Reader discovers appraisal irregularity

September 11th, 2009, 2:00 am · 12 Comments · posted by Mathew Padilla

Randy Johnson, president of Independence Mortgage Co. in Newport Beach, author of “How to Save Thousands of Dollars on Your Home Mortgage” and a mortgage broker since 1983, answers questions…

Clydale in AZ asks:
Q. I bought a property and, due to seller credits for repair, the lender did a second appraisal. I was not able too see the appraisal result prior to closing. According to my mortgage broker, it was just some comments noted on the original appraisal. My down payment was large. The day after I signed the contracts to close I found out the appraisal came in lower than the sale price. Can I sue the lender for the difference? They are not asking for additional money from me.

A. By law you are entitled, virtually immediately upon demand, to get a copy of the appraisal, and, although I am not a lawyer, I believe that this means the original report AND any subsequent modifications or alterations of the original report. One question is whether there was enough of a difference so that had you known about it, you would not have closed escrow without an adjustment to the price.

As to whether you can sue, the first question is, “What for?” Were you really damaged or just angry that you were treated shabbily? You can see a lawyer, but you will have to consider his fee in relation to what you expect to get back from whom, the broker, the lender, or the seller.

Finally, did your purchase contract have in it a stipulation that your home appraise for the purchase price. If that was the case, you should have told the escrow not to close until you got the updated report and gave your go-ahead.

For other readers, this is an opportunity to tell you never to close escrow until you are happy with the way things are going. There is usually a great deal of tension as everyone else puts pressure on you to close. If you have a valid reason to hold things up, do so. You will then get everyone’s attention! Five minutes after escrow closes, they will already have forgotten you.

That’s it. If you want Johnson to answer a question, email it to Mathew Padilla at mapadilla(at)ocregister.com. Include your name or nickname and the city you live in — that information will be published with your question.

Johnson will answer up to three questions each week, so keep checking back for a response. If many questions are submitted, it could take a while to get a response, or he may never get to it. Also, readers keep submitting variations on the same question, which has already been answered: what to do when you can no longer afford your mortgage. I have decided not to publish most of those questions, because they are repetitive, although I appreciate the difficult situation many homeowners are in these days.

Read prior questions and answers by clicking on the headlines below…

Share this post:

Posted in: Mortgage Answers • industry

You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.

Hot topics

Cyndi says:

September 11, 2009 at 4:49 am

This scenario doesn’t make sense. Normally, the lender would require the credits to be removed from the purchase agreement, all repairs made, and a final inspection. This would require the borrower to sign the updated purchase agreement, which would have alerted this borrower to the issue he is now confused about.

Secondly, even if none of the above took place, the lender bases the loan amount on the lesser of the purchase price or appraised value. Therefore, the borrower would have had to have brought more money to closing than he originally thought, which would have alerted him to the issue he is now confused about.

Either way, the lender is not liable if a borrower paid more for the house than the appraised value. That is the borrower’s decision.

Finally, if this was a conventional loan, then by law, the appraisal company has to provide the borrower with a copy of the appraisal per HVCC.

Post Reply

Joe C. says:

September 17, 2009 at 2:13 pm

Wrong,

They state the lender did a 2nd appraisal (looks like the LO mis-spoke) and the lender is not required to provide a copy of the 2nd appraisal if the lender paid for it.

Post Reply
- Cyndi says:
  
  September 17, 2009 at 5:59 pm
  
  Actually, HVCC guidelines clearly state that the lender is required to provide a copy of any appraisal report completed in connection with a specific loan.
  
  Post Reply

OCTrojan says:

September 11, 2009 at 6:53 am

You can sue to rescind the entire transaction, get your money back and return everything to the lender/seller if this irregularity turns out to be a violation of RESPA, TILA or a state disclosure law.

glow22 says:

September 11, 2009 at 7:46 am

Our last appraisal on a short sale convinced the selling bank to lower the purchase price for us to match the appraisal. The sale had taken the better part of a year, so their delay was the only reason for the reduction in value since our initial offer.

scootermcray says:

September 12, 2009 at 9:02 am

I have come to hate the Short Sale process as a home buyer. We put in an offer, a very realistic offer, for a house currently in short sale — back in March. As of September 9th, the bank has not gotten back to us on the purchase. The rationale I get from everyone is that they (the bank) are so backed up on short sales that they do not have enough people there to process them all. I heard they are taking people from other departments to help process short sales!

