Concerning FHA Short Sale Dept. using outdated appraisals for comparables.
I am representing a client who is currently marketing his property for short sale.
We are working with the Government Loan Short Sale Dept and have just received a rejection for an offer that was submitted for the purchase of this home.
The reason for the rejection was that we were below lender's desired net price.
I asked our negotiator what that net price would be and was given an amount that, with escrow fees, would hardly appraise in this market.
I then asked for a current appraisal to be done. I was told that 2 appraisals have been done and no further appraisals would be performed.
I have requested a desk review and received back these requirements in submitting request for review - I would need to submit 3 comparables that closed less than 6 months before the effective date of the appraisal (no current market date - pending, sold after appraisal, under contract is NOT acceptable.)
I then asked for a copy of the last appraisal and was shocked to see that the last appraisal was performed on 2/17/2010.
I would have to submit comparable that are 1 year - 1 1/2 years old. The average market price in our area has dropped at least $30 sq. ft. in this time and I'm concerned that this lovely home won't appraise for the prices that were acceptable in our market 1 1/2 years ago.
Can anyone please advise me in how I can best serve my client in moving forward?
Thanks
Replies to This Discussion
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Permalink Reply by Kevin - Greenville, SC on
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I'm actually attending classes at the HUD National Servicing Center next week.
http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sf...
I have had 100% with FHA PFS and find them to be far superior to any other type of Short Sale Program out there (but not without their own issues of course). When the FHA As-is Appraisal comes in and doesn't represent FMV, you need to push the Servicer to order another under PFS Guidelines.
Keep beating these items into the Servicer's head -
Establishing Market Value –Mortgagees are reminded to ensure that properties in the PFS
program are sold at or near fair market value as established by an independent appraisal,
prepared by an appraiser on the FHA Appraisal Roster.Monitoring of Appraisals
Mortgagees are reminded that HUD performs monitoring reviews of appraisals and holds
mortgagees accountable for the quality of appraisals on properties securing FHA-insured mortgages.
As such, HUD may request electronically-formatted appraisals to review and ensure their accuracy.
Mortgagees who submit appraisals that do not meet HUD’s requirements are subject to the
imposition of sanctions by the HUD Mortgagee Review Board in accordance with 24 CFR Part §
25.9 (ee) and Part § 203.5 (e)(3).In an effort to ensure that the most current FMV is used for the PFS, a mortgagee may
obtain a new FHA appraisal, even if the property was appraised by an FHA Roster Appraiser within
the preceding 4 months.I do agree with Jeff on the VA Liquidation Appraisals. Good for 6 months and good luck trying to get another one completed prior to the expiration.
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The FHA Loss Mitigation Program delegates to lenders both the authority and the responsibility
to utilize actions and strategies to assist borrowers in default in retaining their homes, and/or in reducing
losses to FHA’s insurance funds. HUD believes that the lender is best positioned to determine which, if
any, loss mitigation strategies are appropriate in a given circumstance. Without HUD approval, lenders
may, in their sole discretion, utilize any of the loss mitigation options, within the guidelines provided in
this document or determined by the Secretary.
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Permalink Reply by Jim Stewart on
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Unrealistic appraisals are the number one problem with FHA PFS short sales. When possible you've got to meet the appraiser out at the property and put comps in their hand, explain the situation and tell them the history of the listing if you've had it listed prior to the appraisal being done. You can't control what the appraiser does afterwards but I can say that every single time I've meet the appraiser I've gotten the deal done. The one time recently that I didn't meet the appraisal resulted in an outrageous appraisal and (this really shocked me) an appraiser that actually bad-mouthed my company in the appraisal.
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Permalink Reply by Michael Schneider on
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@ Jim Totally agreed. One of the problems with the FHA program is the "early appraisal". It may sound good on paper to some: "We tell you what you need to get, so you know what is needed". But, in practice it is bad IMHO. We are the sales team, we work to get the best offer, then we justify. The sales team sells the property, not the bank, insurer, or appraiser.
The best measure of market value is the offer from a committed and capable agent. The appraiser is there to validate that amount. The FHA and HAFA programs swap the roles of Agent and Appraiser in this regard, bad idea.
We avoid the appraisal before offer when reasonable to do so. And when we can't we manage, manage, and manage.
So, I just want to stay in control? That's right, I do.
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Permalink Reply by Melissa Brown on
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I faced a similar situation with a HAFA short sale last summer through B of A (AMS Services). As mandated in the HAFA program, an appraisal was done prior to marketing to determine the list price. The appraisal came back ridiculously high at $126,000, which was $2,000 MORE than the owner paid for it in the height of the market in 2007! I could not get them to change the list price. We had ZERO showings for 90 days - duh, it was way over-priced, and I kept supplying AMS with new data. I finally just lowered the price to where it should have been, and we had a cash offer in a week - a very decent offer, very close to market value. B of A countered at full list price, and told me that the 1-3 month old new comps that I submitted with the offer were TOO RECENT, and had to be BEFORE the appraisal was done back in March. I asked this negotiator if she heard what she was saying, that my comps were too recent, that this didn't make sense. She yelled at me that she doesn't make the rules, she just follows them. We lost the buyer, and the home went to DIL. Unbelievable.
