Posted by ft Editorial Staff | Jul 11, 2022 | 0

MLO Mentor is an ongoing series covering compliance best practices for mortgage loan originators (MLOs). This article discusses the special appraisal rules applied to Section 35 loans— find Part I of MLO Mentor: Section 35 loans here.

Strict appraisal rules apply to Section 35 higher-priced mortgage loans. A lender making a Section 35 higher-priced mortgage loan must obtain a written appraisal of the property prepared by a licensed appraiser based on a physical interior inspection of the property. [12 CFR §1026.35(c)(3)(i)] Application

The following loan types are exempt from Section 35 appraisal requirements:

A physical inspection of the interior of the property is not required when the loan will be secured by a new manufactured home and land. All other higher priced mortgage loan (HPML) appraisal requirements remain in place. [12 CFR §1026.35(c)(2)(viii)]

However, if the HPML is secured by the manufactured home alone, the interior physical inspection is not required if the lender provides to the borrower:

Two appraisals are required if the Section 35 higher-priced mortgage loan funds the purchase of property on a flip of the property by the seller and:

The second appraisal is to be completed by a different appraiser than the appraiser who completed the original appraisal. [12 CFR §1026.35(c)(4)(ii)]

In addition, the second appraisal must include analysis of the difference in sale prices, changes in market conditions and improvements to the property between the date the seller acquired it and the current sales date. [12 CFR §1026.35(c)(4)(iv)]

Lastly, the fee due for the second appraisal cannot be charged to the borrower. [12 CFR §1026.35(c)(4)(v)]

Note that the second appraisal is not required on loans that finance a consumer acquisition of property:

A lender must provide a free copy of each appraisal report involving a Section 35 higher-priced mortgage loan to the borrower:

The appraisal can be provided in print or electronically.

The lender is to deliver or place in the mail a written disclosure about the Section 35 appraisal requirements within three business days of:

This disclosure is to state:

“We may order an appraisal to determine the property’s value and charge you for this appraisal. We will give you a copy of any appraisal, even if your loan does not close. You can pay for an additional appraisal for your own use at your own cost.” [12 CFR §1026.35(c)(5)(i)]

A lender who willfully violates this appraisal rule will be liable to the applicant or borrower for $2,000. [15 USC §1639h(e)]

is the production staff comprised of legal editor Fred Crane, writer-editors Connor P. Wallmark, Carrie B. Reyes, Oscar Alvarez, Bethany Correia, Amy Perry, Madison Hart, Kinnedy Kriso, consulting instructor Summer Goralik, graphic designer Mary LaRochelle, video instructor Bill Mansfield and video editors John Rojas, Quinn Stevenson and Jose Melendez Avila.

Your email address will not be published. Required fields are marked *

What direction do you believe home prices will take by end of the year 2022?

From: Nearly three times as many Californians are moving out-of-state than moving in Check out our previous poll here.

Check out our previous poll here.

Get real estate news straight to your email.

About firsttuesday | Copyright Notice and Terms of Service | Real estate journalism made possible by your DRE license renewals