Pending litigation

[Flygirl 152]

I was taught that whenever I appraise a property in a planned development, that I should call the HOA and verify whether there is any pending litigation. As part of my due diligence, I make that call for every appraisal I am engaged to complete. Last week I inspected a home in a county club. Like I always do, I called to verify litigation, and they responded that there is pending litigation.

The report is not complete, however when asked for a status update, I informed them that the report is late since I am waiting for information from the HOA regarding the pending litigation in the subjects development. The lender responded to me with these questions: On the 1004 appraisal report, the appraisal report does not require the appraiser to fill in if the HOA has a pending litigation or not. On the previous appraisals that we have done for the borrower, the appraiser did not mention or put on the appraisal that there was a pending litigation. This is not required by the appraiser or on the appraisal report. Why does the appraiser need to verify this information with the HOA

I thought I read a Fannie Mae update a few months ago that they now require appraisers to establish whether there is pending litigation for all properties in planned developments whether they are condos, or PUD's. Is that correct? I'm trying to determine how best to respond to their questions.

 

[hastalavista]

This is from Fannie's Selling Guide (2010); it details when a project is ineligible and what the the lender's responsibility is:

Any project for which the homeowners’ association or co-op corporation is named as a party to current litigation or, any project for which the project sponsor or developer is named as a party to current litigation that relates to the project, if the project has not been turned over to the association or corporation.
Note: If the lender is aware of pending litigation, it must contact the applicable Fannie Mae Project Standards team (see E-1-03, List of Contacts (05/27/2010)) to determine whether Fannie Mae will accept delivery of mortgages secured by units in the project.

(B4-2.1-02)

One has to read the excerpt in its context. To me, it says that the project is ineligible if there is a pending lawsuit and the project has not been turned over to the association.
The "NOTE" indicates that if the lender is aware of litigation, then it must contact the cited source to determine if Fannie will accept the loan.
In the first part, the loan is not acceptable, if the project is not controlled by the association... period!
In the second part, the loan may be acceptable, but the lender has to verify acceptability... whether the association is in control or not.

Now, this is from the project-standards section of the Underwriting Section. It is not from the Appraisal Section. I did not find any source that said, "The appraiser must report litigation..."
But there is equally no source that says an appraiser must not.

The bottom line (IMO) is this: Is the information something that the appraiser should consider and, if so, is it noteworthy to the client?

In this case, I'd want to consider the litigation in my analysis. I'd also want to state what the litigation concerns itself with. And, in this case, it is absolutely noteworthy to the client since (as I interpret the Selling Guide), knowing this information requires the lender to take certain steps.

It sounds like a case where the lender doesn't want to have to act on the information you are providing. That's too bad (for them).
Litigation potentially impacts marketability. The appraiser needs to consider this. The lender should consider it. I don't know how they can consider it without the appraiser telling them.
If it isn't a big deal, they'll make the loan.
If it is a big deal, they shouldn't make the loan.

 

[CANative]

While you're at it you should remove the photos of the blue tarp on the roof.

m2:

Freaking loan officers.

 

[Michigan CG]

I was taught that whenever I appraise a property in a planned development, that I should call the HOA and verify whether there is any pending litigation. As part of my due diligence, I make that call for every appraisal I am engaged to complete. Last week I inspected a home in a county club. Like I always do, I called to verify litigation, and they responded that there is pending litigation.

The report is not complete, however when asked for a status update, I informed them that the report is late since I am waiting for information from the HOA regarding the pending litigation in the subjects development. The lender responded to me with these questions: On the 1004 appraisal report, the appraisal report does not require the appraiser to fill in if the HOA has a pending litigation or not. On the previous appraisals that we have done for the borrower, the appraiser did not mention or put on the appraisal that there was a pending litigation. This is not required by the appraiser or on the appraisal report. Why does the appraiser need to verify this information with the HOA

I thought I read a Fannie Mae update a few months ago that they now require appraisers to establish whether there is pending litigation for all properties in planned developments whether they are condos, or PUD's. Is that correct? I'm trying to determine how best to respond to their questions.

I think we need more appraisers like the OP and her mentor. Due diligence is a lost art for many "appraisers".

 

[PropertyEconomics]

I think we need more appraisers like the OP and her mentor. Due diligence is a lost art for many "appraisers".

I second your thoughts!!

 

[Deleted member 77547]

I learned early on to ask the HOA if there is any pending litigation. When I was newly licensed I didn't know enough to ask that question and it later came to light that there was a pending litigation - against the builder who allegedly cut corners on the foundation of a 2 year old 6 story condo. Yikes! Of course, one would have to mention how that would impact marketability.

I only did that once!

 

[Atlanta CG]

Can go many ways. Affects lenders who may refuse to loan in the complex/PUD, may affect FHA/VA loans, create hard feelings with buyers who signed to pay a reasonable monthly/annual HOA fee and it triples because of the litigation. But aside from finding out if litigation is pending we also should discover the basis of it - maybe a landscaper not getting his $1,200 for cutting the lawns over the past few months. This differs from a significant lawsuit involving major structural conditions, for instance. Not that we have to be investigators but it is due dilligence to just ask, when verifying whether there is pending litigation, if it appears serious to judge its merit and effect on the buying public.

 

[Flygirl 152]

I think we need more appraisers like the OP and her mentor. Due diligence is a lost art for many "appraisers".

Awww....shucks....I'm blushing. Thanks for the support.

 

[Flygirl 152]

Can go many ways. Affects lenders who may refuse to loan in the complex/PUD, may affect FHA/VA loans, create hard feelings with buyers who signed to pay a reasonable monthly/annual HOA fee and it triples because of the litigation. But aside from finding out if litigation is pending we also should discover the basis of it - maybe a landscaper not getting his $1,200 for cutting the lawns over the past few months. This differs from a significant lawsuit involving major structural conditions, for instance. Not that we have to be investigators but it is due diligence to just ask, when verifying whether there is pending litigation, if it appears serious to judge its merit and effect on the buying public.

Although it took me a few days, I did find out the reason for the litigation. The only thing the HOA was allowed to tell me was that the litigation was filed against the builder on 06/29/07 for deficiencies with the common areas which do not affect the building components." This could mean any number of common areas in the country club since there is a golf course, multiple pools, tennis courts etc...

A few months ago I ran into this in another complex, but the HOA said they were not allowed to tell me what the litigation was about. Some will tell, and some will not. In the past 4 months, I have appraised in 3 separate developments which have had pending litigation. Of the 3, 2 told me what the litigation was surrounding.

 

[Walter Kirk]

Who is the idiot who sent you that comment? I'll assume that it was a phone monkey at some crappy AMC.