Life estate VS fee simple

[Fred]

As for whether the Fee Simple interest exists or not, I'll leave that battle to Plato and Aristotle.

If you check "fee simple" and "as is" then you take it out of their hands, Oedipus.

 

[Darrel Clark]

I sort of feel that I am butting into an ongoing conversation. But I would like to add a comment or two.

If the lender instructs you to appraise a fee simple interest and you do that, but disclose that the existing interest is a life estate – that works. But, if this is for a bank – which is regulated by the FDIC -- aren’t you also required to give an “as-is” value per FDIC regulations? Is this (giving an as-is value) not then a supplemental standard even though USPAP statement 10 has been retired? So, would you end up giving a fee simple value as well as a life estate value?

 

[Fred]

The property is the collateral. They're not loaning money on anyone's interest in the property.

I think the problem with that is the "interest" is the "the property." What you are calling "the property" is more like what some call "the real estate."

From our friends at the ASB on the subject of "real property" appraising:
REAL PROPERTY: the interests, benefits, and rights inherent in the ownership of real estate.
REAL ESTATE:an identified parcel or tract of land, including improvements, if any.

If you don't recognize that the subject is supposed to be someone's interest, someone could construe your appraisal as causing the lender to make a loan against collateral the borrower doesn't own (like the undivided fee simple).

 

[Darrel Clark]

Steven is correct, according to the ASB we do Real Property appraisals not Real Estate appraisals. Real property is the bundle of rights.

 

[Fred]

Real property is the bundle of rights.

or one right or part of a right or part of all the rights.

 

[Mztk1]

With the life estate you have three values that can be determined:

1. The value of the Life Estate
2. The value of the Remainder interest
3. The value of both of these held jointly, which is the Fee Simple interest.

The fee simple interest does apply. The two can get together and sell the house in fee simple title if they both agree to sell their interest together. When doing an appraisal for such a sale, the fee simple interests are not hypothetical. The two can also come together and take out a mortgage jointly on the fee simple interest of the property. The fee simple interest, when they do come together, applies. In such a case, if the house is foreclosed on, both parties are responsible for the mortgage and both interests are foreclosed on with the lien holder taking fee simple title.

If your assignment is to appraise the fee simple interest in a house that is held in a life estate and remainder interests, as long as you disclose it in the report, I see no issues as both (or all) parties, not individually but when they come together, do have the right to sell and finance the fee simple interest in the house and the fee simple interest, when they do come together for such a purpose, is applicable "as is".

 

[Mztk1]

If you check "fee simple" and "as is" then you take it out of their hands, Oedipus.

So now I am an MFer, hmmmm.

Whether or not rights exist is a philosophical question. Plato, believing in the Forms, believes in the actual existence of rights; Aristotle, being the materialist of the two, would view rights as fictional constructs, i.e., non-existent and always hypothetical. English common law, which our laws are based on, generally follows Aristotle. But that is not to say that there aren't some judges who believe "rights" are out there to be discovered, which would be a Platonic position. We see this with the Bill of Rights. Some say those rights it gives us are real and univerisal, others - including the US courts - say they only apply to US Citizens, that is, they are not really basic human rights but are constructs, or social agreements...or in the words of Rousseau, they are part of the social contract.

Whether rights actually exist or not doesn't concern me. We can right tomes on the subject and not come to a satisfactory answer. I am concerned with whether the fee simple rights apply to the subject. When appraising a house where there is a life estate interest and a remainder interest, can there be a situation where the fee simple rights are applicable? The answer is yes. When the two parties come together to sell or finance jointly, where both are bound to the agreement, the fee simple interest IS applicable. That the fee simple interest is applicable to an assignment when the two come together to sell is NOT a hypothetical and it is appraised "as is" without contradiction.

 

[Webbed Feet]

I sort of feel that I am butting into an ongoing conversation. But I would like to add a comment or two.

If the lender instructs you to appraise a fee simple interest and you do that, but disclose that the existing interest is a life estate – that works. But, if this is for a bank – which is regulated by the FDIC -- aren’t you also required to give an “as-is” value per FDIC regulations? Is this (giving an as-is value) not then a supplemental standard even though USPAP statement 10 has been retired? So, would you end up giving a fee simple value as well as a life estate value?

Mr. Clark,

Don't leave out the reversion or the remainder estates while you are at it.

Webbed.

 

[Webbed Feet]

To All,

Very interesting. ... So at the moment in time of your effective date, when an person(s) owns a life estate, and some other party(ies) owns either an estate in reversion or an estate in remainder, who owns the fee simple estate on that date?

There is no fee simple estate holder on that date. The reason is there is no fee simple estate in existance on that date. It went "poof" the day the life estate was granted. An appraisal of a fee simple estate on that same effective date would require the use of a HC under USPAP.

Going back to the O.P.s posts. He never stated if his assignment SOW was to address a Life Estate, a Fee Simple Estate, an Estate in Reversion, an Estate in Remainder, or several of these individually in the same report. However, if either Life Estate or the Reversion / Remainder where involved, just checking the "Fee Simple" box could not possibly fix up a report with a misidentified SOW in that case. So my strong guess is he appraised the Fee Simple as the others would be complex assignmnents hardly any entity will lend on. Given my strong SWAG on this, and that stip, I suspect the O.P. failed to properly identify the SOW and most likely delivered several USPAP violations to the client in the process.

Webbed.

 

[Fred]

Whether rights actually exist or not doesn't concern me.

Well, it should. It's a keystone in the credibility of the results. Because if you appraise the wrong "property," you cannot possibly have credible results.

That the fee simple interest is applicable to an assignment when the two come together to sell is NOT a hypothetical and it is appraised "as is" without contradiction.

So, when did the OP say there was documentation to show the two had already come together and rejoined he divided inteest, as of the time of the appraisal.