encumbrances
280) Checking Encumbrances
03/24/08
Hello Henry,
If an appraisal of a single family residence, which is reported on a FNMA 1004 form, conforms to the definition of a "Summary Report", and SR 2-2 (b) (iv): requires “The statement of the real property rights being appraised must be substantiated, as needed, by copies or summaries of title descriptions or other documents that set forth any known encumbrances.”; and, a residential appraiser does not obtain and review a title report, it is my opinion that the appraiser would be required to disclose that he / she hade made the extraordinary assumption that he / she had not substantiated unencumbered fee simple ownership interest and that, if that assumption were subsequently found to be false, the outcome of the analysis may not be valid.
A reviewer has stated that I may not utilize extraordinary assumptions. What is your opinion on this matter? Secondly, almost all residential properties are encumbered with a mortgage or deed of trust. In some cases, the encumbrance exceeds the market value. For the purpose of analysis, appraisers typically assume unencumbered fee simple ownership rights. Should this be disclosed as an extraordinary assumption in every appraisal report, in your opinion?
Thanks,
Ray Umphrey rumphrey@gmail.com
Dear Ray,
What you point out seems valid to me. However, not many appraisers are doing this on a regular basis. I think the "as needed" in the comment for USPAP SR 2-2 (b) (iv) is what allows them not to do this. It would seem to me that if you think there's a specific case where it is needed, you have to do it. Fannie Mae and Freddie Mac do not permit the addition of assumptions to the appraisal report when it is made on a URAR Form 1004.
H2
If an appraisal of a single family residence, which is reported on a FNMA 1004 form, conforms to the definition of a "Summary Report", and SR 2-2 (b) (iv): requires “The statement of the real property rights being appraised must be substantiated, as needed, by copies or summaries of title descriptions or other documents that set forth any known encumbrances.”; and, a residential appraiser does not obtain and review a title report, it is my opinion that the appraiser would be required to disclose that he / she hade made the extraordinary assumption that he / she had not substantiated unencumbered fee simple ownership interest and that, if that assumption were subsequently found to be false, the outcome of the analysis may not be valid.
A reviewer has stated that I may not utilize extraordinary assumptions. What is your opinion on this matter? Secondly, almost all residential properties are encumbered with a mortgage or deed of trust. In some cases, the encumbrance exceeds the market value. For the purpose of analysis, appraisers typically assume unencumbered fee simple ownership rights. Should this be disclosed as an extraordinary assumption in every appraisal report, in your opinion?
Thanks,
Ray Umphrey rumphrey@gmail.com
Dear Ray,
What you point out seems valid to me. However, not many appraisers are doing this on a regular basis. I think the "as needed" in the comment for USPAP SR 2-2 (b) (iv) is what allows them not to do this. It would seem to me that if you think there's a specific case where it is needed, you have to do it. Fannie Mae and Freddie Mac do not permit the addition of assumptions to the appraisal report when it is made on a URAR Form 1004.
H2