FHA And Excess Land Hypothetical

[sunsetvalley]

I searched for Excess Land threads but I couldn't find a a thread that exactly answers my question.

I'm finishing up an assignment that is one of those "oh it's easy" and you show up and it turns into a nightmare.

Basically, FHA transaction for a house on a 9000sf lot with an additional 6100sf lot because 2 feet of the house's enclosed porch encroaches on 2nd lot. After reading HUD guidelines for excess vs surplus and encroachments and conversation with the county planner I'm confident of development of the appraisal with the 2nd lot as excess land. According to FHA the value of the 2nd lot is to be excluded from the final value conclusion of the appraisal and the appraiser must provide a value of the principle site and improvements under a hypothetical condition.

OK. I just want some assistance to make sure my logic is lining up.

On page 1 of URAR and Grid both parcels are identified (including total sf) but value is only accorded to 1 lot. On the cost approach only the 1 lot is included. I'm not required to give a value for the 2nd lot in the appraisal. That's a separate assignment.

This is my conclusion statement for determining it as excess land: According to FHA loan rules in the HUD 4000.1 handbook it states "Excess Land refers to land that is not needed to serve or support the existing improvement. The highest and best use of the excess land may or may not be the same as the highest and best use of the improved parcel. Excess and may have the potential to be sold separately". Based on this definition and identification of the real estate being appraised, Parcel xxxx has potential to be sold separably and is not needed to serve or support the existing improvement. Both parcels, irrespective of one another, meet zoning and CC&R requirements for development and are legally conforming platted lots and separation of the lots from one another would not change their use or legal conformity. Based on HUD/FHA loan rules and peer accepted practices, Parcel xxxxx is considered excess land.

Then in the addendum I need to address the highest & best use...for both parcels as this will help the reader understand my conclusion that the 2nd parcel is excess land. My conclusion for H&BU for the lot 1 with house is that the current use is H&BU and that conclusion for lot 2 is not current use but to be improved.

Oh and I need to address the marketability of the encroachment. "As indicated above, the second parcel is owned by the same owner, shares the same legal description and is included in the sales transaction. As both lots are transferring to a new owner there does not appear to be a current impact on marketability. Potential marketability issues may occur if the vacant parcel were to transfer to a separate entity without removal of the encroachment. The opinion of market value developed in this appraisal is only for Parcel xxxx and no encroachments were noted for this parcel.

So, my last thing to address is the required hypothetical condition. And this is where my brain is falling apart. My boss said he'd finish this part but encouraged me to try it on my own. What is my hypothetical condition? That the transaction does not include the 2nd lot?

So, here I am. On a Friday night, trying to figure a problem. At least this isn't due until Monday. Look forward to any advice you can give me.

 

[Renee Healion]

This is a complex assignment that you have been given and you have really expended some effort.

Even if it were not late, I would have trouble parsing this sentence of yours:
"Basically, FHA transaction for a house on a 9000sf lot with an additional 6100sf lot because 2 feet of the house's enclosed porch encroaches on 2nd lot."
The reason for the second lot's existence cannot simply be because it has an encroachment on it. That part needs to be thought out more so you can express it more clearly.

Is the subject one property composed of two tracts now? You describe it is as such, I think. So, yes.
Is the second tract excess land (with a HBU which could differ from the other tract's) and not simply surplus? You sound convinced it is excess (because you have done a HBU analysis or how would you know). Okay, accepting your thinking and you ran it by the Planner too. So, yes.

"I'm not required to give a value for the 2nd lot in the appraisal." Nowhere in it?

(I am skipping the form reporting part because the way I read it you are not consistent with reporting an appraisal subject to an HC, which is why it is not "the last thing" you settle in your head. Someone else can weigh in tomorrow.)

To the HC:
The subject is one lot composed of two tracts now. You want to identify the subject as the improvements and one tract. This does not currently exist; it is a construct you are imposing. Doing so would entail an HC that the improvements exist on one tract (when they don't now).

What are you going to do about the encroachment? I think you are saying you get to not deal with it by saying part of the porch is on part of the second lot? But it is part of your subject improvements. Now what?

 

[Michigan CG]

Congrats on putting the work in to try to solve this problem. First of all I am going to assume a 6,100 SF lot is a buildable lot (width and size requirements). If your subject property porch is encroaching by two feet that tells me that the remainder of the home most likely does not meet set-back requirements. Typically there are setback limits from the parcel line. If your set-back requirements are five feet then what you are saying is that someone needs to either tear down seven foot of the porch or redraw the second parcel to be smaller so that the subject property improvements do not encroach or violate set-back requirements.

I am going to guess that you have improvements on the second lot and with set-back requirements you need the second lot to support the lot with improvements and therefore you have surplus land.

 

[J Grant]

I searched for Excess Land threads but I couldn't find a a thread that exactly answers my question.

I'm finishing up an assignment that is one of those "oh it's easy" and you show up and it turns into a nightmare.

Basically, FHA transaction for a house on a 9000sf lot with an additional 6100sf lot because 2 feet of the house's enclosed porch encroaches on 2nd lot. After reading HUD guidelines for excess vs surplus and encroachments and conversation with the county planner I'm confident of development of the appraisal with the 2nd lot as excess land. According to FHA the value of the 2nd lot is to be excluded from the final value conclusion of the appraisal and the appraiser must provide a value of the principle site and improvements under a hypothetical condition.

