Disaster Areas – Home Loans and Appraisals

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Question: What are the documentation requirements after the appraisal is completed for a subject property situated in a disaster area?

Answer

This question commonly applies to all types of loans (conventional, USDA, VA and FHA), particularly now during hurricane season and with wild fires in full swing. The list of natural disasters further includes flooding or rising waters, mud slides and so on.

In case the property lies in an area affected by a natural disaster, a certification must be issued by the lender to the investor or agency confirming that the property didn’t suffer damage and that there is support for the value. If the property requires repairs, the document should state that the later has been notified before the end of the loan or prior to purchase in the secondary market, if it is the case.

There are situations when the appraisal was completed “As Is”, “Subject to Completion per the Plans and Specifications” or “Subject to Completion of Repairs” before the disaster. Then, the lender must prove that the property in question did not suffer damage or value deterioration because of the disaster event in the area. The common form to use for FNMA and FHLMC loans is the 1004D or 442 Appraisal Update and/or Completion, while for FHA and VA loans, you will need the Compliance Inspection Report.

If the appraisal was completed after the disaster, the appraiser’s report should contain a statement that the noted disaster did not affect the subject property or that the value of the original appraisal has full support. In case there is lack of clarity about involvement of the subject property in the disaster event, there is need for a new value certification. The lender can then check with the Agency website or the investor for details or with the Federal Emergency Management Agency (FEMA) to get information on all declared disaster areas, listed by state and county.

For disaster area listings visit FEMA’s website http://www.fema.gov/disasters.

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