October 7, 2015
In our last blog post we discussed FHA appraisals, and the fact that FHA loan rules do not permit the request of a second appraisal simply to raise the value of the property or to eliminate required corrections listed on the original appraisal report.
So when can the lender order a second appraisal? What circumstances justify this action?
The answer can be found in HUD 4000.1, Section II, Part A. According to this part of the FHA loan rules under “Second Appraisals By Original Mortgagee”:
“A second appraisal may only be ordered if the Direct Endorsement (DE) underwriter (underwriter) determines the first appraisal is materially deficient and the Appraiser is unable or uncooperative in resolving the deficiency. The Mortgagee must fully document the deficiency and status of the appraisal in the mortgage file. The Mortgagee must pay for the second appraisal.”
How does the FHA define “material deficiencies?” HUD 4000.1 states, “Material deficiencies on appraisals are those deficiencies that have a direct impact on value and marketability. Material deficiencies include, but are not limited to:
–failure to report readily observable defects that impact the health and safety of the occupants and/or structural soundness of the house;
–reliance upon outdated or dissimilar comparable sales when more recent and/or comparable sales were available as of the effective date of the appraisal; and
–fraudulent statements or conclusions when the Appraiser had reason to know or should have known that such statements or conclusions compromise the integrity, accuracy and/or thoroughness of the appraisal submitted to the client.”
But there’s more–FHA loan rules also cover second appraisals ordered by the “second mortgagee”. “A second appraisal may only be ordered by the second Mortgagee under the following limited circumstances:
–the first appraisal contains material deficiencies as determined by the underwriter for the second Mortgagee;
–the Appraiser performing the first appraisal is prohibited from performing appraisals for the second Mortgagee; or
–the first Mortgagee fails to provide a copy of the appraisal to the second Mortgagee in a timely manner, and the failure would cause a delay in closing and harm to the Borrower, including loss of interest rate lock, violation of purchase contract deadline, occurrence of foreclosure proceedings and imposition of late fees.”
The lender will be required to document the reasons for the second appraisal request.
Do you work in residential real estate? You should know about the free tool offered by FHA.com. It has been designed especially for real estate websites–a widget that displays FHA loan limits for the counties serviced by those websites.
It is quick and easy to spend a few seconds customizing the state, counties, and widget size for the tool; you can copy the code and paste it into your website with ease. Get yours today:
http://www.fha.com/fha_loan_limits_widget
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.
Browse by Date: