May 15, 2015
A reader sent us a lengthy question recently about FHA appraisals. While won’t reprint the entire message here for the sake of brevity, we’ve kept the most relevant portions:
“We are considering a HECM loan. The appraiser came out and we were not impressed. Prior to leaving, he told my husband and I that there was a couple of small things we needed to do before being able to close the loan(some peeling paint and a 1988 Cadillac inherited from my dad that was under our carport that we did not have licensed). Then we get a copy of the appraisal and under improvements he marked NO where it asks if there are any physical conditions that affect the livability, soundness, or structural integrity of the property.
However, under reconciliation, he marked the appraisal is made subject to the repairs or alterations on the basis of a hypothetical condition that the repairs or alterations have been completed. In the additional comments he wrote: physical depreciation typical for its age with some major deferred maintenance 1)2) and 3 are the painting and removal of the Cadillac or get it licensed but then No. 4 says Evidence of settlement of the concrete block wall of the built in garage and then in a separate number he says evidence of extreme moisture in the south basement Underwriter says we have to get a statement from a structural engineer…Is it reasonable to make us get a structural engineer out here just because these additional comments were put on her by someone (and maybe it was him as an afterthought) but it is ridiculous to say we have a structural problem and make us pay a structural engineer to prove it. Any suggestions?
Borrowers who have a dispute over the soundness of an FHA appraisal should start by contacting the FHA directly by calling them at 1-800 CALL FHA to request advice and assistance. That said:
There are a variety of reasons why the appraisal may have been carried out in the manner described in the reader question. State or local code requirements, for example, may dictate how much leeway can be given to issues like foundation problems. FHA appraisal rules do require notation of excessive moisture, so that portion of the reader question is definitely covered in the FHA loan appraisal rules.
The structural engineer issue may have more to do with determining the remaining economic life of the property rather than detecting issues that affect the current livability of the home. A HECM loan is contingent on the property being sold when the mortgage is due and payable, so it is logical that the appraiser would need to be able to determine that the home would be saleable when the loan comes due. Foundation issues can and often do affect the resale value of a property, so it may not be as unusual as it might sound at first to require a closer look.
As mentioned above, there are many variables at work here including state or local building codes that can affect how the appraisal is carried out. Unfortunately there’s no single answer since such requirements vary from state to state and city to city. While an FHA loan applicant cannot request a new appraisal simply because the valuation is in dispute, if there are concerns about the competency of the appraiser or the quality of the work, contacting the FHA directly is definitely a good first step.
Do you have questions about FHA loans? Ask us in the comments section.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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