Tuesday, April 22, 2014
In my years of appraising, I have had had to argue with many Lenders, Attorneys, and general pains in the butt. What many of us have found is that when Banks screw up, they come knocking at your door.
What we need to do as appraisers is to state the separation of Lending liability to appraisal liability. Please consider utilizing the following statements in your reports After your statements of intended users that is required in your reports.
I have been using this for years in my reports as it returns liability for poor lending decisions back on the Lender - It is not a cure all - but will clearly state that you had no part in poor underwriting and qualification of the Borrowers:
The appraiser is engaged by client to render a value conclusion utilizing similar comparable sales within the subject's market area. From analyzing and adjusting similar/dissimilar features of the comparable sales, appraiser is able to render a value conclusion. In addition, the cost to build a similar structure with a similar site is also evaluated. In this analysis these costs would include typical local builder's profit that is typically attained in the market. In some cases where the income approach is applicable, appraiser also utilized this approach to value.
Appraiser has not examined the borrower's credit report. Appraiser has not analyzed the borrower's income, tax returns, W-2's, financial statement, nor any other financial instrument with regard to borrower's credit worthiness or capacity to repay any loan. Appraiser has not been engaged to assist in the underwriting criteria and decision making for any loan with regards to the subject. The determination of the borrower's ability to repay a loan or the rating class of the final loan placed on the subject is determined solely by the lender - (the borrower's ability to repay the loan note and not on the subject's overall value). It is further understood that any lending decision made is the sole discretion and burden of the lender who qualifies the borrower's ability to repay the loan and not the real estate which has been valued. Appraiser warrants that they are not part of any credit or loan making decision in conjunction with this transaction.
Appraiser's engagement is to render a value conclusion totally disconnected from the lending underwriting process without bias. Appraiser has valued the subject relative to the market and has analyzed any special condition or feature relevant to the subject's value. Appraiser has no financial connection or undisclosed business relationship with lender.
This little addition puts the shut up where it belongs -
Some of us seem to forget - that loans are made based on the ability to repay. The Asset value may change, but the Lender has approved credit for an $XYZ dollar amount. In reality, it comes down to the loan and not the real estate.
Consider this - when the market crashed was the loan tied to the real estate then? - No/Yes - regardless of the value of the real estate, lenders wanted their money - the collateral did not change the obligation of the Borrower. This gives you a fighting chance against the Bullies.
Written by Randy Jonason, Appraiser. CoveHarborCapital.com