The "proper" use of the 1004D

[Frederick R. Ruffell]

The 1004D is a dual purpose form, an appriasal update and/or a certificate of completion. Forget about the Update use as it is not applicable to this situation.
Here is the deal. I appraised a property using the URAR 1004 to report my analysis and opinion of value. The appraisal and report we performed "AS IS" at the request of the client. The owner of the subject property has closed of interior access to a portion of the house at the rear and has installed an illegal kitchen of sorts. Looks like he rents it out. All this is documented, reported, and adjusted for (i.e. functional obsolesence) in the appraisal and report.
Fast forward 3 weeks and the client now wants a "re-inspection" of the property and a 1004D to document the UW's requirement to remove the kitchen appliances and restore interior access.

Is it permissable to use the 1004D to do this. If so, how would you fill out the check boxes and would you put verbage in the form to explain the use of the form? Also would the original appraisal report and or final opinion of value need to be changed? I do NOT intend to change the effective date.
Can anyone cite the FNMA guidelines that allow or do not allow these type of changes to their forms?

I am hesitant to comply with my clients wishes to use the 1004D, I would prefer to simply re-inspect, take some photos, add photos to the original report, and write an addendum explaining the situation and client/UW requests.

Feel free to rip, God knows I have ripped many here on this forum.

 

[MN Mark]

Others will likely have more specific knowledge as far as this god-forsaken form goes. Can you tell I'm not a fan?

Be that as it may, here's my take on the matter......

I'm operating on the assumption that this is a secondary market deal, specifically Fannie Mae, since they are requiring the use of Fannie's form.

My take is that the underwriter is not following Fannie Mae guidelines. How often we end up confused because the underwriter starts the damn thing off on the wrong foot in the first place.

The appraiser must consider all factors that have an impact on value and marketability in the development of the appraisal report. The appraiser is expected to consider and describe the overall quality and condition of the property and identify items that require immediate repair as well as items where maintenance may have been deferred, which may or may not require immediate repair. The appraiser must address any needed repairs or any physical, functional, or external inadequacies in the “comments” section of the appraisal.

AND

The lender must review the appraisal report to ensure that the appraiser has not indicated any physical deficiencies or conditions that would affect the livability, soundness, or structural integrity of the property. When there are none, the lender does not need to require minor repairs to be completed before it delivers the mortgage to us. When improvements are incomplete or conditions exist that affect the livability, soundness, or structural integrity of the property, the property must be appraised subject to completion of the specific alterations or repairs. Additionally, the alterations or repairs must be performed, and the lender must obtain a completion report from an appraiser, before it delivers the mortgage to us.

The way I read all of that is that if the repairs were going to be required, then the report should have been completed subject to repairs. And if it is appraised as-is, then no repairs should have been required, and no completion report is necessary. Essentially, there is nothing for you to inspect. You completed your report as-is. In case it's not clear to the underwriter, "as-is" means, ummmm, are you ready for this......it means......"as-is". Why is this stuff so tough for underwriters to figure out? m2:

Technically if the underwriter wanted the repairs completed, they should have asked for an as-repaired value. So why didn't they? Well, either plain ignorance, or they figure the as-is value, with the repair completed, results in a more conservative estimate of the actual value of the property, i.e., they short-changed the homeowner on this one, and are trying to make you a party to it. Maybe the value difference is not significant, but the $ amount involved doesn't change the principle of the matter.

As far as the form itself, my understanding is that the 1004D does alter the effective date of the appraisal, but I could be mistaken on that one, maybe that only applies to the Update portion of the 1004D?

To my way of thinking, the only way to rectify this thing now, is for there to be an as-repaired value based on the work which has been done (which would now technically be an as-is value, but one based on a different as-is state than your original report). Some might say that is a new assignment, and they might be well within their rights to say so.

 

[VolcanoLvr]

I concur with MN.

I suspect the client did not know about the functional problem prior to your inspection and completion of the AS IS report.

Since your original report was written AS IS, the client cannot magically have that disappear, and have you modify the original report making it 'subject to' repairs, etc., under which a 1004D would be appropriate.

If the client required modifications to be made based on your original report, they now have a new assignment situation, which you can be asked to perform. Your effective date will be different from the first assignment inspection date if you choose to accept the new assignment. You will need to re-inspect. Be sure to include lots of photos to document the interior.

DO NOT PERFORM OR SUBMIT A 1004D for this situation. Read the Intended Use statement on the form!

 

[MN Mark]

Here's the dilemma in this situation. I went back and looked at Fannie's guidelines on the matter and it doesn't really address the issue specifically. Here's a couple of relevant quotes on the matter.....

The appraiser must identify physical deficiencies that could affect the soundness, structural integrity, or livability of the property as part of the appraiser’s description of the physical condition of the property.

After citing a few examples of such conditions, they go on to say.....

When such deficiencies exist or improvements are incomplete, the property must be appraised subject to completion of the specific alterations or repairs.

The situation you have, from what I can tell, does not affect the soundness, structural integrity or livability of the property. Fannie gives examples of items that potentially fall into those categories, and examples of items that do not fall into those categories. Your situation doesn't really fit either set of examples. But, it doesn't sound to me that what was done was a repair, so much as it was a modification.

