Question from a reporter: Do appraisers evaluate title?

[csullivan]

Hello --- My name is Colleen Sullivan; I'm a real estate reporter for a newspaper in Massachusetts, Banker & Tradesman, that covers real estate, banking and insurance.

I'm posting in here because I was wondering about something and I think the only way to really find out what's what would be to talk to a whole bunch of appraisers at once. I've been reading up on the stuff that's going on with the banks and the foreclosures moritoriums (lately people have been raising questions about the RMBSs, as well) and came across a comment on Yves Smith's blog, Naked Capitalism, that made me prick up my ears (*mod cut the quote, so here's a paraphrase instead):

The commentator alleged that appraisers are supposed to take a look at the title of a property, and that since all owners and encumbrances are suppossed to be on record at the local registry of deeds, appraisers should through the course of their work have become aware of irregulaties with the title and been obliged to inform their clients. The commentator then further suggested that most appraisers don’t do this, partly because they may have been instructed by their client, the lender, to make the assumption that the title is good and marketable.

My question to y'all is, is that right? When you go back and examine the Registrar to evaluate a property, is is clear to you whether the assigments have been made properly? I mean, there's plently of reasons why you are called appraisers and not title insueres, and I would have thought that one of them was that you don't do title searches. So is this commentator off his nut? Or have you run into situations in your work where you were evaluating a property and saw that the bank that suppossedly owned the note wasn't anywhere on the title? Is that common? Rare? Not your concern?

Just to make it clear, I'm not at all sure there's anything to write about here, and I'm not planning on quoting anything you say here in the forum for publication. I'm just trying to find out if there's a story in this, or just another annonymous internet know-it-all blowing hot air. But I would very much appraciate any pointers or info you could give me on whether this is possibly an issue or not. If it is than I can start calling up all the Massachusetts appraisers I know in real life and pestring them about it.

Cheers,
Colleen Sullivan

*I guess I didn't realize you were so draconian; I considered a single internet comment on a post to fall well under the realm of fair use, and that's been the standard for any publication I've worked for. My apologies.

 

[Pittsburgh Pete]

We do assume that title is clear and marketable--our job is to appraise. It is the work of others to deal with title issues.

Non-issue. Internet sound and fury signifying nothing!!

 

[Kevin Mc]

I mean, there's plently of reasons why you are called appraisers and not title insueres, and I would have thought that one of them was that you don't do title searches.

Correct. There are times when I will not proceed with an assignment because of what I interpret as potential title problems and will wait until I get a clear directive from the client, but we (for the most part) do not do title search. Of course this may vary from state to state, municipality to municipality.

 

[RSW]

USPAP only requires the appraiser report any transfer of the subject property within the last 36 months as of the effective date of the appraisal report. It is not part of the typical scope of work for appraiser to conduct a title search of a property. That is outside of the scope of work for a typical residential appraisal assignment. I believe that who ever said that it is way off base.

 

[Randolph Kinney]

So is this commentator off his nut?

Yes, the obligations for the appraisal is to verify the owner of public record. Appraisers give that information and the source of that information.

If there is a breach in the chain of title or fraudulent transfer, that is a legal matter and beyond the scope of work. That is why it is stated in the limiting conditions and assumptions of the appraisal that it is assumed that the tile is good and merchantable.

Title insurers are on the hook for any title problems. Lenders require title insurance for a loan since their colateral is the property that secures the loan.

 

[George Hatch]

I'm assuming the original topic of conversation is regarding the current controversy involving the banks and loan servicers in the residential mortgage market cutting corners on their paperwork. It looks like the person you quoted is trying to drag the appraisers into that controversy.

I'll leave the matter of civil liabilities to the ambulance chasers, but as far as appraisal standards and what USPAP requires I can tell you that this person literally doesn't know what they're talking about. I teach that course and I do know what I'm talking about. If one of those lawyers were to try and drag me into that controversy I'd be giving them a reading comprehension lesson because USPAP lays out our requirements in black and white.

With respect to the amount of research and analysis that is required to be performed in an assignment those minimums will always be dependent on the needs and expectations of the parties who are identified as intended users of the appraisal (or the review or the appraisal consulting assignment when the assignments involve those activities). To one extent or another this has been a fundamental precept in our appraisal standards for as long as there have been appraisal standards.

Simply put, a professional appraiser is expected to identify and address the elements of an assignment that will result in a workproduct that is both meaningful and not misleading to the intended users of those assignments.

The thing is that these residential appraisers have an extremely small list of parties who are actually known by the appraisers to be intended users, and an even smaller list of intended uses. The borrowers in those loan transactions are not among those intended users nor are their lawyers nor are the courts. Appraisals are aimed directly at those uses and users who are identified by the appraiser, all other users and uses being considered "off-label".

The Scope of Work Rule in USPAP lays out two tests for weighing the reasonableness of a Scope of Work decision - which includes the requisite research and analysis - for any given assignment:

- The expectations of parties who are regular users for that type of assignments, and
- What an appraiser's peer's actions would be when completing such an assignment.

That's not an either/or; both of those tests have to be met on every assignment. Beyond that, clients and intended users are free to ask for additional research and analysis if they so choose. As long as those additional requests don't undermine our minimum requirements they then become part of that assignment as well if/when the appraiser agrees to perform the assignment under those conditions.


In your quote above the person commenting already noted that most appraisers doing appraisal assignments for mortgage lending don't go to any lengths to research the title; and none of the users of those appraisals (the banks) have been expecting that type of research. That right there addresses both of the tests noted above and it shows that researching title is not currently among the minimum requirements for those assignments.

