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#188425 - 05/10/04 06:05 PM appraisal
beegee Offline
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Joined: Feb 2004
Posts: 1,110
South
We have a $500,000 loan for the purpose of purchasing real estate and timber. It is secured with an 80 unit mobile home park. The loan officer waived the appraisal and stated the reason as abundance of caution. The borrower has a NW of $7MM comprised primarily in timber and RE - little cash. The source of value for the loan is a 1994 appraisal addressed to the borrower.

My thoughts are that a full blown appraisal is required given that either way you look at it - the repayment source is from either rental or sale of RE.

Am I on the right track?

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Lending Compliance
#188426 - 05/10/04 06:25 PM Re: appraisal
HRH Okie Banker Offline
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Joined: Jan 2003
Posts: 3,070
Oklahoma
Re: "Abundance of Caution - To use this exemption, the institution must document that the extension of credit is well suported by income or other collateral of the borrower and that the real estate is being taken as additional collateral" That is from the Summary and Explanation of the OCC Bulletin June 7, 1994. I think you'd want clear and concise documentation, in the form of the loan approval or a memo, detailing the basis for using abundance of caution.
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#188427 - 05/10/04 08:11 PM Re: appraisal
Pale Rider Offline
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bwayne:
Aren't you mixing the requirements of the exemption for business loans less than $1 million and the exemption for "abundance". The abundance exemption is a stand alone reason without qualifications while the business exemption has the qualifications of dependency on the rental or sale of real estate ? I am not sure you are on solid ground with your decision just yet.
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#188428 - 05/11/04 07:52 PM Re: appraisal
Anonymous
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what if the abundance of caution reason is not documented or the justification does not fly?

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#188429 - 05/11/04 09:20 PM Re: appraisal
Pale Rider Offline
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Anon:
DKarbs in a couple of posts before us pretty well laid out what was necessary to justify the abundance of caution exemption. If the use of the exemption is not documented or is found less than satisfactory, the regulators have the authority to have the bank order an appraisal.
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#188430 - 05/12/04 01:58 PM Re: appraisal
Anonymous
Unregistered

Would the officer have grounds to waive the appraisal using either of the exceptions? I wouldn't think the business loan exception would work since both the collateral pledged and the property being purchased are income producing.

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#188431 - 05/12/04 02:08 PM Re: appraisal
Anonymous
Unregistered

I think the "abundance of caution" exception can be applied for any transaction. Having said this, I think the best test for using this exception is: "Would you do the loan unsecured or simply with any additional non real estate collateral pledged?"

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#188432 - 05/12/04 03:13 PM Re: appraisal
tuma Offline
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Joined: Feb 2003
Posts: 368
Here & There
Two questions in this post:
Is the Abundance of Caution legit in this case? It may be. Where is the primary source of repayment from? If the primary source of repayment is the MH Park rental income, or potential sale of it, then you may not have an Abund of Caution exception here.

Second, is a full blown appraisal required? It is a business loan under $1mil; if the primary source of repayment is not the MH Park, then you can probably do less than an appraisal by a certified appraiser.
Last edited by tuma; 05/12/04 06:39 PM.
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#188433 - 05/13/04 01:58 PM Re: appraisal
Anonymous
Unregistered

IF the abundance of caution is excluded - wouldn't a full blown appraisal be required given that both pieces of property; i.e. the MH park and the RE, are income producing. What would prevent a loan officer from making two loans secured by two pieces of income producing property and just switching the collateral on the loans and not getting an appraisal on either piece.

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#188434 - 05/14/04 12:38 PM Re: appraisal
tuma Offline
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Joined: Feb 2003
Posts: 368
Here & There
Quote:

What would prevent a loan officer from making two loans secured by two pieces of income producing property and just switching the collateral on the loans and not getting an appraisal on either piece.



How about your review ?

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#188435 - 05/14/04 12:46 PM Re: appraisal
Kathleen O. Blanchard Offline

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Kathleen O. Blanchard
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Posts: 21,293
Quote:

IF the abundance of caution is excluded - wouldn't a full blown appraisal be required given that both pieces of property; i.e. the MH park and the RE, are income producing. What would prevent a loan officer from making two loans secured by two pieces of income producing property and just switching the collateral on the loans and not getting an appraisal on either piece.



Your bank should have a procedure in which there are post close reviews with exceptions issued for missing documentation, including appraisals.

Additionally, your policies and procedures should require an approval by someone other than the lender to "switch" collateral. A loan is approved under certain terms and conditions. A lender should not be allowed on his/her own to change those terms and conditions.

Re abundancej of caution, the file needs to reflect the justification for use of this exception: a statement detailing why the bank would have made this loan on the same terms and conditions without the subject collateral. What is it about the borrower's net worth, liquidity, other collateral held that makes the bank comfortable enough that the value of this particular collateral is unimportant.
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#188436 - 05/18/04 07:13 PM Re: appraisal
Anonymous
Unregistered

Quote:

It is a business loan under $1mil; if the primary source of repayment is not the MH Park, then you can probably do less than an appraisal by a certified appraiser.



Why would the business loan exception apply if the source of repayment was not the MH park? Both properties are income producing.

If this was the case couldn't a lender always secure a loan to purchase income producing property (under 1MM) with other income producing property and never get an appraisal.

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