FHA Guidlines & the SOW?

[ZZGAMAZZ]

Although I have more research to conduct and additional courses to attend, it's possible that the FHA treatment of building additions of unknown origin--determining market value regardless of permit status--is untenable in my opinion, because of the potential liability in basing an opinion of value upon total area that could be questioned retrospectively in the future if the loan defaults.

Are FHA guidlines considered a client instruction that the appraiser needs to consider when determining whether the Scope of Work required is appropriate to develop a credible product?

Can an appraiser decline a FHA assignment after initiating the assignment if this scenario arises? And if so, could this result in the appraiser being removed from the FHA panel?

 

[Randolph Kinney]

Are FHA guidlines considered a client instruction that the appraiser needs to consider when determining whether the Scope of Work required is appropriate to develop a credible product?

Greg, you already know that answer. FHA has the power to enforce its guidelines.

As I have said before, when you are confronted with a property that has an addition done with out a permit when a permit is required, your first duty is to disclose this fact in your appraisal report. You also should explain the JA policy on additions done with out a permit. Your next problem is whether this addition violates zoning as in you can't ever get a permit to build this type of addition under any circumstance. Next, you look for comparable properties with this type of addition, with and with out permits that have sold and, if no permit was disclosed in the listing.

Now, you as the appraiser have to make some judgments on the workmanship, quality as it relates to the rest of the home, and potential health and safety issues.

You have to put it all together and call it according to the FHA guidelines disclosing all the information above with your judgment on the market acceptance, workmanship, quality, health and safety concerns.

 

[CANative]

Good post Mr. Kinney.

 

[Mike Kennedy]

41502

The guidance provided in Appendix D, Appraisal Protocol, to Handbook 4150.2, applies equally to REO properties, unless otherwise indicated in the guidance presented in this appendix. ​

REO properties are to be appraised "as-is". The Dictionary of Real Estate Appraisal, Fourth Edition, Appraisal Institute defines an "as-is" value as follows: ​

"The value of specific ownership rights to an identified parcel of real estate as of the effective date of the appraisal; ​

relates to what physically exists and is legally permissible and excludes all assumptions concerning hypothetical market conditions or possible rezoning." ​

The "as-is" value is the market value for the property as it exists on the effective date of the appraisal. ​

The appraisal report shall consist of the applicable property specific appraisal reporting form, all required exhibits and a copy of the Property Condition Report (PCR). ​

​

There will be occasions when the appraisal of a REO property may involve extraordinary conditions which dictate additional research, documentation and due diligence on the part of the appraiser.

For example, a single family property that features a second unit which is an illegal use due to non-compliance with the local zoning code/regulations, the appraiser must provide an estimate of the costs necessary to bring the property into compliance.

The appraiser should provide documentation for such conclusions, such as a copy of the pertinent portion of the zoning code and a summary of any discussions with local authorities.

When appraising a REO property that is impacted by complex or extraordinary circumstances, the appraiser must contact the M&M Contractor for guidance and clarification before completing the appraisal.

The M&M Contractor may, in turn and in cases of problematic appraisals, seek additional guidance from the Homeownership Center that has jurisdiction over the locality where the property is located.

Any discrepancies between the information contained in the PCR and what the appraiser observed during the inspection of the property must be noted and highlighted in the appraisal report.

__________________________________________________________________________________________________

* from the FHA Test

If the Use is not legal or legal-nonconforming, the property does not qualify for HUD Insurance.

 

[Brad Pack]

Greg, you already know that answer. FHA has the power to enforce its guidelines.

As I have said before, when you are confronted with a property that has an addition done with out a permit when a permit is required, your first duty is to disclose this fact in your appraisal report. You also should explain the JA policy on additions done with out a permit. Your next problem is whether this addition violates zoning as in you can't ever get a permit to build this type of addition under any circumstance. Next, you look for comparable properties with this type of addition, with and with out permits that have sold and, if no permit was disclosed in the listing.

