Appraisal Scoop

HUD/FHA: "Site Condo" Definition and Reporting Requirements - ML 2011-22

An appraiser on the Inland CA Appraiser forum posted the following question:

"I received information from a client that FHA recently issued a directive in Mortgagee Letter 2011-22 that "site condos" are to be placed on FNMA form 1073. Does FHA have a formal definition of a "site condo"? I know one when I see one but I wondered if FHA has the same concept that I do. If anyone can tell me where in the maze of FHA I can see a copy of their definition I would appreciate the help."

It just so happens that I own a property down in TN that is a "Site Condo" so the question spurred me on to do a little digging! What I found was HUD's Mortgagee Letter 2011-12

 

Prior to the release Mortgagee Letter ML11-22, HUD had exempted so-called “Site Condominiums” from the requirement to become approved in order for FHA financing to be allowed within the project. ML11-22 clarifies what a Site Condominium is in order for it to not be required to obtain HUD’s approval.

What IS a "Site Condominium" (per HUD)

According to Pg. 73 of Apendix C – Glossary (Condominium Project Approval and Processing Guide)

Site Condo - A site condominium is defined as a single family totally detached dwelling (no shared garages or any other attached buildings) encumbered by a declaration of condominium covenants or condominium form of ownership.

But WAIT . . .There's MORE!

Pg. 19, Unique Projects, section 1.8.1 of the (Condominium Project Approval and Processing Guide) further outlines and defines what a Site Condo is:

Condominium project approval is not required for Site Condominiums meeting all of the below defined requirements.

Site Condominiums are defined as:

• Single family totally detached dwellings (no shared garages or any other attached buildings or e.g. archways, breezeways); and
• Are encumbered by a declaration of condominium covenants or condominium form of ownership; and
• The condominium unit consists of the entire structure as well as the site and air space and are not considered to be common areas or limited common areas; and
• Insurance and maintenance costs are totally the responsibility of the unit owner; and
• Any common assessments collected will be for amenities outside of the footprint of the individual site.

Condominiums that do not meet this definition will require full project approval.

Manufactured Housing Condominium Projects (MHCPs) may not be treated as Site Condominiums - these projects require approval under the HRAP option. Modular homes are processed as single family homes for insurance purposes and are eligible to be treated as Site Condominiums as long as they meet the stated definition.

OK!  So I know what a Site Condo IS, but I thought we always reported them on the Fannie Mae 1004 appraisal report.  Right?  That WAS true . . . until this ML.

 It was Mortgagee Letter 2009-46B on page 14 under Section VI Site Condominiums that stated:

Appraisal data is collected and reported on Fannie Mae form 1004, in accordance with the Valuation Protocols, Appendix D of HUD Handbook 4150.2.

However, THIS ML and the Guide clarify, expand, consolidate and update existing guidance, and replaces MLs 2009-46 a, 2009-46 b and 2011-03.

3.14 Site Condominiums (pg. 51 ) of (Condominium Project Approval and Processing Guide) states:

Although not subject to the general condominium approval requirements, the applicable ADP codes for Site condominiums are 731 (Adjustable Rate Mortgages) and 734.

Appraisal data is collected and reported on Fannie Mae form 1073, Individual Condominium Unit Appraisal Report.

The Condominium Rider (Appendix G) must be included in the FHA case binder submitted for insurance endorsement.

 

The New Threat to Appraiser Independence

Guest Post: Charles R. (Chuck) Dettling is a Certified Residential Real Property Appraiser licensed in Alabama and Florida. Chuck and his son, Seth, also a Certified Residential Real Property Appraiser, operate a small firm, Dettling & Associates, covering seven counties in Southwest Alabama and the Florida panhandle. Their practice includes single family, small commercial, condo, and land, with a specialization in REO assignments. Email: [email protected]  

As most appraisers and mortgage market participants are aware, the Board of Governors of the Federal Reserve published an Interim Final Rule in the Federal Register on October 28 2010, Volume 75, Number 208, Pages 66554 through 66587, that implements Section 129E of the Truth in Lending Act (TILA) U.S.C. 1601, which was enacted on July 21, 2010 as Section 1472 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Rule is to take full effect on April 1, 2011, and among other things, intends to establish new requirements for appraiser independence, and better consumer protection in all finance transactions that involve their principal residence.

As appraisers, we generally applaud the efforts of Congress and the Federal Reserve to implement rules and procedures that enhance appraiser independence, help to protect the integrity of our profession and increase public trust in the appraisal process. From the appraisers’ point of view, some of the more popular provisions of the Rule include the elimination of the HVCC, and mandated payment of “reasonable and customary compensation” to the appraiser. Other provisions attempt to strengthen already existing ethics rules and regulations. As with many extremely complex federal regulations, there are often unintended consequences. In this appraiser’s view, the mandate that “… parties involved in the transaction report appraiser misconduct to state appraiser licensing authorities” could lead to a new breed of pressure on appraisers, i.e., the threat of a board complaint. Most of us would agree there are unethical and poorly trained appraisers out there competing with the rest of us, and those should be reported when warranted. But, what unintended consequences could result from enactment this provision?