I wonder, did the "illegal kitchen" make the property non-conforming to the permissible zoning uses in the area?

Whatever the case, the underwriter has opted to require certain modifications to the property. I may have misread this thing in my initial reply, in part, because I'd understood that the underwriter was aware of the problem prior to the report being finalized. I may have misread that.

At this point it looks to me like they are requesting the 1004D, not as a completion report, rather, as an Appraisal Update, though I think you are going to have to ask them that question to be certain. To me it looks like they are treating this like a new assignment, but they want the abbreviated version of an Appraisal Update, as opposed to a full new appraisal. If that is the case, then yes, you are looking at a new effective date, re-inspection of the property, etc. If that's what they're doing, what you have is a roundabout way of getting a completion report, without having to order it as such, since the original report was completed as-is, leaving no grounds for a completion report.

Personally I don't do the Appraisal Update portion of the 1004D. I see the 1004D as a repackaging of the old Recertification of Value and I want no part of it. I know they can be completed and be in compliance if they are done right, but I don't like doing full appraisals for a fraction of the normal fee.

Which brings me right back to where my last reply left off, this is a new assignment. My suggestion is, treat it accordingly.

 

[Mike Kennedy]

FR.......recommend the UW read the preprinted CERTIFICATION on the form .....which clearly states the "proper use"..

https://www.efanniemae.com/sf/formsdocs/forms/pdf/sellingtrans/1004d.pdf

question: OP states you addressed "functional obsolescence" in the report and made "adjustments"..... I agree with MN Mark......and wonder how you addressed the Zoning Compliance i.e. legal, legal NC, illegal current use of the site and the existing improvements?

Sorry, first cup of coffee, not exactly clear on several points in OP:

did the clients assignment conditions address and stipulate illegal uses must be identified and Value in the report rendered "subject to" Municipal Compliance i.e. a Cure?

did the report stipulate a Cure for the "FO" ???

did the illegal use (cited in OP) which existed on the EDA .....disappear?

where were "adjustments" to the comparables and/or in the RCAV derived?

exactly how did the appraisal cite the existing illegal use and why did the report then require no cure as a Condition of OPMV?

 

[Terrel L. Shields]

To aver the improvements have been rebuilt suggests the 1004D is inadequate to address the problem. I would gently persuade the client to upgrade to a full report at a discount price or to forget it. I would not complete a 1004D....period.

 

[Restrain]

The lender is not going to make the loan without the removal of the kitchen, etc. This was not a modification of your report, but, rather, a condition of the loan.

They have asked for an inspection, and given you the parameters of what the lender's (not your) requirements are. You can do it on the "satisfactory completion" section, and cite that this was the LENDER'S requirement, not your requirement.

Don't make more out of this than exists.

 

[Mike Boyd]

I agree with Restrain. The issue for the lender/client is likely that the 2nd kitchen and blocked access could possibly throw the loan into a 2-4 program. All they want the OP to do is confirm that the 2nd kitchen is gone and that direct access to the rest of the house is restored. Add a comment page if you feel it is necessary. Charge enough to make it worth your while.

 

[MN Mark]

INTENDED USE: The intended use of this certification of completion is for the lender/client to confirm that the requirements or conditions stated in the appraisal report referenced above have been met.

This appraisal is made subject to the following repairs or alterations on the basis of a hypothetical condition that the repairs or alterations have been completed,

​

Restrain/Boyd -

Precisely which conditions from the original report have been met? Was the original report, and the original appraised value, based on a hypothetical condition that the repairs or alterations have been met?​

The fact is that if the underwriter merely wants to verify that their required modifications have been completed, they don't need an appraiser to do that. The homeowner could send in photos. Or they could have Joe Blow from Idaho take the photos.​

Is the newly modified property the same as what was valued in the original report? Does the original appraiser really want to update his report without ensuring that it is updated to the correct condition of the property?​

Essentially, if the OP signs off that the modifications have been completed, by default he acknowledges that his original appraisal (i.e. value) was based on a hypothetical condition that the modifications would not be made.​

Let's modify the story slightly and see how well this fits. You are to appraise a property as-is. The subject property has no garage, one of your comps has a 2 car garage and you make a $5,000 adjustment. You appraise the property for $96,000. The loan amount is $80,000, and being over 80% LTV, the lender requires PMI. The underwriter considers the lack of a garage a functional inadequacy and he requires the construction of a 2 car garage. You re-inspect and complete a 1004D, in effect, confirming that the value of the property is $96,000 with the garage. But based on your garage adjustment from the appraisal, the value at that point should be $101,000, the loan amount is now safely under 80%.​

The question: Have you participated in fraud?​

Wasn't the homeowner fraudulently maneuvered into paying PMI unnecessarily? And weren't you a party to that?​

Not all fraud is a consumer defrauding the mortgage company. There are two parties in the transaction, and either may defraud the other.​

 

[Frederick R. Ruffell]

Thank you all for your input. Now I am awaiting a call back fro my client, it is an
AMC acting as an authorized agent for the lener. I am talking with their head appraiser and will let you know what happens. I did mark the use in the original report as Legal, as the use of the property is and was represented to me as Single Family. I think now, in hind sight, I should have marked it as an Illegal use. Go ahead rip away.