Yes/No Flood Hazard Area

[Pat Butler]

Years ago I was appraising a property that had river frontage. The house was located on a steep river bank about 300' up the slope. The flood cert. company was trying to determine whether or not the property was in the flood plain. They were relying completely on my description of the property as to how to certify the property. I thought that was very sloppy.

There are probably thousands of homeowners paying for flood insurance even though they aren't in an adverse zone. It's probably not the worse thing because they are obviously close to an adverse zone, but at least they should be given the option of opting out. Unfortunately, all the costs of surveying fall on their shoulders.

 

[Dale Hill]

Ms. Langley, as I am not typically informed of details of lending decisions once the report is delivered to the lender, I have very limited knowledge of the decisions made if the YES box is checked, obviously Mr. Ellis is far more qualified to discuss this.

The few times this has come up after the appraisal is delivered to the lender, typically the lender has supplied a flood certification, and in turn the appraiser is asked to revisit his/her report based on a flood certification the lender has supplied, as opposed to a less detailed FEMA map. (Obviously recommending the appraiser fully disclaim that any changes to the report are based entirely on that flood certification that was supplied by the client.)

I am aware of atleast one occasion where an appraiser had checked the NO box incorrectly, the appraiser was subsequently sued after the subject was flooded, and lost the lawsuit. (That report did NOT come through our company by the way).

Mr. Butler, as I worked as a land surveyor for over 15 years out in the field, having performed many flood certifications, your second description simply proves that "Skippy" is alive and well in every profession, even a science. Your first post doesn't have enough detail to determine whether or not the municipality in question was adequately surveyed or not. Typically in my experience "benchmarks" would be set at the 500 foot intervals you mention, however there would be multiple elevations determined in between as needed. Again, I have no direct knowledge of the size, complexity of the situation you described, or the requirements of your state in this regard, but there may be other details that you may not be aware of or did not post.

Mr. Ellis, I whole heartedly agree that verbal direction from Mr. Minnich or anyone else for that matter, on this or any other technical matter in the appraisal field would be useless in a court of law, or potentially in front of a state board. However,beyond the Fanniemae "Selling Guide" the printed forms, including the noted certifications that apply and are signed, publications by Mr. Harrison, etc., those of us in the middle, between the appraiser and the lender, have very little guidance on such matters. My interpretaion of the preceding is that if the appraiser, based on all information available to him/her determines that the subjects site falls within a FEMA zone designated beginning with either "A" or "V", then he/she is obligated to check the YES box.

TC if you happen to read ths post, please be kind if there are spelling/grammatical errors here, it is VERY late on a Saturday night.

 

[Marcia Langley]

Dale,

Thanks for the response.

This part gave me heartburn:

The few times this has come up after the appraisal is delivered to the lender, typically the lender has supplied a flood certification, and in turn the appraiser is asked to revisit his/her report based on a flood certification the lender has supplied, as opposed to a less detailed FEMA map. (Obviously recommending the appraiser fully disclaim that any changes to the report are based entirely on that flood certification that was supplied by the client.)

The appraiser did their job properly the first time. They answered the question based on the proper data source that is specified in the guidelines and expected by the client and other market participants. The original report was not in error. As you noted the FEMA maps are not always definitve and the lender needs a survey to make their decision. Everything worked exactly the way it was supposed to. The underwriter has taken care of the issue through the use of other experts.

It was not necessary or appropriate to ask the appraiser to amend his report.

 

[Terrel L. Shields]

My interpretaion of the preceding is that if the appraiser, based on all information available to him/her determines that the subjects site falls within a FEMA zone designated beginning with either "A" or "V", then he/she is obligated to check the YES box.

agreed.

It was not necessary or appropriate to ask the appraiser to amend his report.

evey more agreed. It is the lenders responsibilty to 'fix' the flood situation and it is not the appraisers responsibility. Make 'em survey it and be done with it.

 

[Dale Hill]

In my experience, I can not remember an instance where the appraiser was opposed to amending the report, it was not taken as the appraiser having been incorrect, simply taking care of potentially contradictary information. Based on the minimal times the situation has even arisen, I'm fairly certain many lenders simply attach the flood certification to the loan package and that resolves the issue for them.
Thanks for the input.

 

[Marcia Langley]

In my experience, I can not remember an instance where the appraiser was opposed to amending the report, it was not taken as the appraiser having been incorrect, simply taking care of potentially contradictary information. Based on the minimal times the situation has even arisen, I'm fairly certain many lenders simply attach the flood certification to the loan package and that resolves the issue for them.
Thanks for the input.

You're welcome. Like you said the issue normally would not arise that the appraiser would be asked to amend his report in this way. To non-appraisers, I know, this seems like a minor distiction but our jobs are made up of minor distibctions, LOL.

The thing is that if the FEMA map indicated a hazard zone it simply does not matter what the survey says because the question is in regard to the original source. If the appraiser did another appraisal on that same property the next week he would have to report it the same way he did before because that is what the source says.

