Sample Apprasial Analysis - The Diligence Group

November 28, 2011
THE DILIGENCE GROUP, LLC

Appraisal Analysis Performed for: David D. Carolina, Jr. 6404 Memorial Drive Frisco, TX 75034
Personal and Confidential
THE INFORMATION CONTAINED HEREIN IS CONSIDERED TO BE OF A PERSONAL AND CONFIDENTIAL NATURE. THIS INFORMATION IS INTENDED FOR THE EXCLUSIVE USE OF THE BORROWER(S) AND THEIR LEGAL REPRESENTATIVE
The Diligence Group, LLC 196 Orange Drive Boynton Beach, FL 33436 Phone: (305) 814-4831 diligencegroupllc@gmail.com
APPRAISAL SUMMARY PAGE
BORROWER/Owner: David Carolina Date of ANALYSIS: 11/18/2011 SSN - Borrower n/a SSN - Co-Borrower n/a Audit Type APPRAISAL ANALYSIS LOAN INFORMATION AT CLOSING Property Address 6404 Memorial Drive City, State, Zip Code Frisco, Texas 75034 Number of Units One - Single Family detached Property Type Planned Unit Development Appraisal Purpose See Notes Purchase Price 1930000 Estimated Purchase Price Loan Amount TBD Appraised Value 2,500,000 Review Value Value appears to exceed purchase price by $230,000 Date of Appraisal 10/1/2008 Subject Notes Date of Closing 9/1/2009 No. of Stories Two Square Footage (Purchase/Refi) Total No. Rooms 14 No. Bedrooms 5 Bo. Of Baths 6 Full / 1 Half Age of Subject/Yr Built 2008 Effective Age New Condition Excellent Per Appraisal Physical deficiencies Final Analysis Adverse Conditions Final Analysis Neighborhood conformity Final Analysis Special Features Home is Luxury Auto Storage/No. Cars 3 Car Garage / Typical
CO-BORROWER: TBD MIN NO: TBD Subject Originating Lender TBD Original loan # TBD Servicer TBD Name of Subdivision Neighborhood Growth Trend Location /Built Up Predominant Value Land Use Market Conditions Zoning Compliance Flood Zone Utilities No. Properties for Sale Sale Price Range Financing Concessions Site Size / Value View Quality Construction
Exterior Materials Used
Notes
1st Lien Subject Chapel Creek Suburban Stable 25-75% $1,100,000.00 60% One Unit / 32% Vacant Over Supply / Over Six Months Legal/Conforming Not Stated
(Typical/Atypical)
2ND LIEN
Notes
Home Located on Creek Notes
Subject 21 in Neighborhood 1,8250 - 3,400,000 None - See Notes & Results

24,1771 SF
Appraisal perf. For another borrower
Functional Utility
Rooms Above/Below Grade
Functional Utility Heating/Cooling Porch/Patio/Deck Fireplace(s) Pool
Residential / Creek New Concrete, Brick & Stone No Issues Noted None No Issues Noted Typical Covered Patio, Deck & Porch Five (5) Total Gunite
CASE HISTORY
The appraisal submitted for analysis was used to grant the subject Borrower, David D. Carolina, Jr., mortgage financing totaling $1,888,500, on August 17, 2009. A subordinate lien totaling $111,500 was granted to the subject borrower by the same lender Patriot Bank, a month later, on September 11, 2009. The amount of liens encumbered by the subject property total $2,000,000. According to the borrower, he located the subject property during a drive through the Chapel Creek subdivision. The front yard bore a sign that stated easy financing. The borrower contacted Patriot Bank, indicated to be the homes lender, and spoke with Tony Bernard, Loan Officer and Senior Vice President. According to the borrower, Patriot Bank owned the home via foreclosure proceedings and was willing to sell the home at a significant sacrifice. According to statements made by, Sr. Vice President, Tony Bernard, to the borrower, the home was valued at two million, five hundred thousand dollars ($2,500,000). The borrower states that Mr. Bernard qualified the borrower for financing and advised him that he qualified for a 20 year, fixed rate, interest only loan. Mr. Bernard advised the borrower that he was required to provide a down payment totaling 5%, or $94,500. According to the borrower, he attempted to negotiate the sales price of the home downward. Patriot Bank refused, stating that the home was valued at $2,500,000 and that it was, in essence, a really great deal at the price for which it was being sold and that if the borrower wanted to acquire the home he had to move quickly. According to Patriot Bank, the home was brand new, in excellent condition and advised the borrower that no home inspection would be necessary. Also, if the borrower wanted to buy the home, he had to move quickly and there was no time to perform a property inspection. The borrower was told that the home had only been occupied for six (6) months and that it was in excellent condition. The borrower learned, post purchase, that the home had actually home sustained significant water damage; damage of which the borrower had not been made aware prior to taking possession of the home. The borrower applied for mortgage financing with the Seller/Lender, Patriot Bank. Although it was not requested, the borrower provided the bank with his tax returns and financial information to help facilitate mortgage loan approval. According to the borrower his loan request was approved in two days and was closed shortly thereafter, on August 17th, 2009. According to the borrower, in a statement he made during a direct interview conducted by The Diligence Group, both he and his wife requested to be provided with copies of his closing paperwork three (3) to four (4) days in advance of the closing on the property. According to the borrowers attested statement, the lender advised him that the closing paperwork was not yet ready. The borrower continued to request that he be provided his closing paperwork, prior to closing, until the final day came and the documents were thrust upon him, at the closing table.
