A new federal rule recently went into effect which allows prospective home buyers to demand information from lenders or the appraisers who place a value on the real estate they seek to purchase. Part of the Equal Credit Opportunity Act, included in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, (“the New Rule”) allows people seeking a first mortgage to buy a home, to see the appraisal soon after its issuance as well as the underlying data which the appraiser relies on in making the report. The right to review the appraisal can be waived and this right does not apply to procurement of a second mortgage or a line of credit on the equity in your home.
Congress passed the Dodd-Frank Wall Street reform law as a response to the financial crisis of 2008. One of the practices it sought to curtail was the prevalence of false or fraudulent appraisals which enabled some real estate brokers and appraisers to conspire to take advantage of home purchasers’ reliance on their professional experience. For several years before the financial meltdown, many states passed mortgage fraud statutes intended to criminalize the worst excesses of schemes in which appraisers received kickbacks for rendering appraisals to favor particular parties to a transaction.
Now a person planning to buy a home must be told of the right to a free copy of the appraisal. The lender must provide this appraisal after the report is issued or three days before closing, whichever is earlier. If the borrower, after reviewing the appraisal, wants more information, the borrower can ask for other information such as whether the appraiser took in to account certain features of a home and considered the location within the context of its neighborhood or similar neighborhoods. The Consumer Financial Protection Board will bear responsibility for enforcing the rule.
Many professional appraisers laud the new rule because it should deter unscrupulous and unprofessional appraisers. It takes advantage of the online availability of information to operate effectively. If a borrower asks for particular data, the appraiser can send the borrower a link to find information used in the appraisal process. Several years ago the process of getting the relevant basis for an appraisal would be, by contrast, very cumbersome and take a much longer period of time.
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