Mother Nature Happens…

…and she doesn’t ask us if it’s convenient or if we’re in the middle of a mortgage transaction, for a natural disaster to strike, such as the current flooding in Western Washington.  When significant natural events occur, it may impact your mortgage transaction.   

Most commonly, the lender will require the appraiser to do a re-inspection (442) of the property for any transactions that are not funded prior to the event.  Even if your home uphill a mile from a flooded river, if you’re in a region (such as a zip code) that’s flooded, where an earthquake, wild fire or other has happened, be prepared for your transaction to be delayed.   The appraiser is typically required to verify:

  • The property is free from damage.
  • The disaster had no impact on the value or marketability of the property. 
  • Include an updated photo of the home.

If the appraiser determines that the property has suffered from the disaster, repairs will be required with a follow up inspection (442) from the appraiser.   All re-inspections from the appraisal are submitted to the underwriter for (hopefully) approval.  It is possible that the underwriter may add additional conditions after the review.   I have found 442’s to cost around $150 (per inspection). 

If the appraisal has not yet been completed during a transaction, the appraiser will most likely need to address the disaster and whether or not it has impacted the value of the home. 

It’s up to the lender (and can vary from lender to lender) on whether or not they will call for reinspections when a natural disaster happens.

30 thoughts on “Mother Nature Happens…

  1. We had a reappraisal last year (I think) on some property on 10th Ave at the north end of Broadway in Seattle. Not anywhere near a river.

    The one property we had damaged in that rainstorm was on a hillside, so I wasn’t worried about it. Unfortunately I hadn’t noticed some poor landscaping choices.

  2. Funny you post this. Lynlee just grabbed my daughter and headed out the door to head down to the Snohomish bridge in downtown Snohomish to check out the river. Hearing it is going to be a bad flood. If so, I recall Hwy 2 being nearly grid locked in morning commute heading into Everett after the 07′ flood. If they close Hwy 9 due to flooding in Snohomish Valley, here we go again with horrendous commutes.

  3. Last night watching the news, it reminded me of the earthquake we had a few years back during a busy time in the market. It didn’t matter if someone had been to escrow and was ready to fund the day after the quake…reinspections were required…transactions were delayed.

  4. I would most probably want to back out of a deal if the property proves to be in a risk zone for flooding. Is there by default a no penalty escape route for a buyer in this situation?

  5. If the property were damaged by flooding, I would think the clause requiring the owner to maintain the property would apply, but I recall Craig had a particular take on the risk of loss on the NWMLS forms. I’ll try emailing him.

    But if you just want out because you discover it’s in a flood zone, I think typically you’d lose your earnest money. That’s the type of thing that should be thought of before making an offer.

  6. I just received this notice from a lender:

    Washington State has experienced severe flooding due to recent rains. Seventeen counties have declared a State of Emergency. Voluntary evacuations are in place for five cities and there are approximately 2,500 evacuees. Interstate 5 is closed at Chehalis (south of Seattle) but is expected to reopen January 12. There may be a delay between the disaster event and the publication of a disaster declaration by FEMA. Countrywide may identify certain properties as within the footprint of the disaster. If this occurs, Countrywide will issue a Disaster Alert announcement. Sellers will then be contacted by their Operations Account Manager regarding re-inspection requirements if specific properties are identified as potentially impacted by the undeclared disaster. Countrywide requires Sellers to initiate the re-inspection and review requirements outlined in the Seller’s Guide if the Seller is aware of any potential damage following a disaster. For complete information on Countrywide’s disaster-area policy and procedures, and re-inspection requirements refer to Section 4.7, Disaster Areas

  7. Ardell, sometimes the property is not damaged but is located near an area that is (same zip code, for example) and the lender will still require the same treatment as if the property was damaged.

    I think it would also depend on the buyers agent (if the lender is not calling for a reinspection) to let the buyer know of their options.

  8. Folks…I’m a WA state licensed Certified Real Estate Appraiser, w/ almost 8 years experience. I’ve recently had a major issue with a client who asked me to do a Disaster Inspection using the 1004D/442 form. That is not the appropriate form to use for a D.I. assignment.

    (This form technically is the FreddieMac 442 Form and the FannieMae 1004D Form, both dated March 2005.)

    Here’s additional info, primarily written to/for appraisers, but you may learn from it also:

    I have examined more about U/W’s inappropriately requesting appraisers use the Fannie/Freddie 1004D Form to do a Disaster Inspection and report ‘property condition’ following a local or regional Disaster Declaration. This has been happening since 2005 when this form was introduced by F/F. It is the wrong form. This practice needs to end!

