Review of the HUD-1 for Builder Sales in New Developments

[hastalavista]

Well- since the GSE's reiteration of review of the HUD-1, I've been waiting to get a new construction/builder-sale in my area to see how that's going to go over with the sales teams.

My market is Northern California, in the Greater San Francisco Bay Area. Almost all the new construction we do is large developments by public builders (Toll Bros., KBHomes, etc.). It has been my (and my peers') practice in this market not to confirm the HUD-1. We will get the breakdown from the builder (base price, credits, premiums, etc.) and then verify the sales price with our public record source; we are not a "non-disclosure" state.

Since the GSE emphasis on HUD-1 verification, my larger, national FRI has included the requirement in its assignment-engagement letter. Thanks to the forum, I was aware of the shift, anticipated it, and was not surprised.

So, we get the order and the appraiser calls the sales office and politely and professionally explains what we need to do if we are to use closed builder-sales as comparables.
The sales agent, who is knowledgeable, says she's never heard of that requirement and it isn't going to happen (in the interim, the appraiser forwarded her the directive which I sent out in an email to the two appraisers who work with me).
The appraiser calls me and I call the sales office. The sales agent tells me the same thing, says she doesn't care if we use builder sales or not, that if the home doesn't close in 10-days, the buyer is going to lose a $150k deposit and we are going to be sued.
None of this rattles me, and I professionally explain that my call is a courtesy call only, just to explain the new emphasis on confirmation of HUD-1 forms, and if she has them, great, and if she doesn't, that's fine, that she is under no compulsion to provide them to me, but if they cannot be verified, we simply cannot use any of the builder sales as comps; we'll use re-sales from outside the project and take it from there.
She states if we do not use development sales, we might have a problem because this development is the best around (and, in truth, it is one of the best around).
I say I have no control over that.
She says we better get down to the title company and ask them for the HUD-1, and that they might not give it to us.
I say we'll do our normal due diligence and she's right; they may not share anything with us. In fact, part of the call is to ask the agent if she might be able to assist us in our compliance requirements.
She says she'll email the title company but cannot guarantee anything; and if the sale falls through someone will get sued.
I tell her we appreciate any assistance she can give and wish her a nice day.

She also mentioned that her regular appraiser has never asked for the HUD-1 and he has appraised since the GSE announcement. I don't doubt this, and I don't take this to mean that the regular appraiser is a number-hitter or skippy; without this forum, I'd be unaware of many of the changes that occur.

But, I thought I'd share this; especially to those appraisers who work in higher-density suburban/urban markets, do new construction sales in larger developments, and have not routinely asked for the HUD-1 (like myself) in the past. My advice for those of you who fall into this category is to make the courtesy call in advance of showing up to the sales office on the inspection date. I also think it is a good idea to get the directive off the selling guide (as we did) so it can be shared and at least eliminate or mitigate the accusation of "why are you requiring this?"

 

[Lloyd Bonafide]

She also mentioned that her regular appraiser has never asked for the HUD-1 and he has appraised since the GSE announcement.

I'll bet they really miss not being able to use their "regular" appraiser on all new home sales these days. And they really miss the days pre-HVCC, when the builder had one or two appraisers handling almost all work in a tract, ignoring concessions, etc. Pretty soon they will discover that it's in their benefit to provide HUD-1's to appraisers, so the appraiser can use any sales they want, (unless the builder has something to hide).

This assumes that the appraiser gets an assignment condition to review the HUD-1, and that the appraiser will actually comply, which probably won't happen to the sales agent very much. They just happened to have the misfortune of running into someone who was doing things the correct way. :icon_mrgreen:

What a mess -- I don't like doing new tract home work anymore, because they always seem to take a lot more time verifying sales, getting cooperation from some sales agents, and now this. Luckily there are almost no new homes being built in this County this year.

 

[Smokey Bear]

Call her boss and report the Biitch's bad attitude (threatening to sue, like it's your fault the lender left the appraisal to the last minute) and explain the situation. Sometimes you're just too much of a nice guy, Denis. LOL

 

[hastalavista]

Sometimes you're just too much of a nice guy, Denis. LOL

I considered that, but its too early in the process to do so... and, I'm not the appraiser who has to deal with her face-to-face and finish the assignment.

Kicking it upstairs is an option which, with luck, won't be necessary (although I always keep my musket loaded and my powder dry! ).

 

[Randolph Kinney]

I did an appraisal for a refinance in a new subdivision where the builder was still active. The builder was paying off the Mello-Roos assessments, closing costs and a $50,000 credit for upgrades.

The resales in this development were investor flips, short sales and REOs.

There was one outside resale in a different development.

I asked for the HUD-1 from the sales office for the recently closed sales. The they said they couldn't give me that and referred me to the escrow company handling these builder sales. The escrow company claimed no can do; confidentiality, get the builder's representative to request it and get it from them.

Getting the HUD-1 is a big problem. I hope other appraisers and builder sales office get the message.