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Permalink Reply by Jennifer Viger on
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@ Melissa Brown - I am in the same situation right now with and FHA loan through Wells Fargo. I was referred this seller after another agent tried to work through the initial stages of the short sale process and realized early on, she was in over her head. Unfortunately, the appraisal had already been ordered on the property by the time I took over and the agent had the house listed at the payoff amount rather than the FMV during the appraisal, which caused the lost and confused appraiser to value the home at close to payoff on the property which was about $20k high. The problem came when I took over because the former listing agent did not get paperwork back to WF fast enough so by the time I finalized everything and we got our approval letter, the appraisal was already 2.5 months old. When I appealed the appraisal, I was given every excuse as to why my comps weren't good enough despite the fact that I came up more recent, closer square footage, closer in radius, more similar in style and condition comps than the appraiser that fell prior to his appraisal. The appraiser used comps that were over a year old, outside a 2 mile radius, and stated the square footage of the subject home over 10% inflated. I escalated the file to VP office and they agreed with my findings, however, I was told to wait a week and just let it expire and request a new one be ordered. It is supposed to be ordered tomorrow, so keeping my fingers crossed that this appraisal will better since it's our last shot before DIL. Feeling the same frustration on this file as you did on yours, although, I feel like I am seeing appraisal issues in conventional, FHA, & VA alike. I understand that they have to have policies and procedures in place, but this appraiser stated in so many words that he had a hard time finding comps and I could send them plenty. At some point, there has to be some common sense used as well.
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@Jennifer Viger, I feel your pain! It made NO sense whatsoever that my great comps were "too recent." Same as your situation, my comps were in the same condo complex, same square footage, and sold in less than 3 months back. What more do they want for market value? I appealed the appraisal at the time (March), but I didn't have much to go on at the time. But over the summer, there were some sales in the complex that totally justified my position. I escalated and got no where; to make matters worse, my seller had disappeared (he is the son of a good client), and he didn't care about the outcome at all, his credit was SHOT! The whole experience really soured me on HAFA short sales, but I understand that I am in a minority - they have been working well for others.
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@ Melissa Brown...I wish I could say I am not soured by the HAFAs too. I am reading more and more information that says you are better off staying away from the HAFA program. I, unfortunately, have only attempted them on BoA properties which just adds to it, but I am (fingers crossed) closing my first HAFA on Monday. I have much better experience with FHA short sales, but find that appraisals are typically the only hurdle I encounter on any short sale. Everything else is manageable, but the pedestal that they put these appraisers on, in addition to the fact that appraisers (at least in our market) are clueless as to what it going on. When you add that to the stupid guidelines that these lenders put in place, it is a recipe for a bad appraisal. Example: I cannot understand why they will not allow for appraisers to use a distressed sale. I don't think that should be the only type of comp used, but when an appraiser has to go 4 neighborhoods down the road to find a comp because the *ONLY* thing that has sold in the subject neighborhood is distressed properties...there should be some weight in that. The banks should know what they will get when the property goes into foreclosure and there should be some discount allowed for distressed neighbors. As an investor, home owner, real estate agent, and someone with a retirement, I don't want to see properties sold for less than what they have to be sold for, but it irritates me to submit contract after contract on a property that I KNOW is a good purchase price and have the banks turn it down for months, just to accept an even lower offer a month later because their appraisal is outdated and they are too legalistic to see through it. Let's be honest, someone is getting money somewhere to hang onto these properties a little longer.
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Just knowing that the bible for the FHA short sale program is ML 2008-43 indicates that this is a program in trouble. Published in 2008, means developed in 2007. Has anything changed in real estate since 2007? Surely, something has.
And, sadly, HAFA was created from FHA/PFSP. Sorta like the dinosaur evolving into the dodo bird.
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Anything that doesn't fit the FHA PFS Program box is eligible for a variance request from HUD.
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You are correct, HAFA is based on the FHA PFS, by Laurie M. and the reason it doesn't work nearly as well is because with the FHA PFS only 2 entities are involved (and really only HUD's decision matters), the Servicer and the FHA. With HAFA, there are probably hundreds of different combinations of parties. By design or default it can/will never work as well.
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@Kevin I don't think the variance process is sufficient to address the fundamental problems in PFSP. And, I don't think this would stand up to regulatory scrutiny. Imagine if a lender acknowledged that they have discriminatory lending practices, but claimed a defense on the basis that "they have a variance process". They would get slammed, and rightly so.
And I think this analogy is apt, as I think that it is quite possible that the FHA/PFSP program results in disparate treatment potentially violating ECOA. We have handled 22 FHA short sale files, with six failures, four because of FHA/HUD valuation policies. In these four cases, there was a disparate "low-to-mod" income effect.
Meaning, in my experience, FHA valuation policies produce the disparate outcome that a lower-income FHA borrower is less likely to complete the PFSP option. As PFSP is a "credit granting" process, I think this may be is a violation of ECOA.
To me, it is sadly ironic that the FHA simple ignores this misguided aspect of PFSP.
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