According to the borrower, he was not provided his documents in advance and was provided no time to read or inspect the documents prior to their execution. According to the borrower, the terms of the actual purchase transaction were actually amended while the closing was being conducted. The borrower was advised that he would be required to pay property taxes that were delinquent. The borrower was advised by the bank that they had done a lot for him and if he wanted the property he had to pay the delinquent taxes, there at the closing. A review of the purchase contract reflects that the purchase price of the subject property was amended upward from $1,940,000 to $1,990,000. The loan amount reflected on the purchase contracted was revised from $1,843,000 to $1,890,500. Ultimately, the mortgage amount that the borrower received totaled $1,888,500 per the Note, and the purchase contract that was used to consummate the purchase transaction and the mortgage is considered to be in error and non-compliant. The appraisal analysis that was performed was two-fold; a review of the appraisal itself was performed as of the date of the original appraisal, dated October 1, 2008. A secondary review had to be performed in relation to the date that the subject property was purchased and the borrowers mortgage loan was granted, nearly eleven months later, on August 17, 2009. In essence; 1. The Underwriter was required to determine if the original appraisal that was performed, in October of 2008, indicated that the value of the subject property was reasonable and supported at that time. 2. The underwriter was further required to determine if the appraised value of the home was sustained for the eleven month period of time that lapsed, until the home was purchased and sold, and a loan granted to the subject borrower. It is critical to note that the home was initially appraised and subsequently purchased during two distinctly different periods of time, relative to economic conditions that were unfolding in the United States. In October of 2008, when the home was initially appraised, the housing market bubble had begun to burst and home prices had begun to decline, nationwide. In August of 2009, when the home was sold and title transferred to the borrower, the housing market was quite literally, in a full state of implosion, and housing prices had begun a catastrophic free-fall, ushering in the worst economic collapse since The Great Depression. To date, housing prices continue to decline and have not yet begun to recover in major markets of the United States. It is within these two distinctly separate contexts that the value of the subject property must be viewed.
NOTES REGARDING THE SUBJECT SUBDIVISION

Chapel Creek, the subdivision wherein the subject property is located, was not fully constructed. According to the appraisal performed in October of 2008, thirty percent (30%) of the development consisted of vacant land; 68% had been developed or was under active development. The Developer was in control of the homeowners association. The predominant value of homes located in the development totaled $1,100,000. The Appraiser returned an appraised value of the subject property totaling $2,500,000, or a value that exceeded its immediate, predominant Market by 44%. According to the Appraiser, the subject property was located in a development whose supply greatly exceeded demand. According to the Appraisers narrative, marketing times ranged between six (6) to twelve (12) months and reflects a Market that was in severe decline. The appraiser returned the $2,500,000 value based upon upgrades that the subject property contained. After the appraisal was performed, the subject property languished on the market for eleven (11) months until it was finally purchased by the subject borrower, after having been sharply discounted. According to the Appraiser, the lack of comparable homes in the subjects neighborhood required him to extend his search for comparable homes outside of the standard 1 mile radius for a home located in a suburban area. The Appraiser sought to obtain comparable sales from a nearby subdivision called Starwood #4 Village. Market data indicates that Starwood Village is considered to be superior whose homes have had more success at retaining their value given the severe market downturn that overtook the nation between 2007 and continues to the present date.
