Intended User

[Richard Carlsen]

Richard, its called an "FHA Amendatory Clause" - written on a separate sheet of paper, signed by the borrower and seller, and it is (more or less) standard procedure on every FHA contract I see. It clearly indicates that the buyer is going to get a copy of the appraisal before the closing, and may use the appraisal to make a decision about buying the house (or not).

I've never seen one of these nor had one provided to me in any FHA deal.

I think the FHA intends for the buyer to use the results of the FHA appraiser "inspection" of the physical condition of the property to make a decision as to going through with the deal. The condition clause referred to here is a value condition. Most of the time I have seen these, FHA is not involved in the lending. Last one we had, the buyer was putting over 30% down but with this clause in the contract, he wanted an out if the appraisal for lending consideration did not equal or exceed the sales price. In short, he wanted to make dual usage of my opinion of value contained in my report. Totally different thing than with the FHA. In short, the buyer and the seller, by agreeing to this clause, have agreed to engage me, the appraiser to appraise the property for the purposes of making a buying decision. If I do nothing, my continuation of the assignment is tantamount to acceptance that a client relationship with the buyer and seller exists.

My contention is that if in Michigan the buyer has legal standing as an additional intended user (law trumps regulation and USPAP) then anything that I acquiesce contained in the purchase agreement only adds additional uncompensated liability on me when I do the report.

The bottom line is that I do not like uncompensated liability.

 

[Ben Vukicevich SRA]

Phil,

Here is some more info for you.

B. CONTRACTUAL RESPONSIBILITY OF APPRAISERS
The appraiser is hired by the lender, and therefore has a contractual responsibility to the
lender. However, the appraiser provides services for HUD programs, and therefore, has
an obligation to perform these services commensurate with the standards and
requirements of HUD. This dual responsibility of the appraiser is recognized in the
review and reporting requirements of HUD. The lender and the appraiser must meet
their respective obligations as prescribed by HUD/FHA. Therefore, the intended user of
the appraisal report is also HUD. These contractual obligations to the lender and
HUD/FHA are in addition to the appraiser's legal obligations to his or her credentialing
state.

Also

C. PURPOSE
The purpose of an appraisal is the stated reason for performing an appraisal assignment. The
purpose is typically stated as the basis for an underwriting decision. For HUD, the purpose is to
determine market value for mortgage insurance purposes.
4-2
4150.2
D. INTENDED USE OF APPRAISAL/FUNCTION
(4-1) The intended use or function for all appraisals prepared for FHA is to support the underwriting
requirements for an FHA-insured mortgage.
E. USE OF THE APPRAISAL
The use of the appraisal is to support FHA's decision to provide mortgage insurance on the real
property that is the subject of the appraisal. Therefore, intended users include the lender and
HUD.

So you have two intended users-the client and HUD but only one Client.

Ben

 

[Ben Vukicevich SRA]

Richard,

That FHA value statement has been around since I started with FHA in the 1980's. The commissioner always provides the value of the subject to the buyer in all FHA deals....And since most FHA deals are so tight on the LTV ratio, if the value doesn't come in as stated, the deal is dead anyway. The clause really doesn't matter.

Ben

 

[Mike Garrett RAA]

The borrower is not "a/the" client. Further, the borrower is not an intended user of the appraisal.

My USPAP Addendum ....Appraisal and Report Identification (ID2) states.....

"In addition to Standard Rules, this appraisal is prepared under the supplemental guidelines of (The Department of Veterans Affairs or Department of Housing and Urban Development) which is also considered the named client herein."

In this way I have identified the intended users of the appraisal and appraisal report. Recently VA instructed all VA appraisers to name the client as The Department of Veterans Affairs and on the address line to add... Any VA Approved Lender.

A real estate sales contract usually has an "escape clause" in the event the property appraises below the contract amount. This, in it's self, does not entitle the borrower to claim "intended use". Does your scope of work also state the purpose of the appraisal is for mortgage lending purposes? Mine says..."cannot be used for any other purposes without the express written consent of the appraiser".

 

[Terrel L. Shields]

I perused this very quickly, but the short answer is that the CLIENT must IDENTIFY all INTENDED USERS as such in the initial engagement.

