Accepting rewritten appraisals

What do you think of the following?

A lending area wants to accept appraisals that were ordered by mortgage brokers (on the approved list but NOT paid by the bank) from appraisers (also on approved list). The lending area thinks this will be okay because they will instruct the appraiser to "rewrite" the appraisal to us and pay a fee for him to do so. The appraisal will come in with everything the same but addressed to us, just as if we were the original client.

I personally think this is a violation of FIRREA because the appraisal would not be ordered by us, our agent, or another financial institution. I believe it is also a USPAP violation by the appraisers because the appraiser will not be sending a letter revealing the relationship with the original client who ordered the appraisal.

Has anyone had any experience with this? I have reviewed the appraisal requirements, USPAP and OCC bulletin B-00-33 and think this process would be a violation.

[This message has been edited by kblanchard (edited 02-06-2001).]

I agree with you that this would be both a regulatory violation and a USPAP violation. The prior experiences I have had with this were as an examiner (mostly prior to FIRREA)and seeing financial institutions do this blatantly. As a former examiner I reviewed files where both the original appraisal addressed to the original client and the new one with the name changed were in the file. Most of the time the original client was the borrower. The reason for wanting the financial institution to order the appraisal was so they would have control of the process from issuing the engagement letter detailing the type of appraisal required to reviewing the appraisal to insure that it complied with the regulations as well as internal policies and that it supported the value conclusion. I would think that just having the appraiser change the name of the addressee so that it appeared that the financial institution ordered it would likely cause you some problems with your examiners.

There may be another good reason for the bank to have the appraisal rewritten in it's name. There is a recent Virginia court case where the bank could not establish "privity of contract" with the appraiser, because the mortgage broker ordered the appraisal. The result was the bank could not pursue it's negligence claims against the appraiser. However, the bank's fraud claim was allowed to continue. The original appraisal was $1 million, the bank loaned $750,000, and a re-appraisal (after the loan was made) came in at $525,000.
See, The Provident Bank v. O'Brien, Law No. 181360, Circuit Court of Fairfax County, Virginia, May 2000.

Thanks. I am going to use that example to support my desire for the BANK to order all appraisals, unless legitimately ordered by another bank and properly released to us.