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Topic Options
#1348285 - 02/24/10 11:32 AM Appraisal Timing on OREO?
Crazy Bank Lady Offline
Member

Registered: 06/07/05
Posts: 61
Loc: Missouri
Had the following question asked and can't locate an answer. "Is there a specified time frame in which we are required to obtain an appraisal on an OREO property?" We have a property that we know is booked way under value and we know our asking price is way below market (we just want to get rid of it). We were thinking that if it was on our books for 6 months we were required to get an appraisal, but can't verify this. Any help would be greatly appreciated. If you do know please let me know where I can go in the regulatory guidance to find it.

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Lending Compliance
#1348390 - 02/24/10 12:43 PM Re: Appraisal Timing on OREO? [Re: Crazy Bank Lady]
QCL Offline

Power Poster

Registered: 05/23/02
Posts: 6194
Loc: NW IL
We used to have as part of our policy that we would get a new appraisal immediately when the property was moved to OREO. After our last exam, we were told that we were doing more than required.

http://www.occ.treas.gov/fr/cfrparts/12CFR34.htm#§%2034.85%20Appraisal%20requirements.


§ 34.85 Appraisal requirements.
(a) General. (1) Upon transfer to OREO, a national bank shall substantiate the parcel's market value by obtaining either:
(i) An appraisal in accordance with subpart C of this part; or
(ii) An appropriate evaluation when the recorded investment amount is equal to or less than the threshold amount in subpart C of this part.
(2) A national bank shall develop a prudent real estate collateral evaluation policy that allows the bank to monitor the value of each parcel of OREO in a manner consistent with prudent banking practice.
(b) Exception. If a national bank has a valid appraisal or an appropriate evaluation obtained in connection with a real estate loan and in accordance with subpart C of this part, then the bank need not obtain another appraisal or evaluation when it acquires ownership of the property.
(c) Sales of OREO. A national bank need not obtain a new appraisal or evaluation when selling OREO if the sale is consummated based on a valid appraisal or an appropriate evaluation.


So, our policy now states, per conversations with our examiners:
OREO Appraisals. As soon as we take a piece of property into OREO, we evaluate the appraisal that we have on the property. If the appraisal is adequate, no further action is required. If the appraisal is not adequate, or if the value has changed materially, then an appropriate appraisal or evaluation shall be obtained in accordance with the dollar thresholds outlined in our appraisal policy. For example, if the recorded investment amount is $250,000 or less, an evaluation may be performed in lieu of an appraisal. The bank will further continue to monitor the value of each OREO property, over time, in a manner consistent with prudent banking practice.
_________________________
I'm going to give you a little advice. There's a force in the universe that makes things happen. And all you have to do is get in touch with it, stop thinking, let things happen, and be the ball.

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#1348405 - 02/24/10 12:48 PM Re: Appraisal Timing on OREO? [Re: QCL]
Crazy Bank Lady Offline
Member

Registered: 06/07/05
Posts: 61
Loc: Missouri
Thank you very much!

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#1348422 - 02/24/10 01:03 PM Re: Appraisal Timing on OREO? [Re: Crazy Bank Lady]
QCL Offline

Power Poster

Registered: 05/23/02
Posts: 6194
Loc: NW IL
We only changed our methods after a conversation with our examiners. I would caution you to have such a conversation as well.
_________________________
I'm going to give you a little advice. There's a force in the universe that makes things happen. And all you have to do is get in touch with it, stop thinking, let things happen, and be the ball.

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#1348881 - 02/24/10 11:01 PM Re: Appraisal Timing on OREO? [Re: QCL]
ropingbanker Offline
100 Club

Registered: 05/23/06
Posts: 140
Loc: Out West
We were told in November by FRB and state auditors that the appraisal should be completed immediately after the sheriff's sale, and then renewed every 18-24 months. We have one right now that is listed at 40% of appraised value and still can't move it and it been on the books for 14 months now, have to sink another $3K into it this summer.

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#1348884 - 02/24/10 11:24 PM Re: Appraisal Timing on OREO? [Re: Crazy Bank Lady]
Kathleen B Online

10K Club

Registered: 12/27/00
Posts: 17578
Originally Posted By: Harley Girl
Had the following question asked and can't locate an answer. "Is there a specified time frame in which we are required to obtain an appraisal on an OREO property?" We have a property that we know is booked way under value and we know our asking price is way below market (we just want to get rid of it). We were thinking that if it was on our books for 6 months we were required to get an appraisal, but can't verify this. Any help would be greatly appreciated. If you do know please let me know where I can go in the regulatory guidance to find it.


You need to review your regulator's guidance and check state law if applicable to your situation. From the FDIC 2009 guidance on ORE:

"VALUATION OF ORE

Institutions typically acquire ORE through foreclosure or deed in lieu of foreclosure after a borrower defaults on a loan. Institutions should obtain a new or updated valuation that complies with state law at the time of acquisition.

Many state laws require institutions to obtain an annual valuation for each parcel of ORE. Institutions should implement procedures to obtain updated ORE valuations as needed to ensure that any material change in market conditions or the physical aspects of the property are recognized.

Further, upon the disposition of ORE, certain state laws may govern appraisals and/ or valuations. If an institution is selling and financing the transaction, Part 323 of the FDIC Rules and Regulations and applicable state laws require an appraisal or an evaluation. "
_________________________
Kathleen Blanchard CRCM "Kaybee"
Lending/CRA/HMDA/Mapping/Consulting
www.kaybeescomplianceinsights.com

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#1348885 - 02/24/10 11:48 PM Re: Appraisal Timing on OREO? [Re: Crazy Bank Lady]
Kathleen B Online

10K Club

Registered: 12/27/00
Posts: 17578
Missouri state law speaks to when the initial appraisal is required for ORE and then defers to GAAP.

http://www.sos.mo.gov/adrules/csr/current/20csr/20c1140-2.pdf

Specifically, for an initial appraisal, it says:

(3) At the time real property is transferred to
the other real estate category, if the recorded
value of the real estate exceeds two hundred
fifty thousand dollars ($250,000), the bank
shall obtain a current appraisal prepared by
an independent qualified appraiser to substantiate
the fair market value of the real
property; provided that if such property has a
recorded value of two hundred fifty thousand
dollars ($250,000) or less, an evaluation shall
be performed and placed in file. For purposes
of this section, the evaluation must: a) be
in writing; b) be dated; c) describe the real
estate, its condition, and both current and
projected use; d) list the sources of information;
e) describe analysis and supporting
information; f) give an estimate of market
value based, as appropriate, on cost and
income, and any limiting conditions; and g)
provide the name, address, and signature of
preparer, who must have real estate training
or experience, knowledge of the market and
have been independent of the loan decision.
For the purpose of this section, the bank will
be considered to be in compliance if—a) the
bank has obtained an appraisal or evaluation,
as appropriate, within six (6) months prior to
acquisition or b) within thirty (30) days after
foreclosure, the bank has documented an
agreement with an individual or company to
perform the appraisal or evaluation, as appropriate;
however, the appraisal or evaluation,
as appropriate, shall be completed and in the
bank’s files within ninety (90) days of foreclosure.
_________________________
Kathleen Blanchard CRCM "Kaybee"
Lending/CRA/HMDA/Mapping/Consulting
www.kaybeescomplianceinsights.com

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