OK. I just want some assistance to make sure my logic is lining up.

On page 1 of URAR and Grid both parcels are identified (including total sf) but value is only accorded to 1 lot. On the cost approach only the 1 lot is included. I'm not required to give a value for the 2nd lot in the appraisal. That's a separate assignment.

This is my conclusion statement for determining it as excess land: According to FHA loan rules in the HUD 4000.1 handbook it states "Excess Land refers to land that is not needed to serve or support the existing improvement. The highest and best use of the excess land may or may not be the same as the highest and best use of the improved parcel. Excess and may have the potential to be sold separately". Based on this definition and identification of the real estate being appraised, Parcel xxxx has potential to be sold separably and is not needed to serve or support the existing improvement. Both parcels, irrespective of one another, meet zoning and CC&R requirements for development and are legally conforming platted lots and separation of the lots from one another would not change their use or legal conformity. Based on HUD/FHA loan rules and peer accepted practices, Parcel xxxxx is considered excess land.

Then in the addendum I need to address the highest & best use...for both parcels as this will help the reader understand my conclusion that the 2nd parcel is excess land. My conclusion for H&BU for the lot 1 with house is that the current use is H&BU and that conclusion for lot 2 is not current use but to be improved.

Oh and I need to address the marketability of the encroachment. "As indicated above, the second parcel is owned by the same owner, shares the same legal description and is included in the sales transaction. As both lots are transferring to a new owner there does not appear to be a current impact on marketability. Potential marketability issues may occur if the vacant parcel were to transfer to a separate entity without removal of the encroachment. The opinion of market value developed in this appraisal is only for Parcel xxxx and no encroachments were noted for this parcel.

So, my last thing to address is the required hypothetical condition. And this is where my brain is falling apart. My boss said he'd finish this part but encouraged me to try it on my own. What is my hypothetical condition? That the transaction does not include the 2nd lot?

So, here I am. On a Friday night, trying to figure a problem. At least this isn't due until Monday. Look forward to any advice you can give me.

Look at the above I highlighted in red- you can not simultaneously include, and exclude the second lot ! You are saying the encroachment of the porch is not a problem because 2nd lot is owned by same owner, yet you are then excluding second lot as excess land which means IT CAN BE SOLD SEPARATELY> By classifying the 2nd lot as excess land, which means HBU is can sell it , you've created a problem for the porch encroachment. How the heck can the 2nd lot be sold with a porch encroaching on it, and what would happen to subject house, the porch would be cut off? And if 2nd lot is sold, the house, as Mich CG noted would be too close to the lot line and out of zoning setback compliance.

Because the porch encroaches on the second lot, the second lot is needed to support the improvement of the subject, therefore it should be classified as surplus land.. Re the definition of what makes a determination for excess land, it's not just that it has its own legal description or plat and could be sold, its that it is not needed to support or serve the improvement ( the house)

No, you logic is not lining up. How could your boss not see it..is he a mentor,,,,maybe he has not read the report in total yet or is busy but one would hope he would spot the problem .and the problem is not how to explain a hypothetical condition, the problem is for this particular situation a wrong identification of the second lot as excess land when it should be surplus land because of porch encroachment and possible issue of setback of house from lot line if second lot were sold.

 

[Mr Rex]

Once the porch encroached on the 2nd lot, then there is no excess land. The subject is both lots.

 

[J Grant]

Potential marketability issues may occur if the vacant parcel were to transfer to a separate entity without removal of the encroachment. The opinion of market value developed in this appraisal is only for Parcel xxxx and no encroachments were noted for this parcel.

The above which you wrote might disqualify your subject from getting FHA financing. Why would you create this problem in an appraisal ...actually creating a potential marketability/e encroachment problem needing removal of a porch...? Like how does owner enter the house if you remove the porch, by trespassing on someone else's land to get in the door?

Clearly the second lot is needed to serve/support the subject improvement

 

[Mr Rex]

Another FHA GOD that is making the appraisal subject to making the borrower tear down their porch that encroaches on a lot they own. Beyond ridiculous.

 

[bnmappraisal]

Once the porch encroached on the 2nd lot, then there is no excess land. The subject is both lots.

This is what I'm thinking as well
Subject has 15,100 sf site

 

[glenn walker]

This is fairly common in may area and FHA will encumber both sites as one. In most cases the owner just wanted a larger lot , As far as encroachment it's his own land so he can do anything he wants with it . I would NOT consider this excess or surplus land and would simply appraise it as one parcel. Kind of hard to encroach on your own land : ) LOL

 

[Renee Healion]

When you are assembling pieces and the last one obviously won't fit it is back to the drawing board. He is learning. He knows something is off so he came here. When he has a better handle on how the pieces fit together his logic errors will be apparent to him earlier.

Going down the wrong path is one way to learn. When you are learning you can get quite far down wrong paths before something stops you. His supervisor could have steered him away from wrong turns but has not. Or maybe the supervisor saw it at a glance and never anticipated where the OP would go with it. We don't know.

If this is due on Monday, not just to the supervisor, but to the client, then the supervisor is the one with the trouble.