Question: What documentation is required after the appraisal is completed and the subject property is located in a disaster area?
With hurricane season and wild fires in full swing, the question is common to all agency types of loans: FHA, VA, Conventional, and USDA. Such natural disasters include, but are not limited to, hurricanes, mud slides, rising waters/flooding, wild fires, tornadoes, et cetera.
When the property is located in an area where a natural disaster has struck, a lender must certify to its investor and/or Agency that the property was not damaged, and the value is supported; or, if repairs are required to be made, that the lender is notified prior to the loan closing or, in some cases, prior to purchase in the secondary market.
In the scenario where an appraisal was completed “As Is,” “Subject to Completion of Repairs,” or “Subject to Completion per the Plans and Specifications’” prior to the disaster event, the lender must provide evidence the subject property did not sustain any damage or value deterioration due to the disaster event affecting the area in which the property is located. The most accepted form to be used is either the 1004D or 442 Appraisal Update and/or Completion for FNMA and FHLMC or the 92051 Compliance Inspection Report for FHA and VA loans. This evidence must be provided by a licensed appraiser, but not limited to the appraiser who prepared the original appraisal.
In the scenario where the appraisal was completed after the declared disaster event, the appraiser must provide a statement in the report to the effect that the subject property was not affected by the noted disaster event and the value of the original appraisal is supported.
If a lender is unclear or unsure if the subject property has been involved in a disaster event that warrants a recertification of value, it should consult the investor or Agency website for alerts, as well as the Federal Emergency Management Agency (FEMA) Web site, where all declared disaster areas by state and county are listed.
The FEMA site for disaster area listings can be found here.
Brandy George is associate director of Underwriting Operations for Lenders Compliance Group. She may be reached by phone at (516) 442-3456.