Now, you as the appraiser have to make some judgments on the workmanship, quality as it relates to the rest of the home, and potential health and safety issues.

You have to put it all together and call it according to the FHA guidelines disclosing all the information above with your judgment on the market acceptance, workmanship, quality, health and safety concerns.

Very good synopsis.

 

[ZZGAMAZZ]

Ralph et al,

The course of action that you recommend reflects the approach that I apply--almost verbatim--for every appraisal regardless of whether it is FHA or conventional, or a non-lending assignment. It goes without saying that the quality of materials and workmanship, and compatability with the original configuration, compatability with the local environs, and the absence of H&S issues, fall within the SOW of every assignment.

However, my question/concern goes to what I understand to be FHA guidelines that require an appraiser to extend carte blance consideration to additions regardless of the permit status. To conduct the appraisal based upon FHA convention, and with a commensurate HC--that the addition is "acceptable" because of FHA guidlines--belies the extent of the typical level of due diligence required, and IMHO, requires the appraiser to adopt a stance that might be contrary to the best interest of the client who is the intended user in addition to HUD/FHA.

It is possible that I am misunderstanding the HUD posture on additions, and I might not fully understand the dual client relationship sceario. What if, for example, the client is a mortgage banker that does not lend on non-permitted additions, but the pending collaterization would be insured by FHA? Is the primary responsibility of the D.E.U. to his or her employer, or to HUD?

Also Ralph, I don't fully understand what you mean when you say that "FHA has the power. . . " but if so why the apparent conondrum would not be covered by the "public policy" aspect of the jurisdictional exception provision of USPAP.

I think that the citation Mr. K provides goes to "use" rather than "permit status" and might not be pertinent to my question--although that raises an issue that's been debated ad nauseum on multiple threads.

Also I would like categorical "yes" or "no" answers to the final 2 questions in the original post.

Thanks all.

 

[MZ818]

It is possible that I am misunderstanding the HUD posture on additions, and I might not fully understand the dual client relationship sceario. What if, for example, the client is a mortgage banker that does not lend on non-permitted additions, but the pending collaterization would be insured by FHA?

ZZ, that's not your problem. Your main objective is to report and disclose everything you find, if it's illegal addition, garage conversion, etc.. If it shows good wormanship and shows market acceptance, then make an adjustment which is based on market reaction. If your research tells you that the illegal add on can never be permitted due to building codes, then disclose that. Let the client decide if they want to lend or not. If they don't want to lend on a home with an illegal add on or conversion, then that's not your problem. You won't be liable if you disclose all the facts and let the client decide!

 

[Randolph Kinney]

Ralph et al,

Also Ralph, I don't fully understand what you mean when you say that "FHA has the power. . . " but if so why the apparent conondrum would not be covered by the "public policy" aspect of the jurisdictional exception provision of USPAP.

Greg,

There is one client and one additional intended user in effect when appraising for an FHA loan; the client who has engaged you to appraise under both guidelines (client and FHA guidelines) and FHA who is an intended user who does not consider the client guidelines to supersede FHA guidelines.

If the client guideline is that any addition with out the proper permits is not acceptable as collateral for securing a mortgage, then your appraisal will never get to FHA for their blessing; it will be rejected automatically as soon as you disclose that fact, no matter how you treated the addition.

OTOH, if the client will accept an addition that is done with out a proper permit, provided it meets all the criteria under its guideline, then it will be reviewed by the DEU for any condition which fails to meet FHA guidelines.

FHA can sanction the appraiser for not following FHA guidelines, even reject the appraisal and hence FHA has the power to enforce its guidelines even if the client accepted the appraisal.

For example, Mr. Kennedy advises for an appraisal with any addition done with out a proper permit be appraised "subject to" obtaining the proper permit or making the structure conform to the local JA. I would opine that no lender would accept such an appraisal, FHA or not. The appraisal will be rejected by the client.

I believe Brad Pack has the ultimate opinion on what is most likely acceptable by FHA and how to accomplish that. I will leave those questions to be answered by Brad.

