Pre-Foreclosure appraisal for reverse mortgage

[Deleted member 142783]

Hello,

This is my first assignment of this type. I have completed countless standard FHA purchase/REFI/Reverse orders, but pre-foreclosure is a first.

I have read the entire engagement letter. Everything seems pretty standard, with exception to "as-is" with a list of estimated cost to complete the repairs. Also, the intended use being "other" PFS.

The list of forms requested are the standard 1004, 1004MC and USPAP compliance addendum.

The engagement letter also references the report must be in compliance with- 24 CFR section 203.370 which appears to be a list of eligibility for a PFS... Is it the appraisers responsibility to determine the property meets these standards? Or is there an additional subsection I am missing with additional details?


I have attempted to use the search function and googled online. If anyone could give me a crash course, that would be great! I called the listing agent who was confused as he does not have an offer yet (Subject was active on the MLS at the time of assignment). Subject is now pending, although I am sure he is going to be confused when I call again and state the appraisal is not for the current buyers loan (or is it going to be used if the buyer is using FHA financing).


Thanks for all your help!

 

[Lindseyw]

Sounds like a short sale. Pre foreclosure would still be determining the value before final foreclosure proceedings. I wouldn’t think the mortgage type matters. I would appraise at current market value in ‘As Is’ like any other appraisal.

I did a similar one last year where the guy was about to lose his house…he only owed $20k on it and he inherited the estate from a deceased parent. I had to give two different values, explain REO trends, add supplemental distressed comparables, spreadsheet of repairs needed with estimated costs for item, etc. It took a while. I can look up my report if you still have questions.

The lender may want to dump the property quickly so potential liquidation value before foreclosure.

I would ask the listing agent if the home owner is aware of any appraisal being ordered if there’s no sales contract.

I had a fraud case last year and I ended up giving the homeowner all the order information that I received so she could investigate.

 

[Mike Ault]

Hello,

This is my first assignment of this type. I have completed countless standard FHA purchase/REFI/Reverse orders, but pre-foreclosure is a first.

I have read the entire engagement letter. Everything seems pretty standard, with exception to "as-is" with a list of estimated cost to complete the repairs. Also, the intended use being "other" PFS.

The list of forms requested are the standard 1004, 1004MC and USPAP compliance addendum.

The engagement letter also references the report must be in compliance with- 24 CFR section 203.370 which appears to be a list of eligibility for a PFS... Is it the appraisers responsibility to determine the property meets these standards? Or is there an additional subsection I am missing with additional details?


I have attempted to use the search function and googled online. If anyone could give me a crash course, that would be great! I called the listing agent who was confused as he does not have an offer yet (Subject was active on the MLS at the time of assignment). Subject is now pending, although I am sure he is going to be confused when I call again and state the appraisal is not for the current buyers loan (or is it going to be used if the buyer is using FHA financing).


Thanks for all your help!

It is not your responsibility to determine property eligibility, that's up to the loan servicer. As LindseyW indicated, they're looking for a "market value opinion" from your appraisal and they're going to compare that with the "disposition value that they received" from the "distressed sale" (which is apparently now pending) to determine the actual "loss" they sustained. Sometimes they report the difference to the IRS and make the borrower they foreclosed upon responsible for the taxes on the difference (which they cynically describe as "income" to the borrower). Just provide them a good, solid "market value opinion" as they ordered and don't worry about the rest. If it is a CWCOT order (verify with client) the following verbiage might be required.

"The purpose of this appraisal is to develop the as-is Market Value, which is a Mortgagees tool for calculating the Commissioners Adjusted Fair Market Value, estimating the market value of the property described in this appraisal report, as improved, in unencumbered fee simple title of ownership."

I'm sure we will all be seeing considerably more of those type of assignments soon.