NOTES REGARDING THE MORTGAGE LOAN GRANTED THE BORROWER AND EXECUTION AND SUBSEQUENT AMENDMENTS MADE TO THE PURCHASE CONTRACT
According to the borrower, the initial purchase agreement was drawn up and executed a week or so before closing. The borrower made a $100,000 down-payment. The lender advised the borrower the he had been approved for financing, but that no loan approval letter would be granted him until he had delivered his $100,000 down-payment to the title company. After the contract was signed and the down payment paid, the lender advised the borrower that they were requiring him to pay back taxes that were in arrears. The borrower was advised that if he did not agree to these terms, they would not move forward with the transaction and simply keep his $100,000 deposit. The borrower states that these amendments were made to the contract, after it was initially signed and the terms agreed to. The lenders threat to take his down payment and walk away, was baseless as the borrower was under no obligation to accept amended terms. The lender appears to have manipulated the borrower into submitting his down payment in an effort to black-mail him, to secure better contract terms once the original agreement had been reached.
NOTES REGARDING THE ATTEMPTS TO RE-STRUCTURE THE ALL OF THE BORROWERS MORTGAGE LOANS AND INCLUDE THE SUBJECT HOMESTEAD IN WITH INVESTMENT RELATED PROPERTIES.
The lender contacted the borrower after the home had been purchased and the closing documents were signed, and advised him that they (Patriot Bank) had been audited by the FDIC that a review of their loan portfolio had been performed and restructuring of his mortgage loans was mandatory. They did not ask, they instructed, and advised the borrower that they would foreclose if the borrower did not agree to the restructuring of his loans. The borrower had been making his mortgage payments on time within the contractual constraints stipulated in his Note. The borrower made his payments at the bank, in person. The lender advised the borrower that for the purposes of restructuring his loan portfolio with them, he needed to stop making all mortgage payments. He was told he would benefit as he would have a respite from making mortgage payments, and no late fees or penalties would be assessed. The lender/seller promptly began assessing fees and penalties and commenced foreclosure proceedings once the borrower stopped making mortgage payments. The Note the borrower executed at closing is not a standard Fannie Mae form. The terms included therein are not standard and are considered to be harsh in the extreme. The lender also advised the borrower that all of his loans were cross collateralized. There are no documents recorded to indicate that the borrowers primary residence was used to collateralize any other loan, save itself. The Note for the borrowers primary residence, as it does not follow standard Fannie Mae form, contains terms that even a seasoned home purchaser may not be aware existed, unless they submitted the note to an experienced real estate attorney or professional and the terms were revealed. The borrower as a lay-person could not have reasonably read and fully understood the potential harm the terms that were contained in the note Portended. The borrower appears to have been granted mortgage terms that are not usual or customary whose conditions are considered to be harsh and predatory. The borrower at each and every turn, has been subjected to continual threat by the Lender. Prior to closing the borrower was told that if he did not agree to their revised sales terms, the lender/seller would not consummate the agreed-to transaction and pocket his $100K downpayment. After the loan was closed the borrower lived with the constant threat of foreclosure. The lender does not appear to have any right to have foreclosed on the subject property and appears to have manipulated the borrower to stop making his mortgage payments in an effort to blackmail him into restructuring his loans to benefit the bank. The borrower is an African American male.
END CASE HISTORY
Fannie Mae Underwriting Guidelines B3-1-01 General Assessment of Risk

Per Fannie Mae Underwriting guidelines, lenders are fully responsible for: Evaluating the default risk of the subject loan. Proper and thorough review of the credit report to determine if the data contained therein is complete, accurate, and that the borrower had the ability to repay the debts listed. Assessing the adequacy of the property used to act as collateral for the mortgage loan requested.
Fannie Mae Underwriting Guidelines B4-1.1-01 General Appraisal Requirements

The lender does not appear to have competently or adequately discharged its duty to verify the value of the subject property. Per Fannie Mae Underwriting Guidelines, the lender is responsible for the following: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. Insuring that the data contained on the appraisal is complete, accurate, and provides an accurate assessment of the marketability of the subject property. The Appraiser meets Fannie Maes minimum professional standards. Underwriting the completed appraisal report to determine whether the subject property presents adequate collateral for the mortgage. Evaluate the appraisers work through normal underwriting review. Spot Check the quality of the appraisers work via field review as part of its quality control system. Ensure that the Appraiser used sound reasoning and provide evidence to support the methodology used to establish the value opinion. Ensure that the appraiser provided an accurate value opinion, an adequately supported just market value and provided an adequate description of the subject property. Ensure that the appraiser is licensed and that the license number is provided on the report. Compliance with the Appraiser Independence requirements. Ensure that the appraiser does not engage in unacceptable appraisal practices. Ensure that Appraisers are not subjected to outside influence, pressure or interference in the appraisal analysis process, or the honest valuation of the property. Lenders may not use a report that provides a value that is not supported by the Market. Lenders may not use a report that violates Fair Housing laws. Develop a report that misrepresents characteristics of the subject property, improvements or comparable sales. Use a report that does not provide commentary on negative factors with regard to the subject neighborhood, property, or proximity of the subject property to adverse influences. Use a report that utilizes inappropriate comparable sales. Use a report that fails to use comparable sales that are the most locationally and physically similar to the subject property. Fail to analyze and report any current contract for sale, option, offering or listing of the subject property and comparable sales. Create comparable sales by combining vacant sales with the contract purchase price of a home that has been built or will be built on the land. Use a report that includes comparable sales that have not been personally inspected by the appraiser. Use adjustments to comparable sales that do not reflect accurate market reaction to the differences between the Subject and the Comparable sales. Use of a report that provides unsupported adjustments made in the sales comparison approach. Fail to make adjustments when they are clearly indicated or required. Base a valuation, particularly comparable sales data, provided by parties who have a financial interest in The Diligence Group, LLC 196 Orange Drive Boynton Beach, FL 33436 Phone: (305) 814-4831 diligencegroupllc@gmail.com
the sale or financing of the subject property. 25. Use a report that favors the cause of the client or any other related party, or party to the transaction. 26. Use a report where the appraiser has been influenced by an outside party, in order to receive compensation, or a promise of future employment. 27. Use a report that does not conform to the Uniform Standards of Professional Appraisal Practices. 28. Use a report that fails to address adverse factors or conditions that affect value or marketability with respect to the neighborhood, site or improvements. 29. Use a report that includes unsupported descriptive comments or that draws unsupported conclusions from subjective observations, as these actions may have a discriminatory effect. 30. Use of unsupported assumptions, interjections of personal opinion or perceptions about factors in the valuation process. 31. Provides no adjustments to a comparable sale for special or creative financing, or sales concessions that are not typically paid by sellers as a result of tradition or law in a market area. 32. Lend on a property that has physical conditions that affect the safety, soundness or structural integrity of the subject property.
Fannie Maes Definition of Just Market Value Just Market Value is defined as the most probable price that a property would bring in a competitive and open market under all conditions that are requisite to a fair sale. The buyer and the seller, each acting prudently, knowledgably and are acting under the assumption that the price of the subject is not affected by undue stimulus. The appraisal that is the subject of this report was believed to have been used by the lender to assign value to the subject borrowers home and ultimately relied upon for the extension of credit. Appraisal Exceptions Observed 1) Does the data contained on the appraisal appear to be complete, accurate and provides and accurate assessment of the marketability of the subject property? The value of the subject property appears to have been over-stated on the original appraisal by $1,490,000. The subject property, when originally appraised, contained significant upgrades. It would appear that these upgrades, despite the appraisers assertion to the contrary, were highly individualized and suited the tastes of the original owners, but whose qualities and aspects did not necessarily offer universal appeal, or translate to an actual increase in the homes true just market value. Simply put; just because a feature of a home costs more, it does not necessarily mean that the inclusion of the feature contributes to an increase in the homes resale value overall. Such appears to be the case in this instance. The subject property is located in luxury home market where home buyers purchase a tract of land and have a custom home built upon it. In such a market a home must contain certain luxury features, such as high
end appliances, counter top surfaces, wood flooring, superior materials, architecture and construction, wet bars and so on, if the home is to retain its value over time. Additionally, as customization is the draw for most home purchasers in such a market, the builder/developer is the real competition and the true resale value of a home is generally not realized until all lots are sold and the development is sold out. Per the appraiser, 32% of the subdivision was un-developed and the supply of fully constructed homes listed for sale, outpaced demand. Marketing times ranged between six to twelve months, at the time the appraisal was performed, and public records show that the two unsold listings that the appraiser offered as comparable properties, endured price reductions and were actually removed from the market for a period of time. National economic factors, such as the bursting of the housing bubble the constriction of credit and recessionary pressures that caused widespread job loss, the plummeting of financial markets and the resultant losses that Americans suffered, wholesale, served to severely harm all housing markets, including the market wherein the subject currently resides. -Does the appraiser appear to have used unacceptable practices? According to statements made by the appraiser, reflected on page three (3) of six (6), certain aspects of his valuation were based upon information provided to him by the lender and the original purchaser, and were not based upon verifiable data. According to the appraiser, if this information was found to be false, he reserved the right to amend the value of the subject property accordingly. The report was to be used, however, to arrive at a just market value upon which a mortgage and sales price were to be established, and as principal parties in the transaction appear to have influenced the appraisers opinion based upon unverified information the value conclusion that the appraiser reached cannot be considered to be arrived at in an impartial, market based manner. Also, any further evidence that the appraiser might have learned, post appraisal, would be useless as all of the involved parties (Realtor, Lender, Seller, and Borrower) would have already used the report in its original form. The report was required to be correct and all information fully verified when it was submitted to the lender, not after the report had been completed and the data already used. The Appraiser appears to have exceeded the maximum one (1) mile distance tolerance relative to Comps Two (2) and Three (3). He also appears to have based his appraisal upon two comparables that sold outside of the subjects immediate subdivision, in an effort to justify the $2,500,000 value conclusion that was reached. Fannie Mae underwriting guidelines require that two comparable sales come from within the subjects immediate subdivision and only one come from an alternate development to establish market acceptance. The appraiser used two active listings that had not gone to contract, from within the subjects same subdivision in an effort to further support his value conclusion. As these listings had not actually sold (gone to contract), they cannot be considered to be appropriate to have used to establish the value of the subject
property. Indeed, Comps 4 and 5 languished on the market for some period of time, post appraisal and did not sell. Their initial sales prices were dropped as the market continued to decline, and public records reflect that Listing Comp 4 was removed from the market for a period of time, and Listing Comp 5 which was currently listed for sale when at the time of the subject t review, and had languished on the market for 479 days without going to contract. Finally, comparable sales two (2) and three (3) are located in a gated community and were not physically inspected by the Appraiser, personally. The photos that are represented on the appraisal report were taken from MLS listings. Per Fannie Mae underwriting guidelines, the appraiser is required to physically inspect all properties that are used as Comparables to establish the value of a subject property so that he may fully assess the attributes of the neighborhood, the quality of construction and materials and the comparables overall marketability in relation to the property being valued. It must be noted that the appraiser who performed the physical inspection and performed the actual valuation appears to have been a Junior appraiser whose work was reviewed and approved by a senior appraiser. -Does the appraiser appear to have been under the influence of outside interference in the appraisal analysis process or the honest valuation of the property? Per the appraisers own statement, he consented to use data provided to him by the Lender and the Purchaser. He does not specify what this information was or how it impacted his valuation process. Apparently, this information was accepted as fact pending evidence to the contrary, post appraisal. The Appraiser appears to have based his value opinion using unverified data supplied by parties who had a vested interest in the value that was returned and represented on his appraisal document. The appraiser appears to have arrived at a value conclusion that does not appear to have been established in an objective, market based manner, using un-verified data and/or documentation, and as a result, the value conclusion that was returned does not appear to be valid. -Does the appraiser appear to have misrepresented the characteristics of the subject property or comparable sales? The characteristics of the subject and comparable sales appear to have been accurately represented. -Did the appraiser NOT comment on negative factors with regard to the subject property, the neighborhood or proximity of the subject property to adverse influences? No issue noted.