IF you have been asked to appraise to VA or FHA standards, then the client let you know. If the client asks you to appraise to an "in-house" standard and then submits that report to FHA, VA, or fannie mae, then it should be rejected BUT you have no liability to any of them...the client calls the shots but he has to call those shots BEFORE not after you have done the report. And at no time should the borrower be an intended user for a secondary market or FRT use......conflict of interest. You are hired by the BANK not the BORROWER but by making a borrower an INTENDED USER you are tying yourself to the borrower and any use that they might wish to put it to.

 

[Richard Carlsen]

Mike posted

The borrower is not "a/the" client. Further, the borrower is not an intended user of the appraisal.

My USPAP Addendum ....Appraisal and Report Identification (ID2) states.....

Sorry Mike but I think you are wrong in this blanket statement so I'll stop you right there.

In Michigan, the courts have given standing under law to the borrower as an additional intended user of an appraisal performed for lending consideration. As I stated in an earlier post, law trumps regulations and USPAP every time so no matter if you don't want the borrower as a intended user, you have him by law.

Therefore, if the borrower has agreed to something in the purchase agreement (of which you have a copy) that is based on your opinion of value contained in the report for lending consideration, your opinion of value can and will be used by the borrower for buying determination while you incur full liability for the report with the borrower, just as though he were your client. There is nothing you can do about it except get the buyer and seller to change the agreement or get paid for your additional liability to the additional intended user. Or you can just do the report for the normal fee and hope for the best.

As I said, I do not like uncompensated liability.

 

[Carnivore]

Richard,

This really is a huge issue. The Supplemental standards rule clearly states:

USPAP 2004 Supplemental Standard link

"Supplemental standards cannot diminish the purpose, intent, or content of the requirements of USPAP."

The Fannie Mae test statement of limitations and certifications clearly states that changeing of this document is NOT ALLOWED(supplemental statements are OK).

This appraisal report is subject to the following definitions, statement of assumptions and limiting conditions, and appraiser’s certification. Modifying, adding or deleting the definitions or assumptions and limiting conditions is not permitted. Modifications or deletions to the appraiser's certifications are also not permitted. However, additional certifications that do not conflict with this report form may be included on a separate page or form. Acceptable additional certifications might include those required by law or those related to the appraiser’s continuing education or membership in an appraisal organization.

I have heard from a source(reliability unknown) that some ASB members dont like the word smithing but interpret the Intended User statement as only naming the entity indentified in the client/lender line as the ONLY INTENDED USER. In other words they find it acceptable, although marginally so.

FHA clearly states a different take on this, yet the FHA does not provide a stock canned Statement of limitations and certifications page. I suppose it would be acceptable to use the old fannie statement/cert page.

We clearly have a problem. What bothers me is that Skippy will just not worry about it and just play along. Leaving you, me and a crowd of forum members out in the cold, once again.

 

[Richard Carlsen]

You are right Andrew.

This has the potential to be a major problem of which a lot of appraisers are not aware. Most appraisers will incorrectly think that just because they cite USPAP for client and intended users, they are in the clear.

In Michigan, because of the courts rulings, a true Jurisdictional Exception is invoked nullifying whatever USPAP has to say about client and intended user. That is why I have taken a fairly hard stand of such clauses in the Purchase Agreement.

One of the interesting side lights of this was that I learned about it in one of my real estate continuing education classes.

 

[Terrel L. Shields]

In Michigan, the courts have given standing under law to the borrower as an additional intended user of an appraisal performed for lending consideration. As I stated in an earlier post, law trumps regulations and USPAP every time so no matter if you don't want the borrower as a intended user, you have him by law.

That applies to Michigan only. It is a state by state issue, and it is not case law unless the ruling was appealed. i.e.- a judge's ruling can be overturned...an appeal's court ruling stands as precedent for the courts.

You are accepting an untold amount of liability by naming a borrower as an intended user. That is the job of the client to name ALL intended users. If it is clear that there are other intended users, punt and put the ball back in the lenders court.

I had a lawyer call me about an inhouse lender's appraisal. Turns out the lender has sent me to appraise his sister's house. She was going thru a divorce. He gave her a copy of the report to take to court. The lawyer wanted me to appear and threatened to subpoena me. I told him catch me if you can because I would try to squash his subpoena even if he did get caught. They finally got the message.

 

[George Hatch]

I think the cases in Michigan were probably poorly argued. Until those cases are ratified at the federal level, Michigan's case law is only applicable in Michigan. A jurisdictional exception only only applies when you're in that jurisdiction. Until then and unless otherwise notified, USPAP would otherwise stand in its entirety.