 

[Sandra Koutsopoulos]

re: these pre-foreclosure Reverse Mortgage loans. Roughly, the loan can be called due under a couple of circumstances: 1) Borrower is deemed to have permanently left the home (dead or nursing home are examples), but sometimes Borrower has extended hospital stay and anticipates returning home, so they need to get busy and have an advocate clarify with lender that they have not abandoned nor permanently left the home. or 2) Borrower has defaulted in some way, such as not keeping insurance on the property, or not being current with property tax. Those are the 2 top F/C reasons I have run into.

Subsequently, the property is typically offered to the heir with a 10% discount below current Market Value in the event it is upside-down, and the heir has a limited time to pay off the reverse mortgage by refinancing or selling the property; unless they are seniors and quality on their own for a new reverse mortgage, they must get that reverse mortgage lien off. There are time limits on all these steps which might be worth Googling. So many days away from the property becoming non-borrower occupied, then once lender obtains foreclosure rights, so and so many days to pay that loan off by any means possible. There are possibilities to appeal those time limits, but not for long. Many times the heirs find to their chagrin that Borrower has taken more equity out than heir even imagined, plus the loan costs and fees in this type of loan also eat up equity. Many heirs are unprepared to take on mortgage debt on the property, but still unwilling to let 'the family home' go to the lender, but those are typically the choices.

 

[Sandra Koutsopoulos]

Re: appraisal for reverse mortgage lender and another appraisal for purchaser's lender. Happens at same time often, so that F/C lender can evaluate what they will 'profit' or 'lose' with the offer on the table, and see whether there's deferred maintenance, market slow-down, or some other factor that may urge them to press forward NOW rather than waiting for a subsequent offer.

 

[Mike Ault]

Here is a good reference for HUD's CWCOT program in case that's what the OP is dealing with…

Residential Appraisal for HUD’s CWCOT Program – Dart Appraisal

Valuation Management Group recently became aware of a HUD program called Claim Without Conveyance of Title (CWCOT), and we wanted to inform our readers. The CWCOT program encourages 3rd parties to purchase homes at foreclosure sales by allowing bids less than the total debt owed on a property...

valuationmanagementgroup.com

 

[Deleted member 142783]

Sounds like a short sale. Pre foreclosure would still be determining the value before final foreclosure proceedings. I wouldn’t think the mortgage type matters. I would appraise at current market value in ‘As Is’ like any other appraisal.

I did a similar one last year where the guy was about to lose his house…he only owed $20k on it and he inherited the estate from a deceased parent. I had to give two different values, explain REO trends, add supplemental distressed comparables, spreadsheet of repairs needed with estimated costs for item, etc. It took a while. I can look up my report if you still have questions.

The lender may want to dump the property quickly so potential liquidation value before foreclosure.

I would ask the listing agent if the home owner is aware of any appraisal being ordered if there’s no sales contract.

I had a fraud case last year and I ended up giving the homeowner all the order information that I received so she could investigate.

The appraisal was ordered while on the market but before an offer was received. There is now an offer from a buyer in place

 

[Lindseyw]

The appraisal was ordered while on the market but before an offer was received. There is now an offer from a buyer in place

That’s interesting, that would confuse me if I received an order like that

 

[Terrel L. Shields]

9 of 10 of these I see is someone did the reverse mortgage, put zero into the property thereafter, and after dying, the heirs realize the property isn't worth the amount of money owed so they let it go into default. I had a friend that simply quit claimed her mothers house because her dad had sucked all the equity out of it to spend on toys, for lack of a better description, after he ran thru his wife's retirement from Walmart - which was substantial. She outlived the old goat but by the time she died, the house was in poor condition and not worth half the amount that was loaned.

 

[Bobby Bucks]

There is an element to reverse mortgage closeouts that is becoming much more common, it is squatters of extended family after the death of the borrower. I've got one I've performed four 2055s on for the past 4 years because I cannot get legal interior access. The nephew I've talked to is polite as hell and also clever as hell. He's living rent free and the lender is hesitant to force the issue. It would make a great TV commercial, instead of washed up actors touting the benefits of a reverse mortgage they could hire some purple haired progressive with a nose ring to urge his relatives to choose the reverse mortgage option so parasites like him can live free for decades,