When making an in-house real estate loan and the apprisal value is less than the sales price, does it have to be disclosed to the borrowers? If so when?

The borrower is entitled to a copy of the appraisal per HVCC. It's certainly not your bank's secret to keep. While the borrower may be locked into the sale price, they can get their tax bill lowered by taking the appraisal to the county tax office. Do you still have enough value to make the loan without it affecting them adversely?

HVCC will not apply because this is an in-house evaluation. There is enough value that it will not adversly affect the borrower. What do you think?

So is it an appraisal or an evaluation? If it's the latter, maybe you want to get the former done to confirm? We don't use in-house evaluations so I really can't help you with that part.

As far as not being HVCC, if it's an appraisal, we follow the rule no matter what kind of loan it is.

As far as telling the borrower, what could you possibly gain by not telling them? My rule is not to do anything that might come back and bite you later...say in a courtroom.

It is an evaluation. The price of the real estate did not require a full appraisal. Our senior lending officer is not wanting to furnish a copy if it is not required. Don't know why exactly. We have a form we use that the customer signs, saying they understand that the value is less than the sales price and they are in agreement with that fact. Do you think this would cover us in court?? I have my doubts.

Not an attorney so can't comment on what would hold up in court.

I would think you would want to disclose this to the buyer for personal ethics, if not business ethics. Unless the borrower is a real estate professional in some capacity, I wouldn't be able to face myself in the mirror if I didn't disclose. I would disclose it and suggest that they pay for a professional appraisal. If they decline, have them sign a statement. Check the definition of appraisal in Reg B at http://www.bankersonline.com/regs/202/202-14.html. I believe you are, at a minimum, required to offer them a copy of the evaluation.

Any in-house evaluation or appraisal we do on our in-house loans are entitled to a copy of the appraisal.