Over the course of the past several years, I have found the relationships between appraisers and real estate brokers, agents and sales staff to be increasingly strained. One need only recall the visceral reaction by the real estate sales profession after the implementation of HVCC. The national news media was filled with so-called ‘horror stories” of appraisers “low-balling” appraisals in order to avoid liability in what was (and is) clearly a tragically devastated real estate market. Agents complained bitterly that they could not get their deals done because those naughty appraisers were intentionally valuing their pending sales too low. One of the more obnoxious examples was a report on Fox Business News wherein David Asman interviewed Dolly Lentz, the Real Estate Vice Chairman of Prudential Douglas Elliman. Asman asked Lenz what needed to be done to “fix the problem” and incredibly she replied, “…I think for one, they should have to provide comparable sales.” Earth to Dolly!!

Section 226.42 42(g) Mandatory Reporting “TILA Section 129E(e) requires certain persons to report an appraiser to the applicable state appraiser certifying and licensing agency if the person has a reasonable basis to believe the appraiser is failing to comply with USPAP, is violating applicable laws, or is otherwise engaging in unethical or unprofessional conduct. 15 U.S.C. 1639e(e). This provision applies to creditors, mortgage brokers, real estate brokers, appraisal management companies, and any other persons providing a service for a covered transaction.”

By the way, notice how the new law is strangely silent on the responsibilities and professional conduct of real estate sales professionals. Could it be that the massive National Association of Realtors lobby was able to convince congress that everything was just hunky-dory on their end. Just fix the appraisers and everything will be just fine.

So, now we have several million people described in the above code section who are required by law to report appraisers when they “have a reasonable basis to believe that an appraiser has not complied with USPAP or ethical or professional requirements…” Unfortunately, the Fed forgot to define “reasonable.” Question. With (hopefully) the exception of licensed or certified appraisers, who in this group knows squat about USPAP, really? When is the last time you heard Jane Q. Public espouse the many virtues and complexities of USPAP? I had a dream the other night. I was talking to a homeowner about the appraisal process and that rascal looked over his bifocals, leaned toward me, smiled (exposing all six of his teeth), and said: “So, doesn’t the Scope of Work Rule in USPAP require you to include the research and analyses that are necessary to develop credible assignment results?” 

A couple of years ago I had a property owner file a complaint against me. The complaint letter stated rather adamantly that I had refused to consider “comparable sales” that she had provided. Those “comparables” were in another state and were so superior that it was ridiculous. I expected the case to be dismissed immediately. But according to the Board they are required by the Appraisal Standards Board to conduct a full investigation into every aspect of the appraisal assignment. Six months later and with ten years of my life eliminated, I was completely exonerated, with not even a private warning.

Armed with this new “weapon” it is easy to imagine a huge surge in complaints by irate real estate agents, unhappy property owners, and others to the state boards. What is going to happen to E&O insurance rates when over-zealous state boards launch World War III against the appraisers to protect the public (oh, yes, and raise some much-needed revenue)? Will appraisers quickly discover that simply “tweaking” the numbers to accommodate real estate sales contracts or consumers’ wishes will minimize or eliminate the risk of complaints? Will too many appraisers end up with frivolous complaints that result in fines and reprimands, tainting the valuable reputations of our colleagues, and driving the best of our lot from this profession? In short, will this codified mandate to report appraisers become the new threat to appraiser independence?

About The Author: Charles R. (Chuck) Dettling is a Certified Residential Real Property Appraiser licensed in Alabama and Florida. Chuck and his son, Seth, also a Certified Residential Real Property Appraiser, operate a small firm, Dettling & Associates, covering seven counties in Southwest Alabama and the Florida panhandle. Their practice includes single family, small commercial, condo, and land, with a specialization in REO assignments. Email: [email protected]  

Condominium Project Analysis - The Appraiser's Role?

At least three in four home buyers obtain a professional home inspection to determine the physical condition of a home before they close the deal, but most home buyers aren't as likely to pay attention to a condominium community's financial condition when it is just as necessary.

"It is amazing that people don't spend much more time on a condo purchase when they are becoming "business partners" with strangers in a multi-million dollar real estate development partnership," said Robert M. Nordlund, president of Calabasas, CA-based Association Reserves, Inc.

"Buying a condo or town home is a lot like buying a share in a closely held, publicly-traded, non-profit real estate holding corporation. You don't just buy a home, you effectively enter a partnership and bad business surprises -- just like deferred maintenance surprises -- can cost you"

Without careful attention to financial details, you could overlook the troubled financial status of the one in three homeowners associations (HOAs) that are unable to meet major repair and replacement obligations because of insufficient reserves, according to Association Reserves.

What's The Appraiser's Reponsibility?