There are times when a borrower or even the seller may not agree with the results of an FHA appraisal. Does the FHA loan rule book, HUD 4000.1, permit the request of a second one? Under what circumstances might another one be allowed?
According to page 123 of HUD 4000.1, simply disagreeing with the fair market value determination of the original-likely one of the most common reasons to look into a second attempt-isn’t enough to justify such a request.
“The Mortgagee is prohibited from ordering an additional appraisal to achieve an increase in value for the Property and/or the elimination or reduction of deficiencies and/or repairs required.”
Second appraisals “may only be ordered if the Direct Endorsement (DE) underwriter (underwriter) determines the first appraisal is materially deficient and the Appraiser is unable or uncooperative in resolving the deficiency. The Mortgagee must fully document the deficiency and status of the appraisal in the mortgage file. The Mortgagee must pay for the second appraisal.”
What about situations where a borrower has switched lenders at some point? HUD 4000.1 answers this question directly:
“A second appraisal may only be ordered by the second Mortgagee under the following limited circumstances:
- the first…contains material deficiencies as determined by the underwriter for the second Mortgagee;
- the Appraiser performing the first appraisal is prohibited from performing appraisals for the second Mortgagee; or
- the first Mortgagee fails to provide a copy of the appraisal to the second Mortgagee in a timely manner, and the failure would cause a delay in closing and harm to the Borrower, including loss of interest rate lock, violation of purchase contract deadline, occurrence of foreclosure proceedings and imposition of late fees.”
Requesting second appraisals isn’t the same as asking for an update. That is an important thing to remember, and HUD 4000.1 addresses such updates saying, “The Mortgagee may only order an update if (1) it is a Mortgagee listed as an Intended User of the original…or (2) it has received permission from the original client and the Appraiser.”