Topic: Appraisals and Valuations
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Our new loan origination software requires us to assign one Illinois law to each type of loan to help the software identify the permissible interest rate for the loan product. For consumer non-real estate loans, should we assign the Interest Act or the Consumer Installment Loan Act? For home equity lines of credit (HELOCs), should we assign the Interest Act or the Financial Services Development Act? Also, does the Interest Act permit us to charge commercial real estate borrowers a fee for real estate valuations completed by a bank staff member?
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We are hesitant to answer your question to the extent that it might imply we believe attributing a single law to a loan type, even if only with respect to interest rates, constitutes a best practice (or even an acceptable practice in some circumstances). Having said that, the Consumer Installment Loan Act does not apply…
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Does a request for a modification of an existing loan constitute an “application” under Regulation B, triggering the requirement to send an appraisal notice within three business days? Typically, our modifications involve extending the maturity date or lowering interest rate.
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The answer depends on the specific type of modification and how the request is made. Regulation B’s appraisal notice requirements apply whenever you receive an application for an extension of credit secured by a first lien on a dwelling. Therefore, you must determine whether each modification request involves an “application” for an “extension of credit.”…
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A consumer applied for a loan that is subject to the TILA-RESPA Integrated Disclosure (TRID) rules. The consumer indicated an intent to proceed with the loan, but we did not end up originating the loan. The consumer refuses to pay our appraisal fee. Can we pull the fee amount from the consumer’s checking account at our bank?
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Yes, we believe that your bank may exercise a valid right of setoff for the unpaid appraisal fee against the applicant’s checking account, provided that your bank properly disclosed the appraisal fee and that the applicant would be charged the fee to reimburse your bank for the cost of the appraisal (and the applicant had…
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When we extend our in-house balloon mortgage loans, we reevaluate the property. The evaluations usually consist of driving by the property and concluding either that the property value is consistent with our original appraisal or that it has deteriorated. We document the evaluations and retain the documentation in our loan files. Are we required to provide a copy of these evaluations to the applicants and obtain their signatures of receipt?
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Yes, we believe that your bank should provide copies of these evaluations to applicants requesting renewals of loans secured by a first lien on a dwelling. While the applicants’ signatures are not required, obtaining their signatures would be a prudent step for documenting your compliance with this requirement. Regulation B requires creditors to provide applicants…
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Our loan document system does not produce an appraisal notice for home equity lines of credit (HELOCs). Is that correct?
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Regulation B requires lenders to provide a notice of appraisal rights for credit applications secured by a first lien on a dwelling. The appraisal notice is not required for HELOCs secured by a second or junior lien. However, if a HELOC will be secured by a first lien on a dwelling (for example, when the…
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We have a loan processor who gets paid a flat fee amount for each loan application she processes, compiles, and submits to underwriting. She receives this fee regardless of whether the loan ultimately is approved or denied and has no role in deciding whether to approve or deny the loan. Can she order appraisals online through an appraisal management company (AMC)? The employee would have no input in selecting the appraiser and no direct contact with the appraiser. Our bank has less than $250 million in assets.
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Yes, we believe this loan processor may order appraisals through an appraisal management company. The federal Interagency Appraisal and Evaluation Guidelines generally require that an institution’s collateral valuation program be isolated from the influence of its loan production staff (including employees who are compensated based on volume alone, such as your loan processor). However, the…
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Is it legal for a broker who does not have an appraiser license to produce a written opinion regarding the market value of a particular property? Is it compliant to rely on broker price opinions as a valuation for a real estate transaction? Are there any restrictions on using broker price opinions?
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We do not believe a broker price opinion can form the basis for establishing a property’s “market value.” In other words, even if a broker price opinion purports to state a property’s market value, that opinion may not be relied upon in lieu of an appraisal or evaluation when financing a real estate transaction. Federal…
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For transactions under $250,000 that are exempt from all appraisal requirements, would a printout from a real estate sales website (such as Zillow) or a county assessor suffice?
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No, we do not believe that a printout with informal information from a real estate sales website or a county assessor would suffice as an evaluation of a property’s value for loan underwriting purposes. The Interagency Appraisal and Evaluation Guidelines permit financial institutions to use evaluations in lieu of appraisals for transactions under $250,000, but…
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Are appraisals required for transactions under $250,000? I understand that an appraisal on such a transaction may be required for safety and soundness reasons, but is an appraisal required under any appraisal regulations?
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Interagency Appraisal Regulations and Guidance The Appraisal Regulations permit the use of evaluations in lieu of appraisals for transactions under $250,000, but sometimes such transactions nonetheless require an appraisal for safety and soundness reasons. (We reference the FDIC’s appraisal regulations below, as the FDIC is your bank’s primary federal regulator.) While we cannot predict whether…
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Are Community Integrated Living Arrangement (CILA) homes used to secure commercial loans subject to ECOA appraisal rules?
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Whether ECOA’s requirements regarding appraisals apply depends on whether the CILA mortgage is a first lien and whether the property is a 1 – 4 unit dwelling. The Official Interpretations to Regulation B make clear that its appraisal requirement “covers applications for credit to be secured by a first lien on a dwelling . .…