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Two appraisals required question.

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riseagain30

Thread Starter
Freshman Member
Joined
Aug 2, 2010
Professional Status
General Public
State
Oklahoma
Ok here is my deal, we are trying to buy a home through our bank using an FHA loan. We had gotten the appraisal done and everything but then bank calls and says, oh a new law popped up and since the seller has owned the home less than 90 days a second appraisal is required plus an inspection. Ok so we were like what? but looked it up and saw that was right. However, the seller is like freaking out on us saying if the second appraisal is 5 percent or more higher than the first appraisal (which appraised about 98,000 and the asking price was 95000) then we wouldn't be able to buy the house. The seller then states that the appraiser will probably appraise it for a lot more than the first one. So my question is, does having two appraisals being more than 5 percent difference stop us from buying this house? :peace:
 
Joined
Oct 22, 2004
Professional Status
Certified Residential Appraiser
State
North Carolina
Short answer...NO.

You have a contract. If all the terms of the contract are met then you can force them to honor it. Might have to go to court - at the very least hire an attorney - but you can force them to honor it.

Unless there is a specific contignency in the contract stating that the owner has the right to back out if the appraisal comes in "high" (which I highly doubt) then you can demand specific performance of the contract.

Good luck.


todd
 

riseagain30

Thread Starter
Freshman Member
Joined
Aug 2, 2010
Professional Status
General Public
State
Oklahoma
Thank you both for your replies! She was making it sound like it was some kind of rule or law or something. She said I would just for it to be more than 5 percent because then you couldn't get the house but I know it isn't in our contract. I am confused and wondered if that really was a rule or law. Again thank you all!
 

Michigan CG

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Joined
Nov 1, 2006
Professional Status
Certified General Appraiser
State
Michigan
There are very many misinformed people in lending these days. Some of it is because they choose not to be informed and some of it is because the rules seem to change daily.

The seller is not entitled to a copy of the appraisal(s) (you are). It sounds like the seller is trying to get more money out of you and is not knowledgeable about how real estate transactions work.

If you have a contract you are OK.
 

Mike Boyd

Elite Member
Joined
Jan 18, 2002
Professional Status
Retired Appraiser
State
California
It could be the lender was confused. If the 2nd appraisal comes in LOWER than the sales price you might have to make a larger down payment. FHA does not care if you want to pay more than the appraised value but they will only base the loan on the lowest appraisal.
 

CANative

Elite Member
Joined
Jun 18, 2003
Professional Status
Certified Residential Appraiser
State
California
Here is a snip from Mortgage Letter 2009-48

Retain Second Appraisal under Mortgagee Letter 2006-14
FHA will retain the second appraisal policy described in Mortgagee Letter 2006-14, Property
Flipping Prohibition Amendment. This policy requires a second appraisal when a property is resold
between 91 and 180 days following acquisition by the seller, if the resale price is 100 percent (or
more) higher than the price paid by the seller when the property was acquired. The lender must
obtain a second appraisal from another appraiser and the cost of the second appraisal may not be
charged to the homebuyer.
For example, if a property is resold for $80,000 within six months of the seller’s acquisition of that
property for $40,000, the mortgage lender must obtain a second independent appraisal supporting
the $80,000 sales price. The mortgage lender may also provide documentation showing the costs
and extent of rehabilitation that went into the property as support for the increased value but must
still obtain the second appraisal.
Here is the text of ML2006-14

MORTGAGEE LETTER 2006 -14


TO: ALL APPROVED MORTGAGEES

SUBJECT: Property Flipping Prohibition Amendment

On June 7, 2006, HUD published a final rule in the Federal Register amending regulations at 24 CFR 203.37a prohibiting property flipping in HUD’s single-family mortgage insurance programs by providing additional exceptions to the time restrictions on sales. The rule and this mortgagee letter become effective for mortgages endorsed for insurance on or after July 7, 2006. This Mortgagee Letter also rescinds, in their entirety, Mortgagee Letters 2003-07 and 2005-05.

The additional categories of properties exempted from the time restrictions include sales of properties by:

• State and Federally chartered financial Institutions and government-sponsored enterprises (GSEs) (e.g., Fannie Mae and Freddie Mac)
• Local and State government agencies
• Nonprofits approved to purchase HUD REO properties at a discount
http://www.HUD.gov/offices/hsg/sfh/np/np_hoc.cfm
• Sales of properties within Presidentially-Declared Disaster Areas (upon FHA’s announcement of eligibility in a mortgagee letter specific to said disaster)

Prohibition on Property Flipping Described

Property flipping is a practice whereby a property is resold a short period of time after it is purchased by the seller for a considerable profit with an artificially inflated value, often abetted by a lender’s collusion with the appraiser. FHA’s policy prohibiting property flipping eliminates the most egregious examples of predatory flips of properties within the FHA mortgage insurance programs.

Overview of FHA’s Property Flipping Policy

FHA requires that: a) only owners of record may sell properties that will be financed using FHA-insured mortgages; b) any resale of a property may not occur 90 or fewer days from the last sale to be eligible for FHA financing; and c) that for resales that occur between 91 and 180 days where the new sales price exceeds the previous sales price by 100 percent or more, FHA will require additional documentation validating the property’s value. FHA also has flexibility to examine and require additional evidence of appraised value when properties are re-sold within 12 months.