As a practical matter appraisers are not expected to be omniscient or to "know" everything there is to know about a property they're appraising. Appraisers are not expected to have the expertise of a structural engineer or a pest control worker or a carpenter or a building contractor or a lawyer or a title officer. We do aprpaisals, and we rely on the expertise of other professionals when they're involved in the assignment. When they're not involved we rely on assumptions about those matters that might not be readily apparent during the course of work we normally do.

All appraisals include certain assumptions and limitations, some more than others. Some assumptions are so common that we consider them standard assumptions. There is no such thing as an appraisal that has no assumptions nor would that ever even be possible on any kind of practical level. The assumption of clear and marketable title is one of those standard assumptions and the written notification of that assumption is hardwired on the forms used for every one of those appraisal reports. It is not a copout or a dodge; it's an open acknowledgement that we are neither trained for nor do we assert the competency it takes to assert or warrant or guarantee clean title.

If the clients and intended users want residential appraisers to research and review title documents and if they're willing to pay us for it we could probably develop the expertise for that - at a cost. But inasmuch as there are already separate career lines for such services and people who specialize in those activities it's pretty unreasonable to dump those "expectations" on appraisers after the fact, and then to also expect appraisers to assume these additional responsibilities for free.

The bottom line here is that appraisers can only be expected to provide answers to the questions that are either commonly or specifically asked. We can't be expected to identify hotbutton issues that may or may not arise in the future, and even if we could nobody would be interested in paying us to do it.

 

[Pittsburgh Pete]

That was George's way of saying "no, we don't do title searches."

 

[Mary Tiernan]

As appraisers, we are bound to utilize the URAR (Uniform Residential Appraisal Report) form as provided by Fannie Mae for all reports which may end up at Fannie as a result of secondary market sale.

On page one of the preprinted Limiting Conditions is this caveat:

STATEMENT OF ASSUMPTIONS AND LIMITING CONDITIONS: The appraiser’s certification in this report is subject to the following assumptions and limiting conditions:
1. The appraiser will not be responsible for matters of a legal nature that affect either the property being appraised or the title to it, except for information that he or she became aware of during the research involved in performing this appraisal. The
appraiser assumes that the title is good and marketable and will not render any opinions about the title.


...........

Now, I will state that when I see an issue with title - i.e., a property in a small rural village obviously had the wrong legal description (described a property in a neighboring township). I informed client of the issue and did not proceed as I was unable to provide a description which matched the subject property. The title company then "fixed" the error according to my client, however, the issue was not resolved. I again referred the property back to my client for correction and worked with the Equalization Department to inform the title company HOW TO DO THEIR JOB.

Also, recently had a property which was said to have a Quit Claim Deed filed in August 2009 with a Life Estate. I informed my client I could not proceed with the appraisal as I did not have experience in Life Estates. Just today I received notice from this client that the title report came back with no Life Estate. I sent my client the information on the Life Estate. The Title Company erred.

However, this was a client service on my part, not a requirement.

In my area of Michigan, it is typical to gather property information from the County Equalization Department regarding id number, homeowner name, and tax description. Rarely do I get data from the Register of Deeds. All information regarding properties are sent to the Register of Deeds from the Equalization Department.

When available, I will verify the information with local assessors, but in my area, assessors work on a part time basis and often are not available. I have one assessor in my area who has not answered the phone in over nine months - his phone finally rings instead of just a fast busy - but there is no way to leave a message.

We rely on the data provided by the typical sources for the area. All data that we gather is in reference to etimating market value. However, when red flags are raised, we can do a client service and inform the client there may be an issue, but we cannot resolve it.

 

[NORTON]

if the banks or title companies who have months to accomplish this task of which they are paid for, can't or aren't able to determine who own's a property even though they have access to the best data, why would anybody think an appraiser who is given 48 hours to appraise a property without access to the same data would be able to do accomplish this, especially since nobody pays us for this task and when based on complexity, the title search could greatly outweigh the necessary time and effort just for the valuation process.....hope it helps

 

[Metamorphic]

MODERATOR EDIT -- We can no longer post any copyright material on the forum due to overzealous attorneys.

Ellen doesn't know what she's talking about.

Also, "Title" has its own block on the HUD-1 standard closing statement form. http://www.HUD.gov/offices/adm/hudclips/forms/files/1.pdf

Its the 1100 block.

I just signed papers on a refi for my own home last week. Just to give you a relative idea of the level of effort between the Appraiser role and the Title expert role. The appraiser's charge was $400 and includes the appraiser's E&O coverage. In the title block I paid $340 for the search, and another $250 for the insurance. And this is working with a lender that actually pays appraisers well. I specifically went with this lender because they pay appraiser's well. If I had done this loan through BofA or Wells Fargo, I would expect that the appraiser would have been paid about $200-$250 and that the charge on my closing statement would have bee $500-$600; the remainder being the vig that goes to the appraisal management company (AMC) that is OWNED by the bank. Plus the appraiser that the big bank AMC would have sent out would have been literally, and figuratively "the lowest bidder" turning out 2 jobs a day. The bank I used doesn't mark up their appraiser's work so I ended up paying $100 less, and instead of a hack I had my house appraised by a competent experienced guy that was knowledgable about my market (I subtly quizzed him) who produced a Journeyman quality report.

If you're looking for a story the real story is these Bank Owned AMCs, the political back room dealings that caused their creation, the major profit center's they have become for the banks, the way that they subvert the appraiser's traditional role as a disinterested 3rd party opinion of value, and the additional expense they create for consumers.