraisal and FHA's protocol are the engagement-requirements.
The appraiser cannot just disregard the engagement-requirements and complete the report using some alternative standard. The appraiser cannot do this with FHA, or any assignment.
FHA does not require the appraiser to complete the assignment using non-comparables (which would be an unacceptable assignment-requirement); FHA simply says, if you don't have 3-comps within the last 12-months, stop (and, at a minimum, contact the lender).
If the lender then tells the appraiser to proceed, make sure that is noted in the report because if there is an issue later, it will be clear that the appraiser understands his/her requirements and that the instructions were given by the lender (who should also understand the requirements).

And, when the blame game later starts, if the appraiser fails to document informing the lender the appraiser loses. If the appraiser proves, with copious documentation they informed the lender, the appraiser still loses. Again, HUD/FHA will say it's not their problem.

If the appraiser did this, then it is shame on the lender.
If the appraiser did not do this, then what is the cause for the situation that is the topic of this post?
Is it: (a) the market- there just aren't any comps, (b) a borrower not being happy with this result, or (c) the appraiser not following FHA protocol? :icon_neutral:

a- The market is the market; had the appraiser stopped and informed the lender at that point, this situation would be moot.

Other than the appraisers position on the lenders roster may go "Poof!"

b- The borrower may or may not be happy. Had the appraiser stopped and informed the lender at the beginning that there were no comps, the lender could then decide to proceed (knowing that it wouldn't meet FHA guidelines), stop the assignment and give the bad news to the borrower, or tell the appraiser to proceed and take the responsibility itself.

Other than the appraisers position on the lenders roster may go "Poof!"

c- This situation could have been avoided or the responsibility for proceeding could have been assumed 100% by the lender if the appraiser contacted the lender in the first place.

Other than the appraisers position on the lenders roster may go "Poof!"

If one is going to complete FHA appraisals (and I haven't done one in a while, but I have the handbook, the appendices, and the HOC phone number at my desk), one should be sure what the requirements are, no?

Absolutely! Just like the requirements of a few years ago when FHA was requiring residential appraisers to perform full blown home inspections that the vast majority of the appraisers were not qualified, nor licensed, to perform! Then require them to all lie and say it wasn't a home inspection.

But all these rules make sense... They are there to protect......... ahhhh ... well I'm sure they protect somebody. I mean all these rules have stopped the FHA and all the other GSEs from ending up with billions/trillions of dollars in bad loans, right? Oh wait ..........

m2: