HomeBridge is updating its appraisal requirements for HUD REO properties based on new guidance issued by HUD in Mortgage Letter 2013-44 issued December 6, 2013.
HUD addressed the following in the Mortgagee Letter:
• Conditions that require a new appraisal on a HUD REO property, and
• Clarified their policy on the use of distressed properties as a comparable sale to establish value for HUD REO property.
Effective immediately, HUD REO appraisals are subject to the following guidelines.
New Appraisal Required
A new full appraisal must be ordered on a HUD REO property if any of the following conditions exist:
If a new appraisal is required based on the conditions above, the following applies:
• The original HUD ordered appraisal may not be used to underwrite the loan;
• HUD will not pay for the cost of the new appraisal. The borrower may be charged for the new appraisal as part of the borrower’s closing costs;
• A written justification for the new appraisal is required (documentation that one of the above conditions existed);
• Copies of all appraisals of the property must be retained in the loan file.
Distressed Properties as Comparable Sales for REO Properties
HUD also clarified their policy on establishing market value for REO properties; the price should reflect the appropriate price for a property sold in a competitive and open market and comparables should be based on arm’s length transactions
It is preferred that REO sales and pre-foreclosure sales are not used as comparable sales to establish the value for the REO property being appraised. If REO sales and pre-foreclosure sales are used, the appraiser must address their use in the appraisal report and identify the effect they have on the market and specifically the subject property.
Properties where the transfer to a mortgagee or entity owning the mortgage loan by deed of trust through foreclosure sale or sheriff’s sale may never be used as a comparable sale (e.g. a property that was foreclosed on by a bank or the property was seized for payment of delinquent debt, such as property taxes and the bank or sheriff’s department still has ownership of the property).
To view HUD Mortgagee Letter 2013-44 in its entirety click here: HUD Mortgagee Letters
If you have any questions, please contact your Account Executive.