Sale by Owner of Record

To be eligible for a mortgage insured by FHA, the property must be purchased from the owner of record and the transaction may not involve any sale or assignment of the sales contract. This requirement applies to all FHA purchase money mortgages regardless of the time between resales.

The mortgage lender must obtain documentation verifying that the seller is the owner of record and submit this to HUD as part of the insurance endorsement binder; it is to be placed behind the appraisal on the left side of the case binder. This documentation may include, but is not limited to, a property sales history report, a copy of the recorded deed from the seller, or other documentation such as a copy of a property tax bill, title commitment or binder, demonstrating the seller’s ownership of the property and the date it was acquired. Mortgagees participating in the Lender Insurance program (see ML 2005-36) are to retain this documentation and provide it to FHA upon request.

Resales Occurring 90 Days or Less Following Acquisition

If the owner sells a property within 90 days after the date of acquisition, that property is not eligible security for a mortgage insured by FHA unless it falls within one of the exceptions to the time restrictions on resales set forth in §203.37a(c) of the regulations. FHA defines the seller’s date of acquisition as the date of settlement on the seller’s purchase of that property. The resale date is the date of execution of the sales contract by the buyer that will result in a mortgage to be insured by FHA.

As an example, a property acquired by the seller is not eligible for a mortgage to be insured for the buyer unless the seller has owned that property for at least 90 days. The seller must also be the owner of record.

Resales Occurring Between 91 and 180 Days Following Acquisition

If the resale date is between 91 and 180 days following acquisition by the seller, the lender is required to obtain a second appraisal made by another appraiser if the resale price is 100 percent or more over the price paid by the seller when the property was acquired.

As an example, if a property is resold for $80,000 within six months of the seller’s acquisition of that property for $40,000, the mortgage lender must obtain a second independent appraisal supporting the $80,000 sales price. The mortgage lender may also provide documentation showing the costs and extent of rehabilitation that went into the property resulting in the increased value but must still obtain the second appraisal. The cost of the second appraisal may not be charged to the homebuyer.

FHA also reserves the right to revise the resale percentage level at which this second appraisal is required by publishing a notice in the Federal Register.



Resales Occurring Between 91 Days and 12 Months Following Acquisition

If the resale date is more than 90 days after the date of acquisition by the seller but before the end of the twelfth month following the date of acquisition, FHA reserves the right to require additional documentation from the lender to support the resale value if the resale price is 5 percent or greater than the lowest sales price of the property during the preceding 12 months. At FHA’s discretion, such documentation may include, but is not limited to, an appraisal from another appraiser.

FHA will announce its determination to require the additional appraisal and other value documentation, such as an automated valuation method (AVM), through a Federal Register issuance. This requirement may be established either nationwide or on a regional basis, at FHA’s discretion.

Exceptions to 90-day Restriction

The following sales are exempt from the time restrictions provided by §203.37a:

• Sales by HUD of its Real Estate Owned
• Sales by other United States Government agencies of single family properties pursuant to programs operated by these agencies.
• Sales of properties by nonprofits approved to purchase HUD-owned single-family properties at a discount with resale restrictions.
• Sales of properties that are acquired by the sellers by inheritance.
• Sales of properties purchased by employers or relocation agencies in connection with relocations of employees.
• Sales of properties by state and federally charted financial institutions and Government Sponsored Enterprises.
• Sales of properties by local and state government agencies.
• Upon FHA’s announcement of eligibility in a notice (i.e., ML), sales of properties located in areas designated by the President as federal disaster areas, will be exempt from the restrictions of the property-flipping rule. The notice will specify how long the exception will be in effect and the specific disaster area affected.

Inapplicability of §203.37a to New Construction

The restrictions in 203.37a are not applicable to a builder selling a newly built home or building a home for a homebuyer wishing to use FHA-insured financing.

Date of Property Acquisition Determined by the Appraiser

Mortgage lenders may rely on information provided by the appraiser in compliance with the updated Standard Rule 1-5 of the Uniform Standards of Professional Appraisal Practice (USPAP). This rule requires appraisers to analyze any prior sales of the subject property that occurred within
specific time periods, now set for the previous three years for one-to-four family residential properties.

As a result, the information contained on the Uniform Residential Appraisal Report or other applicable appraisal report form describing the Date, Price and Data for prior Sales is to include all transactions for the subject property within three years of the date of the appraisal and the comparable sales within 12 months of the date of the comparable sale. Appraisers are responsible for considering and analyzing any prior sales of the property being appraised within three years of the date of the appraisal and the comparables that are utilized within 12 months of the date of the comparable sale.

Therefore, provided that the URAR completed by the appraiser shows the most recent sale of the property to have occurred at least one year previously, no additional documentation is required from the mortgage lender. The mortgage lender remains accountable for verifying that the seller is the owner of record and may rely on information developed by the appraiser for this purpose if provided. However, if the lender obtains conflicting information before loan settlement, it must resolve the discrepancy and document the file accordingly.

If you have any questions regarding this Mortgagee Letter, please call 1-800-CALL-FHA.


- Sincerely,




Brian D. Montgomery
Assistant Secretary for Housing-
Federal Housing Commissioner
It sounds like the property you want to buy is not eligible for FHA insurance.
 
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