-Does the report fail to address adverse factors or conditions that affect the value of the subject property with respect the neighborhood, site or improvements? No Issue Noted. -Does the appraisal include any unsupported descriptive comments or draw unsupported conclusions from subjective observations? 2) Are Adjustments to Value reasonable and supported? A. Single line adjustments exceed 10% No Issue. B. Gross adjustments exceed 25% No Issue. -Are the comparable sales used appear to be the most locationally and physically similar to the subject property? Comparable sales two (2) and three (3) are both located 1.5 miles distant from the subject property and are each located in a neighboring subdivision. All of the comparable properties are considered to be superior to the subject property in terms of square footage. Comps 1, 3 and Comparable listing No. 5 are all considered to be highly superior to the subject property in design, appeal, materials, and quality of construction. Comps 2 and 3 are both located in a subdivision that is considered to be superior to the subjects subdivision. Chapel Creek, the subjects subdivision permits the construction of homes whose square footage exceeds 7,000 square feet as a standard, on small tract-style lost. Homes of such excessive size are generally expected to offer grounds and be built upon lots that offers space between the residences. The homes in Chapel Creek are built so close to one another that certain residences almost appear to touch. -Do the Adjustments to the comparable sales appear to reflect an accurate market reaction to the differences between the subject property and the comparable sales? As the comparables used to establish the subjects do not appear to be appropriate, the adjustments that the appraiser made to arrive at the subjects just market value are considered to be meaningless. -Does the report appear to include unsupported adjustments made in the sales comparison approach? As the comparables used to establish the subjects do not appear to be
appropriate, the adjustments that the appraiser made to arrive at the subjects just market value are considered to be meaningless. -Did the appraiser fail to make adjustments to value when such adjustments were clearly indicated or required? As the comparables used to establish the subjects do not appear to be appropriate, the adjustments that the appraiser made to arrive at the subjects just market value are considered to be meaningless. 3) Are the Subject and Comps located in the same neighborhood/market area? Comp one (1) was taken from Chapel Creek Phase II; the subject property is located in Chapel Creek Phase I. Comps two (2) and three (3) are both located in a Planned Unit Development (PUD) known as Starwood, an entirely different subdivision located 1.5 miles distant from the subject property, and not subject to the same market conditions. None of the comparable properties appear to have come from Chapel Creek Phase 1 where the subject is located. A. Are the subject and comps influenced by the same market conditions? Comps two (2) and three (3) are located in a different subdivision whose sites appear to be larger, whose homes appear to contain superior square footage and amenities, and that are located in a different market demographic.
4)
Are the distances of the comps to the subject within the maximum distance tolerances? Per prior exception comments, Comps two (2) and three (3) are both located 1.5 miles distant from the subject property, and exceed the 1 mile distance tolerance for a home located in a suburban location.
5)
Are the Comps and the Subject property similar in square footage, utility, design, appeal and marketability? A. Square footage Comps one (1), two (2) and three (3) all possess superior square footage as do the two comparable listings. -Subject; 7150 square feet -Comp 1; 8184 square feet -Comp 2; 8130 square feet -Comp 3; 8253 square feet -Listing/Comp 4; 7511 square feet
-Listing/Comp 5; 7294 square feet B. Number of Bedrooms & Baths -Comps 1 and 3 offer a superior bedroom/bath count -Subject; 5 bedrooms, 6 full baths, one half bath -Comp 1; 6 bedrooms, 7 full baths, 2 half baths -Comp 3; 6 bedrooms, 6 full baths, 2 half baths C. Comparable Site Size The site sizes of comparables 2 and 3, located in the Starwood development, offer superior site sizes -Subject; 24,712 square feet -Comp 2; 38,202 square feet -Comp 3; 28,836 square feet D. Similar Age No Issue E. Similar Views Comparable sale no. 3 and listing known as Comp no. 5 is both possesses residential views. The subject is located on a creek. F. Similar in visual style, design & appeal -Comp 1 is considered to be highly superior to the subject in design and appeal and is constructed of superior materials. Photos reflect that the exterior of the home is palatial in its overall aspect and is of Tuscan design. The home provides a barrel tile roof, superior architectural amenities, such as exterior columns and rounded windows and balconies. -Comp 3 is also considered to be of superior design and appeal, is of French design and is constructed of superior materials. The home also offers superior exterior amenities such as a barrel tile roof, and is of superior architectural design. The subject property, while attractive, offers fewer architectural details and is made of good, but standard materials, such as a flat shingle style roof. G. Possess similar amenities The most significant disparity in amenity appears to be garage related; Comps 1, 2 and 3 all offer four car garages. The subject and the two additional listings offer three car garages. All of the homes offer multiple fireplaces, pools, spas and falls however the number of these amenities varies from home to home with relatively minor affects upon value overall. H. Possess similar functional utility No Issue.
6)
Is the land-to-value tolerance appropriate? No issue.
