Sanity Check Request - High-Value Property in Foreclosure w/ Bank, Appraisal Discrepancies & Qs

[Mark K]

3. "Client-Assigned" Exposure Time Language

The Fall Appraisal contains this statement in the USPAP Compliance Addendum:

"Assignment conditions call for a value based on a 90-120 day exposure time... At the request of the client, the subject's exposure statement per assignment conditions is following: The subject's exposure time, if priced within a reasonable range of the appraised value would be within 90-120 days."

This stood out to me. My understanding, and please correct me if I'm wrong, is that exposure time is supposed to be the appraiser's independent opinion based on market data, not something the client assigns. The actual market data shows properties in this area average around 300 days on market, not 90-120 days. Is language like "at the request of the client" and "per assignment conditions" typical, or does it suggest something I should be concerned about?

Who hired this appraiser and did they provide the assignment conditions? The client can direct the appraiser to use specific marketing times among other things. If the appraiser was directed to use specific a specific marketing time that was significantly shorter than the market average, he should have included in the report the value to which he was appraising. As indicated by Sputnam, a liquidation value likely should have been used and the value of the rights appraised should not have been "Market Value" which typically includes a buyer and seller under equal motivation, no duress, and typical marketing times. Maybe minor point but the report should prepared properly.

Is it possible to have an auction commissioned by the owner at this point? If this auction results in a value acceptable to the owner, it seems that this might be a shortcut to the future legal machinations. The auction can state "subject to approval of the owner" so the owner has approval of the final bid. The owner may not receive the exact value that they want but, after looking forward to the time frames ahead, it might be a bitter pill to swallow but could likely exceed what they will receive after the lender and the lawyers get through picking over the bones. The lawyers will probably intentionally slow down the process because they're charging by the hour.

I can't speak to the value but if, for example, the subject is worth $10M, any bid over $8M or so may be worth considering.

Good luck.

 

[shrubberyvaluation]

Neither of the Appraisals should be presented to the court as fair market value as neither were requested that way. They were requested as liquidation value it seems withal a fixed exposure time.

 

[Tom D]

Neither of the Appraisals should be presented to the court as fair market value as neither were requested that way. They were requested as liquidation value it seems withal a fixed exposure time.

My one time big servicing company said on the order to put, not for lending purposes. It said the value is being done for the servicing company's book keeping. If the value is lower then the loan amount, they have to carry it as a loss on their book keeping. So if the value is higher, they don't care at the moment to foreclose, that's why we do year after year drivebys. Who ordered the appraisal, the lender or the court. And i saw $15-25,000 attorney fee on small row homes.

Let's see, a $12,000,000 drive by pre foreclosure. That should be a $350 fee at least, depending on who ordered it. Too much bad advice here not knowing how pre foreclosures work, or how the bankruptcy works. The bankruptcy court probable had a real appraisal done. On a $12,000,000 house I would have more than 1 appraisal done.

 

[J Grant]

"Client-Assigned" Exposure Time Language

The Fall Appraisal contains this statement in the USPAP Compliance Addendum:

"Assignment conditions call for a value based on a 90-120 day exposure time... At the request of the client, the subject's exposure statement per assignment conditions is following: The subject's exposure time, if priced within a reasonable range of the appraised value would be within 90-120 days."

This stood out to me. My understanding, and please correct me if I'm wrong, is that exposure time is supposed to be the appraiser's independent opinion based on market data, not something the client assigns. The actual market data shows properties in this area average around 300 days on market, not 90-120 days. Is language like "at the request of the client" and "per assignment conditions" typical, or does it suggest something I should be concerned about?

My comment- yes, a client can impose an exposure time as part of assignment conditions. There are several types of market value - "a typical" market value, where exposure time is whatever is reasonable for the market area and property type - in this case an average of 300 days per your knowledge. There is also disposition value and liquidation value ( look them up in AI) . They each have a shorter marketing time exposure than typical with liquidation value the shortest. The price of a property to sell within a short marketing time is usually lower, as you saw.

