FHA 'inspection Requirements' Vs State Law

[Restrain]

Some of you may discount what I have posted above. But ask your fellow appraisers who have been sued, been called before a sanctioning board, who have testified in a trial as an expert witness. What I have set forth is mild compared to a deposition, let alone being question in a judicial type setting.

 

[CANative]

If you plan on doing FHA you definitely need to sit down and read the 4000.1 often and somewhat regularly. There's no argument there.

 

[Mike Kennedy]

David pointed out that you could do certain things "withn the scope of your profession". The real estate appraiser is, first, foremost, and ONLY acting as a real estate appraiser. An appraisal is a supportable and defensible estimate of value. Appraisers operate under USPAP, which specifically does not set forth the inspection process, including how to inspect mechanicals, electrical systems, appliances, structural components, or other items FHA is requiring that the appraiser certify operate correctly. For that matter, under USPAP, an inspection is not specifically required.

Further, at no time does the specific training of the appraiser address the specific operations of AC system, electrical systems, etc. Nor does USPAP require the appraiser to train in these areas. Rather, the appraiser is trained in the valuation of property, specifically real estate.

Finally, USPAP requires the appraiser to specifically tell the client if the appraiser does not have the knowledge to complete the assignment and if the knowledge is lacking, how the appraiser solves the issue.

An example of this is the appraisal of a manufacturing facility where the M&E is included. The appraiser would have to disclose if the appraiser lacked the knowledge and experience to do a manufacturing facility and equipment and how the issue is solved (bringing in an experienced appraiser as an associate, bringing in a M&E appraiser).

Under this, I submit that the appraiser, unless having specific backgrounds in AC, electrical, plumbing, or has gone through the training to become a certified inspection, is not qualified to perform anything other than a simple visual inspection of the structural and mechanical elements, i.e. it turns on, has no obvious failure points, etc. As such, if he or she appraiser completes the required certifications stating that the home fully complies with 4001.1, the appraiser is in violation of USPAP. Further the appraiser must notify the client if the appraiser does not have the knowledge to complete the assignment, in this case being the ability to inspect the mechanicals to the extent requested by FHA. Failure to do so constitutes a violation of USPAP.

So if the appraiser lacks the licensing base (inspector) and the appraiser lacks the knowledge base (training in specific inspection techniques and specific tools), the appraiser would have to engage a licensed inspector to complete the inspection process required by FHA, refuse to certify that portion of 4001.1, or decline the assignment.

Lets take an appraisal where the appraiser certifies the HVAC system as performing correctly, borrower moves in, AC is found to not be cooling or hearing properly. Appraiser is hauled before either a court or a licensing board.

Lawyer: Mr Appraiser, is this your signature on the certification stating that you inspected the home and all equipment per HUD 4001.1?

Appraiser: yes it is.

Lawyer: so you certified that the HVAC system was working correctly.

Appraiser: yes, that is what the certification says, but then the certification states that the appraiser is not an inspector

Lawyer: So you are not an inspector and this is not an inspection. Yet you have certified that the HVAC system worked correctly. How did you determine this?

Appraiser: I turned it on and off.

Lawyer: So you did not open the system to examine the heat exchanger, did not open and examine the internal condition of the compressor, did not measure the air flow through the system, did not measure the temperature differentials between the ducts and return to determine the system efficiency?

Appraiser: No sir.

Lawyer: Now, what specific HVAC or inspection training do you have that would certify you to perform such inspections? And are you certified under the laws of your state as a home inspector or a licensed HVAC technician?

Appraiser: I have no specialized training and am not a licensed inspector.

Lawyer: and can you point out in this report where you excepted the mechanical inspection, set forth that you were not qualified to perform these inspection, and where you notified the client that you were not qualified to perform this inspection?

Appraiser: it is not in the report and no communication was sent to the client to that effect. I submit that this is no different inspection than is required under HUD 4150.2.

