Gap in Chain of Title and Land Flips

[George Johnston]

I'm currently looking at an appraisal for possible referral to the state board and would like to get some opinions on whether an appraiser has a responsibillity per USPAP to account for gaps in the chain of title. In this case, that gap appears to have concealed a land flip. The appraisal was done on FNMA Form 1005 (March 2005) in which the appraiser discloses that the subject is under contract for sale and that the seller is not the owner of public record. Nothing is said about how the seller is going to acquire the property to subsequently sell. As it happened, the seller acquired the property for $90,000 and sold it the same day for $150,000 to the borrower named in the appraisal.

Is it incumbent upon the appraiser (per USPAP 1-5) to at least inquire as to how the seller intends to acquire the property? If so, what does the appraiser do if no one is willing to disclose that information?

 

[doreencampbell]

I'd think he has to ask about it, as you said. And to make sure it is very clear that the owner of record is NOT the borrower, NOR the seller if there is a contract - Always with new forms, there is a section to provide contract analysis -
Although I've searched far & wide, I can't determine that there has Ever been a class to teach us how to do that analysis and it was NOT in any general appraisal classes either.....

 

[Workbox]

My question would be, what is it "REALLY" worth right now? is this some kind of new construction? From developer to retail customer? I have seen where the builder want to get some money out indicating that the land is worth this much, but when I do a sold search for land, and the land next door sold for less in an open market. I use that as market price in the cost approach. Yeah, hell may brakes loose, but the facts are the facts.

I got burned real bad, by what the builder/developer gave me as land comps. This was early on in my solo career, learn from the wise. Question everything.

 

[Couch Potato]

The appraiser would have an obligation to state that the seller in the contract was not the owner of record; as a part of the analysis of the contract. Beyond that, only information of which the appraiser discovered in the course of normal research would need to be disclosed. Appraisers are not experts on titles and should leave the needed research to the experts in that field.

When one uses a FNMA form, clear title is an assumption of the appraisal. The steps needed to make the title clear are not the concern of an appraiser.

 

[hastalavista]

The appraiser would have an obligation to state that the seller in the contract was not the owner of record; as a part of the analysis of the contract. Beyond that, only information of which the appraiser discovered in the course of normal research would need to be disclosed. Appraisers are not experts on titles and should leave the needed research to the experts in that field.

When one uses a FNMA form, clear title is an assumption of the appraisal. The steps needed to make the title clear are not the concern of an appraiser.

I would agree with Greg.
SOW drives the process, and "normal course of business" (See AO-24) is the standard of the level of information/data research appropriate. So, the level of research/data verification must be judged in that context; sounds like the report completed the minimum, which is the requirement. Unless something different was disclosed or discovered during the research process, the report sounds compliant to me (based on this limited information).


What is a FNMA 1005 form? When I search for that I get "Verification of Employment"?

 

[Brad Ellis]

Denis,

I'll bet that is just a typo.

And I concur that the appraiser has met his minimum scope by disclosing that the seller is not on title. Frankly, I am not sure he really could have gone much further except perhaps to point out in bold type this fact again and recommend a title check.

These double escrows are hard to find out abut before they happen. There could also be legitimate reasons such as unrecorded deeds (see that all the time in divorce stuff where the recipient's lawyer forgot to have the deed recorded).

But, on the whole this one looks like a flip. Just not sure if the poster's charges in terms of time are reasonable.

Brad

 

[George Johnston]

Thanks for the replies and for reviving this thread. If I am holding the appraiser to too high of a standard I need some more convincing. I'm a bank regulator, not an appraiser. I hope that doesn't put anybody off since I'm trying to get a better perspective on your line of work. It's too easy to blame the appraiser when a question comes up and the appraiser isn't there to defend his or her work.