7)
Does the final reconciled value exceed the predominant value of the subjects neighborhood? The final reconciled value of the subject property greatly exceeds the value of homes located in its immediate market area. The appraised value of the subject property totals $2,500,000. The predominant value of homes located in the subjects immediate neighborhood is $1,100,000. The appraiser seeks to compare the subject property to Comp No. 1, which is located within blocks of the subject. Comp No. 1, however is of superior size, design, appeal and marketability and is constructed of superior materials. The home also appears to be located in a different phase of Chapel Creek which appears to offer homes that are significantly more upscale than the homes located in Phase 1. It is the opinion of the underwriter that the purchase price of the subject property was affected by interior upgrades that were selected to suit the individual taste of the original owners. These upgrades may not necessarily translate to enhanced marketability or resale value. The subject property is located in a subdivision that appeals to homeowners who are seeking a luxury home that is specifically built and customized to suit their individual tastes and lifestyle. Such home-purchasers are more apt to have a custom home built for them directly by a Builder, rather than to accept the design choices made by a prior owner. The appraisal states that 32% of the subjects subdivision contained vacant land. Photos take of the subdivision indicate the availability of a significant number of lots. Until the development is fully built out, all homeowners must compete with the Builder/Developer and his capacity to offer a customized product to any potential purchaser. As a result, homeowners who seek to sell their homes find that they must not only offer superior amenities and upgrades, but also offer their homes at a discount in order to compete with the offerings of the builder/developer.
8)
Has the appraiser described the marketing time, location type, growth rate and demand/supply appropriately? Per the appraiser, homes in the subjects subdivision were in over-supply when the appraisal was performed with marketing times that ranged between 6 to 12 months. The average marketing time ranges between 3 to 6 months. It would appear that the subjects market was experiencing the same state of collapse as was being felt nationwide, during the severe downturn of the housing market that began in 2007.
A. Are supply, demand and marketing times in balance? Per the appraisal, the inventory of unsold homes was in over-supply, and the marketing times were considered to be excessive. B. What is the predominant occupancy of the neighborhood? Overall occupancy was not stated. 9) Does the subject property represent the highest & best use of the Land? No Issue.
10)
Does the appraisal contradictions? None were noted.
contain
discrepancies
and/or
information
11)
Are sale dates of the comps within the six month tolerance? As indicated elsewhere in the report, the housing market had begun to decline in the subjects immediate subdivision and marketing times ranged between 6 to 12 months. Such a market is considered to be slow and in decline.
12)
Does the final reconciled value exceed the cost to replace? No Issue.
13)
Does the subject property have access to utilities and ingress/egress? No Issue.
14)
Is there any evidence of functional obsolescence? No Issue. A. Are any of the subjects features unmarketable? No Issue. B. Is the floor plan marketable? No Issue.
15)
Does the subject property have physical conditions that affect the safety soundness or structural integrity of the subject property? No Issue.
16)
Has the value of the subject, comps or neighborhood been influenced by property flip activity? No Issue.
17)
Does the appraiser adequately explain all guideline exceptions? The review underwriter considers the selection of comparable properties to be questionable and the methodology used to arrive at a value conclusion suspect. The explanations provided to justify guideline exceptions is considered to be inadequate.
18)
Does a review of the location map indicate that the subject and comps are separated by highways, natural or man- made barriers, or are subject to negative market influences (airports, landfill, highway, etc). Comps 2 and three are located 1.5 miles distant from the subject property in a subdivision known as Starwood. Starwood and Chapel Creek appear to be divided by the Dallas Parkway. Is the basic information contained in the appraisal accurate? A. Address of the subject & Comps No issue noted. B. Sale dates No issue noted. C. Public record data No issue noted.
19)
20)
Has the appraisal been performed on a compliant/current 1004 form? No Issue.