If he were to amend his report it would be a change from the correct reporting to the incorrect reporting. In the heat of the moment of getting the underwriting done it may not mislead the client because he has his survey already. But in a future review of the appraisal it would be perceived as as a misleading error.

 

[Dale Hill]

Ms. Langley, please take this as it is meant, I'm looking at this as an educational tool, not arguing, and I apologize for any previous heartburn.

Suppose the situation were reversed, you prepared your report, and you incorrectly interpreted the FEMA map at your disposal, and noted NO, and for instance showed zone X, which we all agree is not a FEMA special designated hazard area. For whatever reason 1 week later, the client has a flood certification, or an actual elevation survey, would you then become interested in amending your report, to note factual information that the subject is actually in FEMA zone A, thus correcting an actual error.
Again devil's advocate on my part.

This entire issue comes up SO infrequently, that it is almost a moot point, easily less than 1 in 1000 reports that cross my desk I bet.
But with my previous land surveyor background, all areas related to the site section interest me, and how appraisers approach them.

 

[Marcia Langley]

Dale,

I appreciate what you are saying. And I agree that this particular item will seldom come up as an issue. But it is a worthwhile discussion because the basic principle involved also affects other appraisal tasks that arise more frequently.

The basic principle at issue here is the credible claims of expertise by the appraiser and the burden of responsibility of the appraiser. For whatever reason, that is spelled out as a Statement of Assumptions and Limiting Conditions (SA&LC #3) on the pre-printed GSE forms that are the industry standard for mortgage appraisals. That is the rule we all play by. It is an assumption that is always made and the opinion of value is always subject to that assumption.

Reporting what the FEMA info says is one task. Then the important task is analyzing it's effect on value. During that development stage, if the appraiser becomes aware of value affecting information from any other source, that is also reported and considered. But given the SA&LC, the appraiser is not obligated to go outside the normal scope of work to get further proof that the FEMA info is correct.

The crucial part for the appraiser is to include comparable sales that are similarly affected/unaffected by the condition. Either that or the less sublime task of extracting an adjustment for the condition.

So to your point, if the lender obtains an opinion from some other expert that contradicts the FEMA information and is concerned about how that may affect the opinion of value, then that is a fair question. But that question is a new scope of work that was not involved in the original assignment. As long as that SA&LC is a part of the assignment conditions the appraiser has satisfied the original assignment.

But it is not a fair request to ask an appraiser to alter their report, especially just the check box, for the sole reason that it would make the appraisal match the UW's other data. The UWs know that expert information gathered from sources other than the appraiser will provide them with the documentation to 'clear' the checkbox.

I can only assume that in most cases the UW feels like they have enough expertise to decide if a contradiction calls the opinion of value into question. The infrequency of such call backs to the appraiser suggests they do.

An important thing to keep in mind is the fact that it was the lending community that established the assumption and limiting condition in question. They could have just as easily required that the originator provide the appraiser with a flood certification up front and made the opinion of value subject to the assumption that the provided cert was correct. That would obviously make the process more expensive and lengthy for the lenders and was evidently not considered much of a risk to their model.

But what they could not have done is require that the appraiser act as an expert in the field of flood hazards solely in their role as an appraiser. I suppose that they could decide to only hire appraisers who were also flood hazard experts but that evidently did not fit their business model, either.

Which brings us down to the nitty gritty of why appraisers have to be very careful about how they address documents provided by other experts. The only way an appraiser can comment on such a document is first, they can say, "I received it" and second to say "I can't verify that it is true because I am not an expert."

The only way an appraiser can take the document into consideration in their value opinion is to make a formal assumption that it is correct. The same way we make a formal assumption that the FEMA information is correct. When working in compliance with GSE guidelines we also have to certify that we have not added any assumptions that were not already pre-printed on their form. Fannie and the rest of the lending industry have made this very clear. We are simply not allowed to make additional assumptions. I presume the idea is that they know how to deal with the rigid assumptions that are given and want everything else to be handled as an exception.

The only way to get a new assumption into the appraisal is to check the EA box. Which the UW would then turn around and clear with the document from the other expert that they already have. A never ending loop.

So the governing principle is scope of work. In some non-mortgage appraisal work obtaining more definitive flood information is absolutely a part of the scope of work. In GSE-type mortgate assignments it is not because the lenders can get a more streamlined process from it that fits their risk model.

 

[Dale Hill]

In the example in my last post the situation I described was that the appraiser incorrectly interpreted the FEMA map on the original report, it had nothing to do with additional assumptions, simply a correction based on proof that is from an expert in the field. An appraiser's misinterpretation of a FEMA map, is entirely different than a contradiction of a FEMA map.

Like I said previously, the issue raised previously and in my last post is extremely rare, I wish I could say the same over the confusion some appraiser's have with zone "B", but thats for another thread, on another day.

Anyway, I appreciate your input, but the only reason I posted initially was to point out that zone "V" is also a special designated hazard area by FEMA, it had appeared that several people early in this discussion had either inadvertantly excluded this from their discussion, or had incorrect information.

 

[Marcia Langley]

Sorry Dale,

If the appraiser makes a mistake, of course they should correct it right away.