In what situations may the Original Mortgagee order a second appraisal?

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.
The Mortgagee may order a second appraisal for Mortgages that are in accordance with requirements on Property Flipping.
 
A second appraisal may only be ordered if the Direct Endorsement (DE) 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.
 
Material deficiencies on appraisals are those deficiencies that have a direct impact on value and marketability. Material deficiencies include, but are not limited to:
  • failure to report readily observable defects that impact the health and safety of the occupants and/or structural soundness of the house;
  • reliance upon outdated or dissimilar comparable sales when more recent and/or comparable sales were available as of the effective date of the appraisal; and
  • fraudulent statements or conclusions when the Appraiser had reason to know or should have known that such statements or conclusions compromise the integrity, accuracy and/or thoroughness of the appraisal submitted to the client.  
For FHA policy information see Handbook 4000.1 Section II.A.1.a.iii.(B)(9)(a) available at: https://www.hud.gov/program_offices/administration/hudclips/handbooks/hsgh

All policy information contained in this knowledge base article is based upon the referenced HUD policy document. Any lending or insuring decisions should adhere to the specific information contained in that underlying policy document.


Topic Number: KA-01262