Intended User

[Lee Lansford]

When a contract has a contingency for the appraised value to meet or exceed the contract price does that infer there is a use other than a mortgage lending decision?

Does that mean the Appraiser acknowledges a buyer could use the Appraisal Report creating an additional Intended Use thus an additional Intended User?

I understand this is fairly common in contracts. I am just curious about others thoughts on this.

What others want or hope for does not place an obligation on the appraiser. This is why appraisers need to be quite clear as to Intended Use and Intended User(s). Anyone...anyone can "use" an appraisal report for any reason (e.g., lining the bottom of the bird's cage) that they elect, but, that doesn't mean that "the report" fits their needs or that you have an obligation that they understand your appraisal.

 

[Russ Kitzberger]

What others want or hope for does not place an obligation on the appraiser. This is why appraisers need to be quite clear as to Intended Use and Intended User(s). Anyone...anyone can "use" an appraisal report for any reason (e.g., lining the bottom of the bird's cage) that they elect, but, that doesn't mean that "the report" fits their needs or that you have an obligation that they understand your appraisal.

There are legal cases that indicate otherwise. I would run each scenario by your attorney before adopting that stance on all your project's risk management.

With government-backed residential assignments, you may find that the regs specifically state the borrower MUST receive a copy of the appraisal to consider BEFORE accepting the loan. This is the case for some jurisdictions as well for consumer credit first mortgage transactions and credit laws across all USA areas.

How would you argue that the borrower wasn't supposed to use your appraisal (to decide whether or not to take the loan) if they are to receive a copy and you knew (or should have) known it?

For FHA loans, how would you argue that the owner didn't have a right, and was forced to accept your appraisal when the appraisal encumbers the ability to finance the property through FHA for 6 months?

 

[George Hatch]

The requirements for considering and disclosing intended use/intended use are not intended to impose a prohibition on other uses or users. They exist in order to convey the appraiser's intent - which questions and issues they are attempting to address and what steps they're taking to make their workproduct meaningful to their client and any other of the intended users they are identifying. As opposed to attempting to fit the needs of all users and all uses. Which IRL is impossible.

We're disclosing the expectations we are attempting to meet and acknowledging that we are not attempting to meet everyone else's heretofore uncommunicated expectations. How can we know what an off-label user will consider to be sufficient for their off-label use without engaging with them?

 

[Lee Lansford]

There are legal cases that indicate otherwise. I would run each scenario by your attorney before adopting that stance on all your project's risk management.

With government-backed residential assignments, you may find that the regs specifically state the borrower MUST receive a copy of the appraisal to consider BEFORE accepting the loan. This is the case for some jurisdictions as well for consumer credit first mortgage transactions and credit laws across all USA areas.

How would you argue that the borrower wasn't supposed to use your appraisal (to decide whether or not to take the loan) if they are to receive a copy and you knew (or should have) known it?

For FHA loans, how would you argue that the owner didn't have a right, and was forced to accept your appraisal when the appraisal encumbers the ability to finance the property through FHA for 6 months?

Anyone can sue anyone. That is not news. Intended Use and Intended User both have specific meanings within USPAP. The best that an appraiser can do is to be quite specific as to who (or, 'what') is an Intended User and the specific...specific...Intended Use of the appraisal. Do you recall circa-2004 when the language for the proposed new certifications and limiting conditions in the current Fannie forms were being discussed? I so recall. Early on, Fannie had the borrower (and others) as an Intended User (side-note: which indicated to me that they knew not what they were proposing); that was shot down but did become a part of the "may rely" language of the current Cert #23. The best the appraiser can do is be quite certain, quite clear, quite specific, in alerting (in the report) as to who is the Intended User(s) and what is the Intended Use.

 

[Russ Kitzberger]

Anyone can sue anyone. That is not news. Intended Use and Intended User both have specific meanings within USPAP. The best that an appraiser can do is to be quite specific as to who (or, 'what') is an Intended User and the specific...specific...Intended Use of the appraisal. Do you recall circa-2004 when the language for the proposed new certifications and limiting conditions in the current Fannie forms were being discussed? I so recall. Early on, Fannie had the borrower (and others) was to be an Intended User (side-note: which indicated to me that they knew not what they were proposing); that was shot down but did become a part of the "may rely" language of the current Cert #23. The best the appraiser can do is be quite certain, quite clear, quite specific, in alerting (in the report) as to who is the Intended User(s) and what is the Intended Use.