Oddly enough, I am the only offer on the house, and the bank has set a foreclosure auction later this month. Saddly the owner bailed on the property, and the house is in ruins from what I offered back in March.

So, as a short sale purchaser, short sales suck because banks are absolutely dragging their feet and dealing with a flood of short sales that are coming through.

For those of you that do not think the crisis is getting worse, try buying a short sale (which are about 25-40% of the listings on Redfin) and watch what happens. The time will just tick bye as the banks process more, and more short sales.

Post Reply

bystander says:

September 11, 2009 at 11:37 am

Personal question for Matthew, Randy and savvy readers:
I locked a 4.875% 30 yr loan with an online lender last month. Before locking the loan, its advisor told me that their floating down policy is “1/4 less, fee less”. I trusted her. Today, 10-yr note is down, its website listed the 4.625% rate with a fee less than the one I locked for 4.875%. I called the loan officer to request a float down, she told me that my loan is sold, and their rate is not changed, so I can’t float down. It’s so unbelievable, my loan is not closed yet, how could it be sold. In fact, the first time I lock the loan, I did an application with a fee around $2500. However, the loan advisor said, the fee changed into around $3500. I trusted her the first time, but this time I just could believe they can sell the loan before closing. Unfortunately, my closing date for home is only 10 day away. I don’t have much time to find another lender. What should I do? Continue to close the home and sue the lender? I am really angry with their way of fooling people.

bystander says:

September 11, 2009 at 11:40 am

Typo mistake, should be “this time I just couldn’t believe they can sell the loan before closing.” Sorry for it.

Post Reply
jim says:

September 13, 2009 at 8:58 am

Walk away. I’m telling you, you’re getting ripped off and you’re only seeing the tip of the iceburg. Loans are NOT sold until they are closed. The lender you are using may have already locked in your rate with whoever they PLAN on selling the loan to, and it may cause them to have higher costs if they let you float the rate down.
If you think having to find another lender is inconvenient, it’s minor compared to getting ripped off for thousands of $

Post Reply
- Cyndi says:
  
  September 13, 2009 at 1:43 pm
  
  It is possible that he’s dealing with a correspondent lender and the loan has been underwritten and approved by the end investor at the rate and fees already locked. That could explain what they mean by the loan already having been sold. Having said that, I agree, if they’re changing their story on their lock policy I’d walk.
  
  Post Reply

September 11, 2009 at 11:45 am

Personal question for savvy readers here:
I locked a 4.875% 30 yr loan with an online lender last month. Before locking the loan, its advisor told me that their floating down policy is “1/4 less, fee less”. I trusted her. Today, 10-yr note is down, its website listed the 4.625% rate with a fee less than the one I locked for 4.875%. I called the loan officer to request a float down, she told me that my loan is sold, and their rate is not changed, so I can’t float down. It’s so unbelievable, my loan is not closed yet, how could it be sold. In fact, the first time I lock the loan, I did an application with a fee around $2500. However, the loan advisor said, the fee changed into around $3500. I trusted her the first time, but this time I just couldn’t believe they can sell the loan before closing. Unfortunately, my closing date for home is only 10 day away. I don’t have much time to find another lender. What should I do? Continue to close the home and sue the lender? I am really angry with their way of fooling people.

jim says:

September 13, 2009 at 9:03 am

The scenario is probably that the appraisal was not “as is” but rather, “subject to” the repairs, OR- the appraisal was ‘as is’ but indicated the needed repairs. Since the repairs weren’t completed, the appraiser had to adjust the value to reflect the lack of repairs.

But, as Cindy, mentioned, the loan should not have closed with the unreconciled value. The only think that I can think of is that the cost to cure the repairs was fairly minimal, and your appraised value only changed a few thousand dollars. If the appraised value on the closed loan is incorrect, eventually, whoever the lender sells the loan to will discover the problem and may force the lender to buy the loan back, but maybe not.

In any event, you SHOULD speak with a lawyer. And in the future, never close the loan until you have seen the final complete documentation….

Orange County Register