Okay folks, I have a question for you all. I'm reviewing a 1.5 million dollar loan in which a land appraisal was ordered in April 2004 by the borrower. We gave them a loan in May of 06, using the same appraiser and had the appraiser review the land and give us a letter issued to our financial institution giving us an updated figure for the constructed residence (about 4 million dollars more than the land appraisal in 04). My question is, I think we should have ordered at least a summary appraisal since the original appraisal was ordered by the borrower, and not obtained a letter (lenders tell me this is the restricted appraisal verbage we use). The lender is telling me that he's not using the borrower-ordered appraisal and just has that as support in the file. He states that the 2 page letter indicating the value is the "appraisal." I am thinking that I am still going to recommend obtaining a summary appraisal as this loan will for sure be reviewed by examiners. This definitely violated our policy but I can't find any support in the appraisal regs or Q&A that talk about this. I think we are walking a fine line with independence to start with. But it was almost 2 years later. Any help would be greatly appreciated!!! Thanks so much!

I'm in agreement with you.

http://www.fdic.gov/news/news/financial/2005/fil2005a.html

9. Can a regulated institution accept an appraisal from a prospective borrower and determine its acceptability based on a review?

Answer: No, a regulated institution cannot accept a borrower-ordered appraisal.

12. May an appraisal be readdressed to a regulated institution from the borrower or another institution?

Answer: A regulated institution cannot accept an appraisal that has been readdressed or altered by the appraiser with the intent to conceal that the original client was the borrower. Readdressing appraisals to conceal the original client, whether the client is a borrower or another financial services institution, is misleading and violates the agencies' regulations and USPAP.

Again, the lender's argument would be that they did not "accept" the appraisal from the borrower but ordered their own appraisal from the same appraiser. Do you think that we should have even used the same appraiser? Oh, one other thing, the appraiser didn't even charge us for this "letter." I'm hoping they have support documentation to come up with an appraisal. They would have had to do some work on this I'm assuming.

IMO a letter from an appraiser stating the value of the property does not constitute a "qualified" appraisal. If the appraiser based their opinion on a site review and the information from the previous appraisal then your value, IMO, is based on an appraisal ordered by the borrower. All you did is have the appraisal reviewed and the above Q&A states clearly that is not acceptable.

Thank you so much! I agree completely!

One last comment.



If the loan officer is saying they ordered an appraisal and the letter from the appraiser is that appraisal, then why does he need a copy of the borrower ordered appraisal in file to support the appraiser's opinion letter? Regardless what this loan officer is telling you IMO he accepted and relied on a value determined by a review of a borrower ordered appraisal. He can't win the argument with you and I, how does he expect to win one with an examiner?

Not to mention that on a transaction of this size the regulators would require a full self-contained appraisal. They most likely would not even go with a limited appraisal in this case:

"The agencies do not prohibit the use of a Limited Appraisal for a federally related transaction, but the agencies believe that institutions should be cautious in their use of a Limited Appraisal because it will be less thorough than a Complete Appraisal."

A letter from an appraiser just won't cut it.

Rclarey,
Can you site where that information you just quoted came from? Thanks for both of your help.

Never mind, I found it. Thanks!

I agree with all of the comments above suggesting the bank s/h ordered its own appraisal. As a lender, even I would have a hard time stretching to accept a borrower-ordered appraisal. That said, there is no such regulation requiring a full, self-contained appraisal report. It really comes down to risk tolerance. If we know the appraiser and the location, we almost always opt for a summary report. If we have participants that don't know the appraiser or area, we get a SC report. BTW, USPAP changed in 2006 and dropped any reference to "limited" reports. There still is a "restricted" format report (which may be what rlcarey might be thinking of) which the regulators do allow with caution (meaning use it sparingly and only for low balance, low LTV, low risk, etc ...).