IDK how your lender will operate as far as selling the property. The value submitted to a court might not be the same value they market it for ( or it could be the same ). Again, my advice is if you get a buyer from your own efforts who is prepared to close quickly, consult your attorney on how to submit that offer to the lender with the view of working with the lender rather than fight them. When and if the lender controls the property through the foreclosure process, whatever you think, right or wrong, about the appraisals or the value does not matter to their process.

 

[Tom D]

The court tells the lender what will be done, irreguardless of what the lender wants to to. The lender has no say in bankruptcy court as to any asset. The court can sell it, or just let the lender take it back. The bankruptcy court is looking for any excess cash to pay all the debtors. Any left over paying every one goes to the owner. No debtor cares about that house, unless there is money left from it's sale to pay the lender. Most of the time when you get to a chapter 7, you are dead broke as they say. A chapter 11 is a repayment settlement decided by the court.

The bankruptcy court cares nothing about the appraisal, but the potential value it can sell for. Will there be money left over, if sold. And we know how the sharks come out in this type of sale.
But the owners could be cash poor, but house equity rich.

 

[J Grant]

I am not an attorney - I just play one on TV !
I don't play one on TV - I have some experience, having done a number of REO appraisals and seeing REO properties listed and sold on MLS . I am aware that properties are also sold at auction. I can not comment on how they are priced or what the bids would produce.

It seems that some of the posts are addressing bankruptcy proceedings, which pertain to a person or former owner, with a lender's right to sell a property that they take back in a foreclosure.

 

[Tom D]

"Our goal is straightforward: sell the property, through a private sale before the court-determined sale/auction date."

I think they want a quick sale, maybe before whatever. However, if the court is already involved they can't sell it without it's approval. The court would have to approve any sale however the situation.

 

[sputnam]

"Client-Assigned" Exposure Time Language

The Fall Appraisal contains this statement in the USPAP Compliance Addendum:

"Assignment conditions call for a value based on a 90-120 day exposure time... At the request of the client, the subject's exposure statement per assignment conditions is following: The subject's exposure time, if priced within a reasonable range of the appraised value would be within 90-120 days."

This stood out to me. My understanding, and please correct me if I'm wrong, is that exposure time is supposed to be the appraiser's independent opinion based on market data, not something the client assigns. The actual market data shows properties in this area average around 300 days on market, not 90-120 days. Is language like "at the request of the client" and "per assignment conditions" typical, or does it suggest something I should be concerned about?

My comment- yes, a client can impose an exposure time as part of assignment conditions. There are several types of market value - "a typical" market value, where exposure time is whatever is reasonable for the market area and property type - in this case an average of 300 days per your knowledge. There is also disposition value and liquidation value ( look them up in AI) . They each have a shorter marketing time exposure than typical with liquidation value the shortest. The price of a property to sell within a short marketing time is usually lower, as you saw.

IDK how your lender will operate as far as selling the property. The value submitted to a court might not be the same value they market it for ( or it could be the same ). Again, my advice is if you get a buyer from your own efforts who is prepared to close quickly, consult your attorney on how to submit that offer to the lender with the view of working with the lender rather than fight them. When and if the lender controls the property through the foreclosure process, whatever you think, right or wrong, about the appraisals or the value does not matter to their process.

yes and no. If the assignment is develop an opinion of current market value of the property.. then yes. If the client requests a specified marketing/exposure time.. then it's no longer market value... or.. alternatively... you are using a client specified definition of market value. USPAP doesn't require a particular definition of value, it requires the appraiser to report the type of value, the definition itself, and the source of the definition.

 

[Sadie]

"Assignment conditions call for a value based on a 90-120 day exposure time... At the request of the client, the subject's exposure statement per assignment conditions is following: The subject's exposure time, if priced within a reasonable range of the appraised value would be within 90-120 days."

The exposure time referred to here is an assignment condition, not the appraiser's opinion.

Reading through all of this, is it possible to sell the property for a bargain price and pay off the mortgage? There may not be much back to your parents, but they will avoid a foreclosure on their credit. Will the $9.2 million per the fall appraiser do it? It will sound like they are leaving money on the table, but time is of the essence and getting out from under this should be the main goal here.