Intended User

[George Hatch]

The client is the party who engages the appraiser. Intended Users are those who are identified, at the time of the engagement, as also relying on the appraisal. If there is a state law that gives automatically gives standing to a borrower or any other third party to the engagement, regardless of any other written disclosures in a report, that law would serve as designation of the borrower as being another intended user. In lieu of of such a law, the standard limitations should still apply.

Borrowers and property owners have never, to date, been automatically assumed to be intended users, and indeed, there are valid reasons why they can't be in many cases. Basing a purchase decision on an appraisal, after they have already made that decision in making an offer, would seem to be one of those cases.

If I remember correctly, this was the stoopid premise upon which the complaint against Terrel was was based. His appraisal was performed after the close of escrow, and the buyers tried to argue that they were an intended user and had relied on his appraisal for their purchase decision even though it couldn't possibly have happened that way in this universe and space/time continuim. In that case, legal and logical reasoning was both offered by counsel and correctly interpreted by the court and the complaint was thrown out. It may be that the Michigan cases could have turned out the way they did because of a lack of such arguments. Or there may actually be a law on the books that overrides common sense. Either way we should check it out so that we can look for similar problem in other jurisdictions and resolve them before they occur.

Nobody ever suggested that the borrower can never be an intended user, but that relationship would have to be established at the time of the engagement, just like any other intended users. Making assumptions, whether out of habit or out of fear, is a needless and even risky undertaking.

I would be interested in seeing the reasoning and the circumstances in the Michigan cases to which Richard is referring. Since he is using those decisions as the basis for his policies, I am assuming he has them at hand. If those decisions are indeed based on law rather than a judge's whim, it would be interesting to see if other states have laws on the books that could be used in the same way. If so, the issue might be worth following up with The Appraisal Foundation.

One other thing. Just because it happened somewhere else doesn't mean that it is prudent to apply such policies at home. There is such a thing as being too cautious, and applying the Michigan reasoning in other jusridictions could indeed be problematic.

 

[Phil Rice]

It dawned on me that Andrew was refering to the new proposed 1004. I am still thinking/using the "old" form. I took a look, and now I see what he was talking about.

The new form says "Intended User: ....others may receive a copy and/or rely on this appraisal report include the borrower....."

in a generic sort of way says that the borrower may be could be an intended user.

In a generic FHA purchase transaction, the borrower gets a copy of the appraisal before he buys the house, and relys on the appraisal to make a decision to either buy or backout - this all happens before the closing.

No one has stepped up with any kind of reason or logic where it makes sense that FHA is an intended user, but the borrower is not an intended user.

Intended Users are those who are identified

identified by the client. The appraiser is required (by USPAP) to make a reasonable effort to find out the specifics. Intended users also includes anyone that the appraiser finds out about during the course of performing the assignment, it is not limited to what the client said at the start. Per USPAP, if things change, the appraiser must work it out with the client.

I am not saying the borrower is "automatically" an intended user. I am saying that if the purchase contract has an appraisal clause (and most do) that says the borrower will rely on the appraisal, the borrower is an intended user.

If the appraiser reviews the purchase contract, they cannot pretend they didn't know that the borrower intended to use the appraisal. What did the client intend? Does this all come as a surprise to the client?

 

[Ben Vukicevich SRA]

What you have on the new Fannie forms is an indirect warning to the appraiser that lenders must comform to EOCA. The buyer is entitled to a copy of the appraisal report as per EOCA. Now the question is,as George pointed out, when does he obtain the appraisal report to "rely" on it? Some lenders give it when the buyer pays for the report which could be before closing and it could play a part in the transaction closing in an FHA deal or conventional deal if the sale agreement is worded to the effect that the home must appraise for $XX,zzz. Some give it at closing. Some don't supply it until the borrower requests it. The borrower has 90 days after closing to request it..In those instances the buyer wouldn't be relying on it..much.

So when the borrower obtains the report is the question. Maybe we should stop looking at USPAP and dig into EOCA deeper for answers. Or maybe draft a Scope of Work in our reports as to when the borrower obtains the report and becomes an Intended User. In any event, you have been warned by Fannie/EOCA..proceed at your own risk..I think that with EOCA, and Fannie's astute warning, we better assume that the borrower is an intended user in a mortgage transaction but we never will know if they are.

Me, the only thing I see Intended Use protecting us from is report format. Obviously,the value better be credible but the report format may not be acceptable for another use..such as when the borrower gets a copy of a report for lending and runs it down to the tax assessor for a tax appeal or for a divorce..
Likewise, Intended User only protects us from perfroming the appraisal to USPAP and the client's supplement guidelines, whatever they may be. Since the borrower has no guidelines other than USPAP, I see him as having no problems accepting USPAP as his guidelines, since it is the law of the state. In short, depending on when the report was received, we could be screwed big time...

I liked it in the old days when I worked at the S&L. There was no appraisal fee on the mortgage application. The appraisal fee was buried in the application fee. The appraisal was completed to protect the S&L's depositors. Who the hell cared about the borrower? Not us. The appraisal report was the biggest secret in the entire universe. Borrowers NEVER got a copy or a verbal value. Hell, we would have lost deals. Do you think the GLC cared if you overpaid for the house. We had lots of 50% LTVs that came in low on the appraisal. We gave a mortgage committment because we were secure. Our job was to lend or not lend money not worry about the borrower's negotiation skills. Didn't care one bit if the borrower over paid by $50,000. Now, it's all backwards. We seem to care more about the borrower than the guys putting up the money. Why?? Got me. But it is the cause of all this mess we're discussing here.