The requirement that the borrower is provided a copy of the appraisal report was more recent than the FNMA form.

How are FNMA certs above federal law that occurred well after 2004 or anything else that has happened recently?

 

[Terrel L. Shields]

How are FNMA certs above federal law that occurred well after 2004 or anything else that has happened recently?

I am thinking disclosure to the borrower of an appraisal was also in the 1994 IAG and TILA requires same, TILA being updated I don't know exactly when it was a requirement but I was given copies of my appraisals back in the 1990s when I built my house and when I refi'd.

 

[Lee Lansford]

The requirement that the borrower is provided a copy of the appraisal report was more recent than the FNMA form.

How are FNMA certs above federal law that occurred well after 2004 or anything else that has happened recently?

So...the borrower is entitled to a copy of the appraisal report. What's your point?

 

[Russ Kitzberger]

I am thinking disclosure to the borrower of an appraisal was also in the 1994 IAG and TILA requires same, TILA being updated I don't know exactly when it was a requirement but I was given copies of my appraisals back in the 1990s when I built my house and when I refi'd.

So...the borrower is entitled to a copy of the appraisal report. What's your point?

I am sure in some instances it was required before as well. Now it is required in nearly all GSE first loan transactions.

What would the argument be? How do you explain the appraiser did not intend for the borrower would rely on the report?

Go one further, If the contract even states the parties are going to rely on the report, how do you accept the engagement without addressing that?

I tell agents not to rely on the lender's reports, for multiple reasons, but it is still in the contract and appraisers still accept the assignments without addressing the third parties or the lender accepting the loan application knowing the third parties are relying on the lender's appraiser, but engaging the appraiser anyway?

This is really more theoretical because absent any claim for punitive damages from fair housing issues, the mitigated damages from a bad appraisal are usually not substantial enough to litigate over. I have had this as a property owner several times. It is a waste of time to think too hard about a junk appraisal report $300 in the toilet.

 

[George Hatch]

You explain it by saying that merely showing how the lender made their decisions isn't synonymous with providing any services to the borrower. For one thing, borrowers and brokers don't interpret value using the same definition of MV that the lenders use and merely reading a report and its definitions won't change their perspective or make that appraisal meaningful to whatever decisions they're making. For another, within the context of their use of an appraisal report a happy homeowner may not understand or find meaningful some of the assumptions and limitations that we use in the mortgage lending assignments.

To them MV = 1 willing buyer + 1 willing seller. Adding the answer to THAT question in these appraisal reports would dramatically change the SOW. Similarly, the level of inspection and the expectations of accuracy for descriptions and measurements are also different with the lenders than they are to a prospective buyer.

Our requirement is to identify and meet the expectations of these intended users, not to impose any assumptions and expectations on them.

If argued poorly in the courts by people who don't know what they're talking about I can see how some of these legal rulings might result.

If I don't know what your expectations are then how can i meet them?

Fun fact: everyone knew from the outset that the wording in C#23 in the GSE forms was based on some misunderstandings at Fannie about the meaning of intended use and intended user, and the ASB sent them a letter telling them they were in error; and also issued a comment to appraisers to be specific about their disclosures. It was quite the controversy for a couple years.

Anyone who has been relying solely on the boilerplate in the GSE forms regarding the intended use and intended users has been taking a huge and avoidable risk.

I've prevented a couple lawyers from including me and my appraisal in their legal actions against my client by prominently making these distinctions in my reports and explaining them in deposition. They don't even bother taking the issue into the courts.

 

[Russ Kitzberger]

I've prevented a couple lawyers from including me and my appraisal in their legal actions against my client by prominently making these distinctions in my reports and explaining them in deposition.

Great points. Two thumbs up.

This is inline with what the OCAP webinar with Peter, noted above, suggested.