April 30, 2015
A reader asks, “I am in the process of selling my home. There was an appraisal done and it came in low. We negotiated with the buyers on that appraisal. Now I am learning they got another appraisal that was higher so they could get a higher loan amount for closing costs but will not provide the appraisal to us.”
“By the way, this is FHA and apparently the lender never filed the first appraisal with the FHA. Additionally, the lender has now changed their story stating they paid for the first appraisal and that the buyer paid for the 2nd appraisal and therefore they dont have to give it to us for re-negotiations. This cant be legal? And surely I have recourse? We are set to close tomorrow, and this just happened two days ago. I told them I am not signing tomorrow.”
While it is not for us to say what’s actually happened here–we don’t have all the facts and cannot speculate on them regardless–we can look up FHA loan rules that cover appraisals to see what is and is not permitted. Those who suspect a violation of these rules should call the FHA directly at their toll free number listed at the end of this article.
HUD 4155.2 Chapter Four covers the appraisal rules (“property valuation”) for FHA single-family home loans. To begin with, it states:
“The purpose of the property valuation process is to
–determine eligibility for mortgage insurance based on the condition and location of a property, and
–estimate the value of the property for mortgage insurance purposes.
The appraisal is the lenders tool for making this determination.”
Furthermore, Chapter Four provides some “teeth” for the rules listed in this chapter:
“Lenders, including sponsoring lenders, are equally responsible, along with appraisers, for the quality, integrity, accuracy and thoroughness of appraisals. The lender will be held accountable if it knew, or should have known, that there were problems with the integrity, accuracy and thoroughness of an appraisal submitted to FHA for mortgage insurance purposes. Lenders that submit appraisals to HUD that do not meet FHA requirements are subject to the imposition of sanctions by the HUD Mortgagee Review Board (MRB).”
With that in mind, Chapter Four states:
“Lenders, and third parties working on behalf of lenders, are prohibited from
–withholding or threatening to withhold timely payment or partial payment for an appraisal report
–withholding or threatening to withhold future business from an appraiser
–demoting or terminating, or threatening to demote or terminate, an appraiser
–expressly or impliedly promising future business, promotions or increased compensation for an appraiser
–conditioning the ordering of an appraisal report or the payment of an appraisal fee, salary or bonus on the opinion, conclusion or valuation to be reached, or on a preliminary value estimate requested from an appraiser
–requesting that an appraiser provide an estimated, predetermined or desired valuation in an appraisal report prior to the completion of that report
–requesting that an appraiser provide estimated values or comparable sales at any time prior to the appraisers completion of an appraisal report.
–providing to the appraiser an anticipated, estimated, encouraged or desired value for a subject property or a proposed or target amount to be loaned to the borrower, except that a copy of the sales contract for purchase must be provided”.
But the most important part of the FHA loan appraisal rules found in Chapter Four of HUD 4155.2 in reference to the reader question is this–the lender is not permitted to be involved in any of the following practices:
“ordering, obtaining, using, or paying for a second or subsequent appraisal or automated valuation model (AVM) in connection with a mortgage financing transaction unless
–there is a reasonable basis to believe that the initial appraisal was flawed or tainted and such appraisal is clearly and appropriately noted in the loan
file
–such appraisal or automated valuation model is done pursuant to written, pre-established bona fide pre- or post-funding appraisal review or quality control process or underwriting guidelines, and
–the lender adheres to a policy of selecting the most reliable appraisal, rather than the appraisal that states the highest value, or
–any other act or practice that impairs or attempts to impair an appraisers independence, objectivity or impartiality, or violates law or regulation, including, but not limited to the Truth in Lending Act (TILA) and Regulation Z and USPAP.”
Borrowers or sellers who suspect that there has been a violation of the rules mentioned above should contact the FHA as soon as possible by calling them at 1-800 CALL FHA.
Do you have questions about FHA home loans, refinance loans, or the FHA loan appraisal rules? Ask us in the comments section. All questions and comments are held for moderation before appearing on the website. Sorry, personal replies are not possible. We will reply 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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