Ben

 

[David Bodtcher]

Ok, sorry guys, I'm still new to the appraisal business, but I don't understand what's under question here. I don't understand how the in the purchase contract stating that the borrower can back out of the deal if the appraised value doesn't meet the sale price makes the borrower an intended user?

What does that have to do with the appraisal? I would think it can be disclosed in the analysis of current agreement & a comment in the appraisal report stating the appraised value is not based upon or influensed by a predetermined value would cover the appraiser's bum. (don't base it upon the sale price, only solely upon sales analysis. If they match, it doesn't mean you went off the sale price).

Am I way off course on this line of thinking?

 

[Phil Rice]

What does that have to do with the appraisal?

USPAP says the appraisal report must disclose who the intended user(s) are. If you are thinking that the current version of the URAR form takes care of that, you are most likely mistaken, and you are most likely not alone. If you are not making a statement in your report about who is the intended user(s), your report is not in compliance with USPAP - in my opinion. Maybe (likely) the new URAR form will make all this moot, becuase it has an "intended user" section, that will most likely be generally accepted practice in the industry.

Dave, do you do FHA appraisals? If so, who do you disclose in your report as the intended user?

I am wondering if the correct disclosure should be: Intended users are: Lender/client identified on page one of this report, HUD, and the borrower.

As far as I know, nobody says the borrower is an intended user in their report.

Most appraisers (apparently) equate "intended user" with increased risk of getting sued, as in some variation of

we could be screwed big time

I personally think that trying to deny that the borrower is an intended user is counter productive. But I am not seeing anyone agree with that line of thinking.

 

[David Bodtcher]

No, I don't do FHA appraisals. So when you list the intended users, would you not just note the intended user (normally) as the lender/client (and HUD, ect, when applicable)? Including the borrower doesn't appear to be necessary, I would think.

Statement of limiting conditions #10 states the appraiser must provide his or her prior written consent before lender/client can distribute the apprasial (including conclusions, ect) to anyone OTHER than the borrower....

This, to me, would indicate the borrower has access to the appraised value and is entitled to it if lender/client sees fit, so why is it necessary to have the comment in the purchase contract "if appraised value does not meet sale price, borrower may back out without penalty" be ommitted before the appraisal can be completed? This comment should not affect the appraised value or the intended user who may communicate the appraisal to the borrower without the appraiser's consent.

The purpose of the appraisal (usually & most likely in the situation first noted in this post) is for mortgage purposes. This would not justify the borrower being an intended user or client of the appraisal just because he can back out of the contract if the appraised value is less than the sale price.

Am I off in this line of thinking?

 

[Terrel L. Shields]

Now the question is,as George pointed out, when does he obtain the appraisal report to "rely" on it?

In a pleading the plaintiff argued that they relied upon the appraisal because an unidentified employee of the bank told them what it was going to appraise for that amount before the sale even though the report inspection date was 4 days AFTER closing and the appraisal was not submitted until 6 days AFTER closing.

It backfired because once they admitted they "relied" upon the appraisal, tolling commenced and it was in excess of 4 years since between the appraisal and the filing of the suit, thus the statutes of limitations had expired.

Relying upon the report is not always a bad thing...at least in that case. Varner vs Decatur State Bank, Peterson Farms, and Yers truly.

 

[Richard Carlsen]

OK. Not to beat a dead horse but here is one that came over the fax whilst I was in the field yesterday (12.15.04).

A refinance order. House was purchased some time ago under FmHA (RD) program with USDA subsidy which has a recapture clause in the note. The lender (my client) sends over a copy of the letter from the USDA to the HO regarding payoff conditions from the USDA for the current note. These conditions call for, "A copy of residential appraisal report, and/or a copy of the signed contract, if a sale is involved. To determine added value capital improvements, the appraisal should document the portion of any increase in the property's value attributable to specific capital improvements." My client (lender) is assuming that I will do the USDA required calculations within my report as requested by the USDA so the existing loan can be retired.

Here is a clear case where the lender (client) is directing the use of my appraisal to an additional user (USDA) for a different use (calculation of payoff under a subsidy program) other than lending determination. It is clear, by the USDA letter going to the HO, that the USDA is relying on the appraisal provided by the HO to justify the value of the capital improvements. And therefore, within the process, by default this makes the HO not only an additional intended user but also my client.

We will do this for them of course but it will be done not as a sidebar tucked away in an addendum but as an Update (new assignment) clearly showing the HO as my client with the appraisal report being for "Current valuation and determination of contributory value of capital improvements for the purpose of recapture settlement."

Additional charge of course for added work and increased liability.

 

[George Hatch]

Okay, so the lender has actually identifed the other intended users at the outset of the engagement. That's actually a good thing because now you know who it's going to and how it's going to be used, and you can tailor your workproduct accordingly. This is far better that them just shotgunning your mortgage (only) appraisal out there without ever telling you about it. There's no need to assume anything because, for once, they did it the right way in the first place.

 

[Phil Rice]

Richard,

I am not familiar with your appraisal issue(s) there, but when I read your explanation, I think you have a good example. My take - the USDA is an intended user.

by default this makes the HO not only an additional intended user but also my client.

I would not argue with you about intended user. I might argue about the HO being a "client". The client is the one who engages your services. If you got a faxed order from a lender that asked you to do an appraisal, whoever sent that fax is your client.

In the generic FHA appraisal, HUD is an intended user, but they are not a/the client.