Regulators are questioning USPAP compliance

[Adam Smith]

One of my client's has an appraisal report being looked at by federal regulators. The report does not include a legal description of the subject property. We have included a paragraph indicating that no survey, deed or title policy was provided to us and that all our efforts to obtain a legal description have proved fruitless. We then indicate that we have left a space in the Addenda section of the report to insert a legal description when one becomes available.

We understand that as long as we make the effort and indicate that the effort was made, we will not be in violation of USPAP or firrea.

Is this correct, or is there a potential violation?

Sincerely,

Adam Smith

 

[Bob Ipock]

Who are the "federal regulators" ?


It appears you have not adequately identified the property.......I say appears.



Standard 1 requires:

identify the characteristics of the property that are relevant to the type and definition of value and intended use of the appraisal, 10 including:



(i)
its location and physical, legal, and economic attributes;



(ii)
the real property interest to be valued;



(iii)
any personal property, trade fixtures, or intangible items that are not real property but are included in the appraisal;



(iv)
any known easements, restrictions, encumbrances, leases, reservations, covenants, contracts, declarations, special assessments, ordinances, or other items of a similar nature; and



(v)
whether the subject property is a fractional interest, physical segment, or partial holding;




Comment on (i)(v): The information used by an appraiser to identify the property characteristics must be from sources the appraiser reasonably believes are reliable.



An appraiser may use any combination of a property inspection and documents, such as a physical legal description, address, map reference, copy of a survey or map, property sketch, or photographs, to identify the relevant characteristics of the subject property.

When appraising proposed improvements, an appraiser must examine and have available for future examination, plans, specifications, or other documentation sufficient to identify the extent and character of the proposed improvements. 11

Identification of the real property interest appraised can be based on a review of copies or summaries of title descriptions or other documents that set forth any known encumbrances.


An appraiser is not required to value the whole when the subject of the appraisal is a fractional interest, a physical segment, or a partial holding.

 

[Adam Smith]

Thanks Bob

I'm strictly talking about a legal description here.

In the report in question, the subejct property is identified by street address, permanent index number, map locations, sidwell tax map and a survey. I feel that this is sufficient to identify the subject, and in particular, the survey is very specific, though apparently not an ALTA survey.

Additionally, there is a complete discussion of the site description, flood plain information, a complete description of the subject improvements, inclusive of a floor plan.

In short, we feel the sources of property i.d. are credible, and there is no doubt as to the identification of the subject.

The question, I guess, is whether there is a specific requirement to include a "legal description" of the subject, and whether there is a provision for instances when a legal description is not available?

We acted under the assumption that to disclose the efforts made to obtain a legal description was sufficient under FIRREA.

I appreciate your in depth comments, Bob.

Sincerely,

Adam

 

[George Hatch]

USPAP requires that the property being appraised be identified. This goes beyond street addresses and legal descriptions and into the relevant attributes of the subject for valuation purposes, such as site area, zoning, building area, quality, condition, etc..

If you have identified your subject to the extent that it can't be confused with anything else I don't see how a violation of SR1-2.e or 2-2.b.iii can be alleged. I may be mistaken, but I don't think FIRREA itself includes the "legal description" requirement, although there may be other banking regulations that do, and I'd bet that your client's internal policies require it.

Regardless, this shouldn't be a big deal. It's not like you were attempting to do a bait-n-switch or like you didn't try to come up with the legal. Assuming you have all other elements of the property identification complete and correct this would fall under the category of housekeeping. It might be worthy of a little criticism but it shouldn't jeopardize your standing with your client.

Having been warned about this I wouldn't make this omission again, though. Once should be more than enough.

 

[Mike Garrett RAA]

I can't find anything in USPAP that says an appraiser must include a legal description.

Common sense (who has that anymore) would say if if you are doing an appraisal for mortgage lending purposes and using the Fannie Mae form, a legal description would be a requirement FOR FANNIE MAE; however, if you don't have one you don't have one.

Using a street address could be risky. An assessor's parcel number might be a solution. Tell them what you know, make an extraordinary assumption as to the legal description and move on.

 

[Fred]

Adam,
What did you use for a source on site size?

Also, you might consider the possibility that it is the bank and not you that the regulators are critcizing. That makes more sense because FIRREA tells the regulatory agencies what they are supposed to nake the banks do. FIRREA doesn't regulate you. Also, I believe FIRREA only tells the regulators that the real estae must be "adequately described." I am not going throught the CFR's to see what the regulators require of the banks.

 

[moh malekpour]

Lack of legal description possibly causes a red flag because it is essential and it is on the top of report but if you have provided other information about the property like APN, plat map, survey map, then you should be OK. Legal desription usually shows up in the title report, tax bill, plat map or survey map and it seems that you have reviewed all of them and couldn't find it. so, what could you do? I guess information that you have provided about the title report, survey map, plat map APN shows that you have done your job.

 

[Adam Smith]

So, is there a specific requirement

I should also note that this is a narrative report. The subject is a house of worship (thus the lack of much public data).

Is anyone aware of a specific requirement in FIRREA to include a legal description?

I have done all the due diligence I felt necessary, or of course, I would not have delivered the report. I am not aware of a FIRREA requirement that specifies inclusion of a legal description, though I have seen it on some forms and precedent sort of indicates that it should be included.

Can anyone cite a relevent paragraph?

Adam

 

[Bob Ipock]

Yeah........a USPAP compliant report is a FIRREA requirement.


The Appraisal Foundation, a not-for-profit educational organization dedicated to the advancement of professional valuation, was established by the appraisal profession in the United States in 1987. Since its inception, the Foundation has worked to foster professionalism in appraising by:
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sponsoring appropriate activities relating to standards, qualifications and issues of importance to appraisers and users of appraisal services.
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[Fred]

Can anyone cite a relevent paragraph

I already did. It says adequately described.