For the situation I described, I'm having trouble seeing how the appraiser is not obligated to shed more light on the pending transactions, particularly in light of USPAP 1-5, 2-2(b)(ix), and AO-24. Lets forget about the possible land flip for the moment. If the appraiser knows that "X" owns subject and that "Y" has contracted to sell subject to "Z", the appraiser knows there are at least 2 pending transfers of the subject. If USPAP 1-5 requires the "Y" to "Z" transaction to be analyzed, why not the "X" to "Y" transaction? Granted, X,Y, and Z may be unwilling to discuss the transaction, but shouldn't the appraiser note that there is this gap between X and Y and that he/she has inquired and come up empty? Note that the client (lender) only knows about the Y to Z transaction (yes, the lender should be more aware of what's going on, but that's a different subject.)

Sorry about the confusion on the FNMA form. I should have typed FNMA 1004, which is the Uniform Residential Appraisal Report.

 

[Couch Potato]

No, the gap between X and Y does not warrant analysis beyond stating clearly that the seller is not the current owner. It is simply outside the scope of the appraisal assignment. That is my initial response.

The names being different could have multiple causes. It is quite common for public records to not accurately reflect a recent transfer that was completed, that is why we indicate a date for the transfer information. The appraiser knows the names are different, but that does not automatically equate to a pending transfer. The seller could just be trying to fraudulently sell property they do not own, recently a common fraud committed against out of state landlords. If the appraiser does indeed know that another contract exists for the property, then yes they need to analyze it as a current agreement of sale.

 

[Evincere]

The appraisal was done on FNMA Form 1005 (March 2005) in which the appraiser discloses that the subject is under contract for sale and that the seller is not the owner of public record. Nothing is said about how the seller is going to acquire the property to subsequently sell. As it happened, the seller acquired the property for $90,000 and sold it the same day for $150,000 to the borrower named in the appraisal.

Is it incumbent upon the appraiser (per USPAP 1-5) to at least inquire as to how the seller intends to acquire the property? If so, what does the appraiser do if no one is willing to disclose that information?

As the reviewer, given the circumstances, I would ask whether you requested or were given a copy of the contract to review with the file.

Based upon what you have disclosed it sounds as if the contract may have been "assignable" and the appraiser may have omitted this fact in the report. If it was an assignable contract recordings will not show the designated "seller" per the contract because he never had title to the property. AKA flip.

 

[Otis Key]

<snip>
For the situation I described, I'm having trouble seeing how the appraiser is not obligated to shed more light on the pending transactions, particularly in light of USPAP 1-5, 2-2(b)(ix), and AO-24. Lets forget about the possible land flip for the moment. If the appraiser knows that "X" owns subject and that "Y" has contracted to sell subject to "Z", the appraiser knows there are at least 2 pending transfers of the subject. If USPAP 1-5 requires the "Y" to "Z" transaction to be analyzed, why not the "X" to "Y" transaction? Granted, X,Y, and Z may be unwilling to discuss the transaction, but shouldn't the appraiser note that there is this gap between X and Y and that he/she has inquired and come up empty? Note that the client (lender) only knows about the Y to Z transaction (yes, the lender should be more aware of what's going on, but that's a different subject.)<snip>

My BOLD

Mr Johnston - I can see how you might interpret that, but I have to agree with the others that it would typically be classified as outside the Scope of Work for an appraiser and/or appraisal. A lapse in title would typically be considered as a title company problem/concern. Appraisers base the analysis upon the concept and idea that the title is free and marketable. If the appraiser mentioned that the owner of record was not the seller, then it should be, IMHO, adequate for the "requirements" of the form as generated by Fannie Mae. We (appraisers) are not title experts. Nor can we be expected to become the FBI (not intended as an attack or arguementative).

When I perform an appraisal, or review for that matter, I research what is available to me, in the normal course of business (NCB), and report it. I can't honestly be expected to do much more. It's beyond my resources (NCB) and beyond what I'm qualified for or was requested to do, which was to provide an opinion of market value or analysis of the appraisal that I'm reviewing.

I/We make no assumptions, as required by the use of that form, upon anything other than what is pre-printed in the Certification & Limiting Conditions. Any additional comments other than what Denis or Greg said would be speculation, or assumption.

If the appraiser did something other than this wrong, then I, for one, wouldn't hesitate to forward it to the state. But I don't think there is justifiable grounds for a complaint to the state based upon only that factor.

Now, back to that one I now have to reconsider if I'm going to forward to the state.........hmmmmmmm