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Acquiring the Appraisal

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Posted On: 08/26/2009

Q: The FDIC took over our bank. Our construction loan was with that bank and since then we have tried to get permanent financing. We have complied with all the requirements set up by the FDIC. However, the FDIC has an appraisal on our half-built home. They are now basing whether or not they will fund the completion of our house on that second appraisal. We had an appraisal when we applied for the construction loan, but the FDIC's new appraisal came in $121,000 under the original valuation. The FDIC refuses to let us see the second appraisal. They said the government owns it and they do not have to show us.

Does the FDIC have a right to withhold the appraisal?

A: Federal Deposit Insurance Corporation spokesman David Barr told us that under FDIC policies "appraisals on collateral of performing or nonperforming loans (including value conclusions and other data within the appraisals) typically should not be divulged to borrowers, representatives of borrowers, or any other third party involved with the borrowers. However, sometimes while negotiating a workout, compromise, restructure, et cetera, it may be useful to share appraisal information or the appraisal itself in an effort to reconcile or resolve disputes over collateral value. In such cases, appraisal information may be divulged with the appropriate Regional Manager’s approval. Asset files should reflect that approval was obtained and the nature of the disclosure."

The FDIC's policy is entirely different from the new disclosure agreement worked out by Fannie Mae, Freddie Mac, New York State Attorney General Andrew Cuomo, and the Federal Housing Finance Agency. The new policy – which went into effect May 1 – includes a "Home Valuation Code of Conduct." The Code says "the lender shall ensure that the borrower is provided a copy of any appraisal report concerning the borrower’s subject property promptly upon completion at no additional cost to the borrower, and in any event no less than three days prior to the closing of the loan. The borrower may waive this three-day requirement. The lender may require the borrower to reimburse the lender for the cost of the appraisal."

The Cuomo policy directly covers more than 30 million loans. More importantly, it sets a standard which ought to be make sense to just about everyone. For instance, in your situation if you can't see the FDIC appraisal you cannot know what other homes were used as comparables, you don't know if the appraiser was inside the home and you have no way to dispute the findings.

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Frank Gregoire, an appraiser in St. Petersburg, Fla., with more than 30 years of experience, told us earlier this year that the Equal Credit Opportunity Act requires a lender to provide a copy of the appraisal to the borrower within a reasonable time after a written request from the borrower. Gregoire is a past chairman of the Florida Real Estate Appraisal Board. The ECOA standards are on the FDIC Web site at www.fdic.gov/regulations/laws/rules.

It's easy to understand that the FDIC wants to be cautious and careful. It's also easy to understand that market values in many communities have declined, in some cases with great speed. If the FDIC has an appraisal which justifies a refusal to provide financing, that's fine – but fairness demands that borrowers have a chance to see the appraisal, just as they would if the lender was not a government entity.

You could wait for a policy change, something which is possible because the FDIC is generally one of the more responsible regulators in Washington, but the alternative is to get financing elsewhere, pay back the FDIC and have enough to finance the completion of the property. This is not likely to be simple or easy in today's market, but since you're not going to get the FDIC to approve a loan on the basis of it's super-secret appraisal, what choice do you have?

In addition to seeking a new lender, you should certainly be in touch with your senator and representative. They're supposed to be in Washington to advance your interests. Explain what happened and ask for help. You may be happily surprised by the result.

Peter G. Miller is the author of The Common-Sense Mortgage and a veteran real estate columnist. Have a question? Please write to peter@ctwfeatures.com.

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