    A ‘Disaster Inspection’ is normally requested to verify that the condition of the property is 100% secure, habitable, with no damage…or if damaged, that needs to be reported. For this Scope of Work, i.e., ‘what’s the present condition of the property?’, it has no direct relationship to the prior appraised ‘value’ of the property for this current assignment. (Sometimes an appraiser will be asked to do a Disaster Inspection who did not do the initial appraisal report, so unless given the report, would not know the appraised value.)

    The 1004D/442 SUMMARY APPRAISAL UPDATE REPORT is a ‘valuation report’ to be used for the expressed purpose of stating that the property has not declined in value since it was last appraised, typically within the prior 6 months. It’s usually completed by the appraiser who did the initial valuation assignment. That is a totally different assignment (Scope of Work) than doing a Disaster Inspection. It requires the appraiser to do another comp search to verify the present value.

    U/W’s typically want a ‘form’ when the original appraisal was on a ‘form.’ So they have been ordering the 1004D/442 Form because they did not know better……….and frankly, many appraisers have not challenged this request in the past.

    It’s time to educate U/W’s that the 1004D/442 is not the appropriate ‘form’ for this request, even though both GSE’s use it for their U/W processes.

    So what to do if your Disaster Inspection assignment is to physically inspect the property?

    If the original appraisal report supported the loan sold to FannieMae, use the 2075 Form. It has comment spaces to report the ‘condition’ of the property. It’s designed as an Exterior Inspection report, however, the appraiser can attach an addendum to show an interior inspection was made – if the U/W wants interior photos. Or a statement could be put into the middle Improvements comment section. This form should also work for FHA and VA assignments.

    If FreddieMac bought the original loan, use the 2070 Form. This form has check boxes to indicate either an Exterior or I/E inspection was made. The difference with this form is if ANY conditions have adverse influence to the property, an appraisal must be done and attached to the 2070 Form. (Not required when using the 2075 Form.)

    Add a photo page to both forms above.

    Another option is to use the 1 page Disaster Area Inspection form. This is from the a la mode company; other software providers may have a similar form. It has comment spaces for the subject property and the neighborhood, plus 2 photos. It is not a GSE designed form, so you may want to send the client a blank one for their review first.

    Here’s another wrinkle: you may know the property is NOT in the area directly affected by the county or regional Disaster Declaration, such as in the case here in our county where December floods occurred in one area, but the ENTIRE county is declared a Disaster Area. In that case you might ask the client if a simple signed Addendum page will work for them, with a statement on it that the property is not in the immediate area of where the disaster occurred, and that there is no adverse marketability to the property. This can be done in the office for much less cost than a physical drive-by inspection using the forms above.

    Almost final point and suggestion: a la mode also has a 3 page ‘Catastrophic Disaster Area Property Inspection Report.’ This is set up to provide ‘cost to cure’ info that is way beyond the initial Scope of Work to provide a Disaster Inspection to report the current condition, and should not be used ….. if you know darn well that your property is still intact! I would even urge all appraisers NOT to use this form at all under any circumstance due to liability issues……we are not state licensed property inspectors.

    Final, final point: USPAP requires appraisers to do credible reports. ‘Forms’ are not identified in USPAP. But if you use an inappropriate ‘form’ for a particular assignment, that could be considered to be not credible for reporting purposes. The 1004D/442 Form is not a credible form for a Disaster Inspection, therefore if used, your report would not be credible. Again, your assignment is to report CONDITION, not Value………so don’t use a Value report form to report CONDITION for this Scope of Work.

  9. There should not be a major difference, if any, in the cost if the assignment is merely to drive by the property and snap a couple of photos using the forms mentioned in the post….NOT the 442/1004D!

    If the assignment can be done via an addendum without leaving the office, cost should be minimal.

    There is no one universal cost for this type of work. Part of the cost is relative to property distance from the appraiser’s office. Appraisers have different costs of doing business.

    To add to the above post, more history: The 442 Form has been in existence since before 1978. Its purpose was to document a property was complete if the original report was written ‘subject to completion’…a Condition report for that specific purpose.

    Well, when Disaster Inspections were ordered, U/W’s would request that 442 form……and of course, appraisers not thinking about it, would comply. U/W policy manuals apparently, incorrectly, reference that form for a D.I. assignment.

    So….fast forward to 3/2005. The ‘new’ 442/1004D was instituted by Fannie/Freddie………but lo and behold, they changed the scope of work on it to a Value report, not a Condition report. Many appraisers did not realize that, and U/W’s didn’t (don’t!) know the difference……so keep ordering a D.I. be done on the 442/1004D. Wrong-o Dan-o!

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