title search obligations as appraiser

[dacsavannah]

We were engaged to appraise 42 remaining lots within a subdivision-no problem. Subdivision analysis performed, lots of good sales and absorption data. The lots to be appraised were specified by the client by number and were scattered throughout the subdivision. The subdivision is a developer/builder deal. Appraisal was delivered.

After delivery, someone in the bank's credit dept. noticed that they actually only held 38 remaining lots as collateral, and that 4 of the lots specified in the engagement had been taken down into construction loans by the builder and/or sold (to homebuyers).

What is our obligation as appraiser in this case to verify that the subject of the appraisal as specified by the client is what remains as their collateral?

I think this is a little different that if I am engaged to appraise 25 acres of vacant land, and I find a plat that says its only 23 acres. Are we obligated to find all the deeds and count them against all of the lots to see what remains? To take it further, what if it were 100 remaining lots out of a 400 lot s/d? Am I supposed to track down 300 deeds and check them against a list of 400 lots to verify this when the client has specified which lots they want appraised?

Just so you know, I don't think so. I am interested in your perspectives.

 

[PL1957]

IMO, you appraise what the client hires you to appraise. You have no obligation to do title searches, etc.

 

[The Warrior Monk]

It all depends. The appraiser has certain obligations to investigate and report certain matters, either by the terms of engagement or as they arise during the course of the assignment.

If there is an obvious title problem, the appraiser has to handle it some manner. That could be done by having a title report done (extra service) or have the client do it. Other lesser situations would have to be handled accordingly; maybe and extraordinary assumption would be appropriate.

 

[Artyman1200]

IMO, you appraise what the client hires you to appraise. You have no obligation to do title searches, etc.

I agree. We recently appraised a variety of properties in Williamsburg, KY owned by one individual for collateral purposes due to a potential loan default. A local attorney gave us a list of properties based on a title search which didn't seem accurate when checked against the tax records and deeds. Spent several hours trying to determine what this guy owned. Not to mention that Williamsburg does not utilize the latest in data storage technology. In the end, we did the best we could and gave the client what we thought the guy owned. The scope of work is the scope of work, but there comes a point where you can't go any further on your own, and I'm not being paid to do title searches.

This seems to be more of an issue with subdivisions where you're dealing with many individual parcels as opposed to one or two in a typical report. I think it's the client's responsibility to know what's on the title and appraisers are to just give notice if there seems to be some red flags.

 

[josephdifranco]

Sales History

Did you ask the developer if 42 lots was a valid number? Our engagement letters are off the mark 90 percent of the time because the amount of remaining land or number of lots is a moving target as sales are made, so we can't trust the lender at all for this information.

My opinion would be that if appraising 42 or so lots, you might have been expected to at least search the recorder on each to see if there was a sale as part of doing a sales history. You say they are remaining lots which usually means you have pin numbers available to do this type of search. In my area we have most county recorders or supervisor of assements online in my area, and since I'm checking for tax data for each lot, I can check for a sale at the same time. A pin by pin search done online in my area on 42 lots might take me 15 to 20 minutes.

Your market might be different if the recorder is not online, then its likely your peers would not be doing this type of search.

I understand that the scope can dramatically increase with the number of lots being appraised, so I'm not sure if you would be expected to check with the recorder lot by lot if you were doing 200-300 lots. In that case, you might disclose that you relied on the builder for verification. Will that stand up in court or in front of a state appraisal board, who knows?

Good luck,

 

[PropertyEconomics]

I would have thought a simple check of ownership of the lots under the assignment may have raised red flags and at that point a call to the client would have been appropriate.
Perhaps there are appraisers out there who are proficient in title searches, but for the most part, Id day it lies outside the scope of work, unless of course, they ask you to hire the title work done and include it as part of your fee.

 

[Walter Kirk]

An appraiser should identify the owner of a subject property not the lien holders. The bank just paid you for appraisals of four parcels in which they have no interest.

 

[Terrel L. Shields]

The lots to be appraised were specified by the client by number and were scattered throughout the subdivision. The subdivision is a developer/builder deal. Appraisal was delivered.

After delivery, someone in the bank's credit dept. noticed that they actually only held 38 remaining lots as collateral, and that 4 of the lots specified in the engagement had been taken down into construction loans by the builder and/or sold (to homebuyers).

What is our obligation as appraiser in this case to verify that the subject of the appraisal as specified by the client is what remains as their collateral?

What your peers do...

The question for me would be that since our assessor is 'up to snuff' and our county requires certain recordings prior to any building, I would have, as a matter of routine, pulled up the tax cards for each and every one of those lots. If, for some reason, that plat had yet to be approved, then the sale of the lots would not have been valid. So in MY COUNTY, I would have failed due diligence to not have discovered the lot sales. However, I could have stepped across the state line and Lo and Behold, the rules are mucho different and many unrecorded or loosely recorded subdivisions exist, contracts for sale are not required to be recorded, therefore, my due diligence wouldn't have discovered the sales (or at least it would be possible that I didn't.)

If the banker requested them, then the banker is at fault not you.

OTOH, subdivision analysis is a big scary appraisal right now. I understand the state just REVOKED (it is under appeal apparently) the license of a well-known and well-respected appraiser from my county. He had been appraising several of the subdivisions that have went belly up in our region.

 

[Howard Klahr]

I am curious in that USPAP requires a three year sales history be reported for the subject property(ies), how did you not know that the bank did not own four of the lots being appraised?

 

[Kevin A. Spellman]

Were the four lots in question improved as of the effective date of valuation? Identify the problem and identification of the subject is appraising 101. This is a good learning exercise for you. You should hope this exercise creates skills to identify the subject.