What Recourse Does a HECM Applicant Have on the
Property Appraisal?

January 25, 2021

Potential borrowers have a few options about appraisals for reverse mortgages but ordering their own appraisal is not one of them.  HUD as the insurer of HECMs makes the rules regarding the appraisals.  While potential borrowers are concerned with appraisals that are too low, HUD is concerned about appraisals being too high, That concern intensified when the real estate market collapsed in 2008-2009 and home values dropped. In the wake of the collapse, the rules were tightened to reduce the power of both lenders and borrowers to influence appraisals.  

HUD requires that all appraisals must be executed by FHA-approved appraisers, and lenders are barred from choosing the individual appraiser. In most cases, lenders contract with an appraisal management company (AMC) from which they order the appraisal.  The AMC then chooses an appraiser from HUD’s list of approved licensed appraisers.  

A few lenders have their own appraisal division, but it must be segregated from the origination division that orders appraisals. Originators are barred from discussing an individual appraisal with the appraiser, whether that appraiser has been selected by an AMC or by the originator’s own appraisal division. 

In addition, HUD recently implemented a program that requires appraisers to submit appraisals to HUD before the lender sees the finished report. Sometimes HUD will require a second appraisal. Until HUD approves the appraisal, the lender cannot approve the loan.

The loan applicant who finds the approved appraisal too low has two options, neither of which is very promising. If he can document that the appraiser made a significant error of fact, such as recording 2 bedrooms when there are 3, or ignoring the recent sale of an almost identical house at a price above the appraisal in question, he can ask the appraiser to reconsider. The alternative is to cancel the transaction, wait 4 months for the existing appraisal to disappear from HUD’s data base, and apply again.

To answer your question precisely, you are never required to complete a transaction and can always cancel if you do not like the appraised value.

If you do cancel, you must wait a minimum of 120 days before you can apply again and expect to use a new appraisal because that appraisal will remain with the property in HUD’s system for the next 120 days.

The appraiser has completed a report though and under the law is entitled to payment for his/her work.  When you say “…my home isn’t appraised correctly”, you bring up a different set of circumstances.  Lenders cannot argue a value with appraisers, and neither can borrowers, but you can rebut the appraisal based on errors or information that was not considered and should have been.

You do not have the right, legal or otherwise, to dispute the “value” claiming you have a different opinion of the value that ought to be used however, you can request a reconsideration based on errors in the report or other information that you feel the appraiser missed.

For example, if you have a 3-bedroom 2-bathroom home that is 2,000 square feet and the appraiser said you have a 2-bedroom 1 bathroom house that is 1,500 square feet and all of the comparable sales he/she used to determine a value were also 2 bed/1 bath, you can request a reconsideration of value based on the actual information for your home.  You cannot, however, request that he/she raise the value another $100,000 based on their error.  They still need to determine the new value based on the correct information for your home and then the new sales data for similar homes that have sold recently. 

If you think the value is too low because you do not like the sales the appraiser used and want them to use other sales instead but all the information (size, etc.) of the house are accurate, you have a tougher case to make.  Unless you can definitively show that the sales you want the appraiser to use are closer, more recent, more similar in condition and utility, etc., the chances are very good that the appraiser will not be swayed by your rebuttal.

If the sales data does not clearly demonstrate that there are multiple sales of more similar, closer, and more recent properties that support a higher value, it becomes a matter of opinion and the appraiser is the one who is professionally licensed to provide an opinion of value.  And in the end, an appraisal is just an estimate of value at a given date based on the information available on that date.

Your lender can help you by giving you the form required to rebut the value, review your information, and send your rebuttal to the AMC to go to the appraiser but the actual completed reconsideration request/rebuttal must come from the borrower, not the lender.  The appraiser is under no requirement to accept your arguments as valid and may stand on their original findings, they may amend the report with no change to value or they may amend the report and increase the value based on the information you provide.

And if the appraiser determines that no change to the value is warranted, as stated earlier, you can close the loan at the lower value or you can cancel the loan at your discretion.  If more sales close in the next 120 days at higher prices, the next appraisal would most likely support a higher value based on the new sales data, but the opposite would also be true if additional sales data were to show lower sales during that time.

This article is based on information provided by Michael Branson of All Reverse Mortgage, one of my certified network lenders.

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