 

[BUCKET]

The guidance provided in Appendix D, Appraisal Protocol, to Handbook 4150.2, applies equally to REO properties, unless otherwise indicated in the guidance presented in this appendix. ​

REO properties are to be appraised "as-is". The Dictionary of Real Estate Appraisal, Fourth Edition, Appraisal Institute defines an "as-is" value as follows: ​

"The value of specific ownership rights to an identified parcel of real estate as of the effective date of the appraisal; ​

relates to what physically exists and is legally permissible and excludes all assumptions concerning hypothetical market conditions or possible rezoning." ​

The "as-is" value is the market value for the property as it exists on the effective date of the appraisal. ​

The appraisal report shall consist of the applicable property specific appraisal reporting form, all required exhibits and a copy of the Property Condition Report (PCR). ​

​

There will be occasions when the appraisal of a REO property may involve extraordinary conditions which dictate additional research, documentation and due diligence on the part of the appraiser.

For example, a single family property that features a second unit which is an illegal use due to non-compliance with the local zoning code/regulations, the appraiser must provide an estimate of the costs necessary to bring the property into compliance.

The appraiser should provide documentation for such conclusions, such as a copy of the pertinent portion of the zoning code and a summary of any discussions with local authorities.

When appraising a REO property that is impacted by complex or extraordinary circumstances, the appraiser must contact the M&M Contractor for guidance and clarification before completing the appraisal.

The M&M Contractor may, in turn and in cases of problematic appraisals, seek additional guidance from the Homeownership Center that has jurisdiction over the locality where the property is located.

Any discrepancies between the information contained in the PCR and what the appraiser observed during the inspection of the property must be noted and highlighted in the appraisal report.

__________________________________________________________________________________________________

* from the FHA Test

If the Use is not legal or legal-nonconforming, the property does not qualify for HUD Insurance.

i have supplied this story several times i know and see what you mean. but i was sactioned with no disiplinary actionf for reporting a non permitted addition, and not giving value. i told how the additiona appeard to be similar to the otrest of house, market acceptance, etc. they sanctioen me stating just being non peritted is not reason to not give value. if market accepts, etc. then the value would be included.


help!!!

bucket

 

[BUCKET]

Ralph et al,

The course of action that you recommend reflects the approach that I apply--almost verbatim--for every appraisal regardless of whether it is FHA or conventional, or a non-lending assignment. It goes without saying that the quality of materials and workmanship, and compatability with the original configuration, compatability with the local environs, and the absence of H&S issues, fall within the SOW of every assignment.

However, my question/concern goes to what I understand to be FHA guidelines that require an appraiser to extend carte blance consideration to additions regardless of the permit status. To conduct the appraisal based upon FHA convention, and with a commensurate HC--that the addition is "acceptable" because of FHA guidlines--belies the extent of the typical level of due diligence required, and IMHO, requires the appraiser to adopt a stance that might be contrary to the best interest of the client who is the intended user in addition to HUD/FHA.

It is possible that I am misunderstanding the HUD posture on additions, and I might not fully understand the dual client relationship sceario. What if, for example, the client is a mortgage banker that does not lend on non-permitted additions, but the pending collaterization would be insured by FHA? Is the primary responsibility of the D.E.U. to his or her employer, or to HUD?

Also Ralph, I don't fully understand what you mean when you say that "FHA has the power. . . " but if so why the apparent conondrum would not be covered by the "public policy" aspect of the jurisdictional exception provision of USPAP.

I think that the citation Mr. K provides goes to "use" rather than "permit status" and might not be pertinent to my question--although that raises an issue that's been debated ad nauseum on multiple threads.

Also I would like categorical "yes" or "no" answers to the final 2 questions in the original post.

Thanks all.

i already answered, but i got sanctioned for not giving credit for value, square footage of non permitted addition. it passed the tests you provided. but when i do include in value and square footage i get a problem from the lender.

bucket