Keep us posted Denis.

 

[Mike Garrett RAA]

Let me suggest the lender handling the new loan on the property you are appraising might be in a better position to apply pressure on the builder.

You have done all you can do at this point. Complete the appraisal using sales you can verify and move on. Anyone can threaten to sue, if possible get it in writing such as an email. It might be very valuable at a future time.

I just got a HUD 1 from a builder in my market...was pleasantly surprised as I didn't even ask for it. We are planning on having a panel discussion with builders at an up and coming continuing education seminar for our local appraisers group (CAREA.net). I'm sure this will be part of the discussion. Builders need to work with appraisers and appraisers need to open lines of communications with builders.

One of the suggestions we are going to make is for the builders to have a central point of contact for appraisers and that contact person develop a spread sheet program listing all of that builder's sales. We will be suggesting what needs to be on that spread sheet and that it be in .pdf format so that it can be emailed to the appraiser and available for inclusion in an appraisal report. We are looking at a two line format that would include:

1. Address of the property
2. Sales Price
3. Closing Date
4. Seller paid concessions
5. Style & Model number
6. Square footage (GLA)
7. Below grade square footage and % of finish
8. Room count, bedrooms, baths, garage stalls
9. Lot size
10. Upgrades, features, etc,
11. Type of loan
12. Misc information such as lot premiums

Having this information on a single page would be of great benefit to appraisers and also the builder as it would provide the appraiser with all of the data needed for sales verification and it would assist the builder in tracking as well as saving time on behalf of the sales associates.

Another thing we are suggesting is that builders provide appraisers with a complete packet of marketing brochures, floor plans, and pricing lists of upgrades. If the builder has a website are the floor plans available on line?

I have been collecting builder data for more than 18 years and have a very substantial library for floor plans, model information, and even blue prints. Just the other day I was doing an appraisal for a refi and was able to go to my builder file for marketing brochure floor plan complete with measurements. Sure made pulling comps easier. I also like to include the builder's floor plan within the appraisal report as it typically is much more detailed than my drawing.

Working with builders on new construction has given me a much better understanding of markets, buyer preferences, costs, and adjustments for new homes. I find most builders are more than willing to work with me because I am willing to work with them. It's been a pretty tough market and new home permits are at an almost 10 year low; however, new starts are still occurring.

 

[vanguard]

You probably should have recieved some type of documentation in the form of an e-mail from anyone who threatens to sue. It can come back to haunt them and could possibly be considered extortion.

'Extortion', outwresting, or exaction is a criminal offense which occurs when a person unlawfully obtains either money, property or services from a person, entity, or institution, through coercion. Refraining from doing harm is sometimes euphemistically called protection. Extortion is commonly practiced by organized crime groups. The actual obtainment of money or property is not required to commit the offense. Making a threat of violence or a lawsuit[citation needed] which refers to a requirement of a payment of money or property to halt future violence or lawsuit[citation needed] is sufficient to commit the offense. Exaction refers not only to extortion or the unlawful demanding and obtaining of something through force,[1] but additionally, in its formal definition, means the infliction of something such as pain and suffering or making somebody endure something unpleasant.[2]

Theft by extortion is commonly called blackmail.

In the United States, extortion may also be committed as a federal crime across a computer system, phone, by mail or in using any instrument of "interstate commerce." Extortion requires that the individual sent the message "willingly" and "knowingly" as elements of the crime. The message only has to be sent (but does not have to reach the intended recipient) to commit the crime of extortion.

Extortion is distinguished from robbery. In "strong arm" robbery, the offender takes goods from the victim with use of immediate force. In "robbery" goods are taken or an attempt is made to take the goods against the will of another—with or without force. A bank robbery or extortion of a bank can be committed by a letter handed by the criminal to the teller. In extortion, the victim is threatened to hand over goods, or else damage to their reputation or other harm or violence against them may occur. Under federal law extortion can be committed with or without the use of force and with or without the use of a weapon. A key difference is that extortion always involves a written or verbal threat whereas robbery can occur without any verbal or written threat (refer to U.S.C. 875 and U.S.C. 876).

The term extortion is often used metaphorically to refer to usury or to price-gouging, though neither is legally considered extortion. But extortion sometimes leads to more dangerous illicit activities which raises concerns with law enforcement agencies. It is also often used loosely to refer to everyday situations where one person feels indebted against their will, to another, in order to receive an essential service or avoid legal consequences. For example, certain lawsuits, fees for services such as banking, automobile insurance, gasoline prices, and even taxation, have all been labeled "legalized extortion" by people with various social or political beliefs.

Neither extortion nor blackmail require a threat of a criminal act, such as violence, merely a threat used to elicit actions, money, or property from the object of the extortion. Such threats include the filing of lawsuits, reports (true or not) of criminal behavior to the police, revelation of damaging facts (such as pictures of the object of the extortion in a compromising position), etc.