Lawyer: did you read the HUD 4001.1 and where it states that the appraiser certifies that the equipment, including appliances and mechanicals are working correctly? Mr. Appraiser, we are not discussing what was required under HUD 4150.2 but what you certified to. And you have admitted that you certified that the HVAC was working properly, that you certified to this, and yet you did not do an inspection sufficient to determine whether that the system worked properly, did not fully inspect the equipment, and do not have the licensing and training to make such a certification. In fact, you made a certification to something that you did not know, and have made a fraudulent statement and certification in a federally related transaction. In addition, based on your own testimony, you may have violated state licensing laws both as an appraiser through your certification, and as an inspector, by inspecting structural and mechanical equipment and preparing a report to that effect.

Do you want to be in this position?

Hell No - Excellent Post.

 

[CANative]

Hell No - Excellent Post.

I don't think it was excellent at all unless the purpose is to scare appraisers and almost intentionally not understanding HUD protocol for FHA appraisal assignments.

 

[Restrain]

What I am pointing out is the differences in FHA/HUD protocols and rules vs state law and what an appraiser is trained to do.

The new requirements go beyond a visual inspection (do they turn on) to 'do they work correctly' are there any failure points, etc. as an appraiser, I can say that the AC compressor kicks on, blows cool air. I cannot say it works correctly. I cannot verify the electrical system is without problems as the inspection protocols now require an inspection of the wiring. An appraiser is not a trained electrician and cannot, in the course of a typical inspection, examine the wiring.

And as to the cross examination, as an expert witness, I can assure you that what I set forth was mild compared to some cross-examinations I have gone through.

As to liabilities, I one identified cracks on a corner of a home, one that was built on a fill, and recommended an inspection. The broker involved ultimately was sued over that crack.

In today's litigious society, you can be included in a lawsuit even though you did nothing wrong. What I am pointing out is that the new certification now adds a lot of liability as appraisers are now being asked to do things outside the scope of their training and profession.

 

[CANative]

Read the HUD handbook more carefully.

 

[Peter LeQuire]

Read the HUD handbook more carefully.

C - I understand and appreciate your point of view - really. But, because appraisers are at a disadvantage during the review, administrative complaint, HUD complaint and the litigation process, there is good reasons to exercise an abundance of caution about taking on HUD (or, really, any) appraisal assignments. Maybe it's different on the other side of the Continental Divide, but it seems to me that, between the ambiguities of the enforcement process and the fact that the HUD inspection protocol can be interpreted to mean a standard or standards of competence appraisers aren't trained to have, approaching them with reservations is prudent. Again, it costs little or nothing to complain about an appraisal: responding to such is not cheap for appraisers.

 

[CANative]

C - I understand and appreciate your point of view - really. But, because appraisers are at a disadvantage during the review, administrative complaint, HUD complaint and the litigation process, there is good reasons to exercise an abundance of caution about taking on HUD (or, really, any) appraisal assignments. Maybe it's different on the other side of the Continental Divide, but it seems to me that, between the ambiguities of the enforcement process and the fact that the HUD inspection protocol can be interpreted to mean a standard or standards of competence appraisers aren't trained to have, approaching them with reservations is prudent. Again, it costs little or nothing to complain about an appraisal: responding to such is not cheap for appraisers.

All of that = Read the Handbook more carefully.

Like the jarred spaghetti sauce says: "It's in there!"

 

[Peter LeQuire]

I'll not be hiring you as an advocate if someone ever complains to TREAC about one of my reports. The defense, "I read the manual" isn't going to stand if an appraiser loses the argument about her level of training/expertise to evaluate the adequacy and safety of a house's system, regardless of her compliance with the protocol, so called, outlining what HUD expects of appraisers when they do an FHA appraisal, nor will someone from the HOC appear as a witness in an appraiser's behalf.

And the HUD manual isn't going to provide guidance about responding to a complaint to a state agency.

 

[CANative]

HUD tells you, explicitly, in their Handbook exactly what you need to know and how to apply it. The rest is covered in the Statement of Assumptions and Limiting Conditions.