05/20/08: When The Appraisal Is Wrong?
By Benny L. Kass
Q: Recently I applied to refinance my mortgage loan, and was told that I would have to have a current appraisal. The lender would contact a local appraiser to schedule a time for the appraisal. In order to have this done I gave the lender up front, $349.00 which was charged to my VISA Card.
The appraiser arrived on the scheduled date, but asked no questions during his visit. I thought this was a bit odd.
When I received a copy of the appraisal, I noted several glaring discrepancies, i.e., "no carport" when there was one, "only room for 2 cars to park" when there is designated RV parking, space for a car and a boat in the carport., and still room for 3 other vehicles. It also neglected to point out that a new addition was built in 2004. There are many other discrepancies.
The appraisal value came in at approximately $40,000 less than I thought it should.
What legal recourse do I have? I have contacted the lender both by telephone and email, outlining in greater detail my concerns, but have not received even a phone call.
A: Appraising real estate is not a science; at best, it is an inexact art. Isn't it strange that all too often, the appraisal just happens to be exactly dollar for dollar of the real estate sales contract price?
The appraisal community is currently taking a lot of heat from many sources. Recently, the Mortgage Bankers Association released a study that showed that in 2007, appraisals contributed to approximately 16 percent of all known mortgage frauds in the United States. (Mortgage Bankers Association report to its members, March 13, 2008).
Also in March, New York Attorney General Andrew Cuomo negotiated a settlement whereby Fannie Mae and Freddie Mac committed that effective January 1, 2009, they would only buy mortgages from lenders that used independent appraisers.
And many appraisers are being accused of providing valuations as directed by the mortgage lender - for fear that they will no longer get any more business if they do not "cooperate" and have an appraisal that is consistent with the contract sales price.
There are, of course, many honest, hard-working appraisers, and I am not suggesting that your appraiser was engaged in fraud.
But appraisers are human, and can make mistakes. Typical of the kinds of errors that are made by appraisers - especially when rushing to meet a deadline - are: failure to consider the impact of the applicable zoning in the area; extensive use of boilerplate statements which contradict factual statements made elsewhere in the report; use of non-relevant comparables, and (as happened in your situation) erroneous information about the property.
I was curious to learn how state governments handled complaints about appraisers, and found an interesting web site from the California Office of Real Estate Appraisers. In their "Frequently Asked Questions" (FAQ), that office indicated that, based on the complaints they have received from mortgage lenders regarding single family homeowners, the typical concerns were:
- untimely delivery or non-delivery of report;
- unwillingness to correct errors in the report;
- altered appraisal license;
- failure to provide operating income statement, and
- failure to return phone calls.
Although you want your refinance loan as soon as possible, you at least are fortunate in that the erroneous appraisal will only impact you. How would you feel if you were trying to sell your house, only to find out that your buyer's lender will not make a loan - and you may lose the sale - based on this appraisal?
What should you do? Although the appraiser will take the position that his report was for the exclusive benefit of the lender - and not for you - you should immediately contact the appraiser. Advise her of the mistakes, and invite her back to the property. If she refuses, explain that you plan to file a complaint with the appropriate state agency that regulates the appraisal industry.
You should also send a certified letter (return receipt requested) to your lender, with a copy to your State Attorney General's office, demanding that the lender return your calls and have the appraisal corrected.
If all else fails, I suggest that you consider going to another lender. If you have to pay for another appraisal, you may want to consider filing a suit in your local Small Claims Court, seeking a refund of the moneys you paid for that appraisal.
I continue to wonder why some lenders refuse to respond to consumer's phone calls. Aside from the fact that they may be legally obligated to do so, its just not good public relations.
- Boilerplate -