Denis said:
I am of the opinion that the 5 vs. 20 acre value question may be legitimate by a lender
Steven Santora said:
And yet you can't support that opinion by citing any lender who says that. I am not disagreeing with you. It's just that in 20 years, I have only seen lender guidelines that exclude the practice and none that would permit it.
(my bold)
That's true.
I read Greg's situation (not uncommon, and I've had similar assignments); it comes the closest to my "conjuncture", but it is not the same, and is not an example that proves my point. But, what is similar is worth considering (I'll use my own example instead of Greg's):
Large national lender loans on a property; I did the original assignment. Property is acreage (5+/- acres) with improved SFR and the original assignment concluded the value "as is".
My borrower's neighbor is her daughter. The daughter & son-in-law wanted to expand their home; to do so in the configuration they planned, there was not enough set-back distance between where the new addition would be and the neighbor's (my original borrower- the mother) lot line. Mother agrees to give daughter a strip of her lot so daughter's improvement will conform with county setback requirements. Before mother can do so, lender wants to have the property appraised using the HC to determine what the value will be after the reduction
to review what the effect would be on their LTV.
If HC value is sufficient to qualify given their LTV requirements, the transfer can occur; if not, the
borrower would be required to pay down the difference to meet the LTV requirements.
Like I said, the scenario above is not what I had in mind (first posted over a year ago) in that a lender may have a legitimate reason to request the
HC 5-acre value scenario if
only to use in their LTV analysis when considering their lending decision.
However, the more I think about it, the more I am persuaded that while such an analysis is appropriate after the fact (once the loan is made, like the above scenario), in the real world/FRI lending universe for residential properties, it isn't useful or meaningful before the fact (in making the initial lending decision) and for a fact cannot be used as a substitute for the "as is" value.