END OF EXCEPTIONS
UNDERWRITERS FINAL CONCLUSIONS SOUNDNESS OF LENDERS UNDERWRITING PROCESS, GUIDELINES AND METHODOLOGY. The lender appears to have based their original mortgage using an appraisal whose value conclusion appears to have been established using comparable properties that are not considered to be appropriate, using data supplied by parties who had a vested interest in the value conclusion that was ultimately returned. While the subject property is considered to be a luxury home, the comparables used are of generally superior design, style, quality, marketability and appeal. Further, the Lender, who in this instance provided a jumbo loan in a severely declining market, appears to have been content to use an outdated, eleven month old appraisal using stale dated comparables. Market conditions and the size of the loan being requested, demanded that the lender update the appraisal, at minimum, and obtain a second valuation before granting any mortgage loan request. APPROPRIATENESS OF THE MORTGAGE GRANTED THE BORROWER RELATIVE TO THE JUST MARKET VALUE OF THE SUBJECT PROPERTY. As the home appears to have been severely over-valued, the loan that the borrower was granted exceeded the homes actual just market value when the home was sold to the subject borrower and he mortgage loan granted. It appears that the 1st and 2nd liens granted the borrower by Patriot Bank exceeded the homes just market value by $300,000. DID GRANTING THE SUBJECT LOAN MAKE FINANCIAL SENSE BASED UPON THE VALUE OF THE SUBJECT PROPERTY. It is the opinion of the review underwriter that the purchase price of the subject property should have been reduced and the mortgage amount reduced accordingly. As the loan amount was considered to be a super jumbo the Loan to Value Ratio should not have exceeded 70%. The borrower was only required to make an investment of 5% in the subject property. The home appears to have been owned by the Bank when it was sold to the subject borrower and prudence demanded that the bank, given market conditions evaluate both the borrower and the property with great care so as to reduce its financial exposure. The loans that were granted to the subject borrower were considered to be excessive and predatory, and imprudently granted.
WAS THE LOAN AMOUNT GRANTED THE SUBJECT BORROWER APPROPRIATE RELATIVE TO THE VALUE OF THE SUBJECT PROPERTY? As stated above, the review underwriter is of the opinion that the lender should have updated the appraisal, obtained a 2nd opinion of value and reduced their lending exposure to 70%. The loan the borrower was granted is considered to be excessive. END UNDERWRITERS FINAL CONCLUSION
SUBJECT PROPERTY
6404 Memorial Drive, Frisco, TX
Comp 1: 6897 Memorial Drive, Frisco, TX 3 Blocks from Subject
VALUE OF COMP 1 WHEN APPRAISAL WAS PERFORMED IN 2008
VALUE OF COMP 1 WHEN SUBJEC PROPERTY WS SOLD IN 2009
STREET SCENE
COPY OF TRANSFER DEED OBTAINED FROM PUBLIC RECORDS
PROPERTY TAX RECORDS
Comp 2: 5206 Monterey Drive, Frisco, TX 1.5 Miles from Subject
VALUE OF COMP 2 IN 2008 WHEN APPRAISAL WAS PERFORMED
VALUE OF COMP 2 IN 2009 WHEN SUBJECT PROPERTY SOLD
STREET SCENE AND NEIGHBORHOOD VIEWS
TITLE TRANSFER DEED OBTAINED FROM PUBLIC RECORDS
PROPERTY TAX INFORMATION OBTAINED FROM COUNTY
Comp 3: 5609 Monterey Drive, Frisco, TX 1.5 Miles from Subject
ESTIMATED VALUE OF COMP 3 WHEN APPRAISAL WAS PERFORMED IN 2008
ESTIMATED VALUE OF COMP 3 WHEN SUBJECT PROPERTY WAS SOLD IN 2009
STREET SCENE AND PHOTOS OF NEIGHBORHOOD
COPY OF TITLE TRANSFER DEED OBTAINED FROM COUNTY
COPY OF PROPERTY TAX DATA OBTAINED FROM COUNTY
Comp 4: (Active Listing at time of appraisal) 6422 Memorial Drive, Frisco, TX Same Block, Phase II of Chapel Creek
VALUE OF COMPARABLE LISTING 4 AT APPRAISAL IN 2008
VALUE OF COMPARABLE LISTING 4 IN 2009 AT SUBJECTS SALE
PROPERTY TRANSFER DEED OBTAINED FROM PUBLIC RECORDS
TAX DATA OBTAINED FROM COUNTY
Comp 5: (Active Listing at time of appraisal) 8019 Brookhollow Blvd., Frisco, TX 2 Blocks from Subject
ESTIMATED VALUE OF COMPARABLE LISTING 5 IN 2008 AT APPRAISAL
ESTIMATE OF VALUE OF COMPARABLE LISTING 5 WHEN SUBJECT PROPERTY SOLD IN 2009
COPY OF TRANSFER DEED NOT AVAILABLE
TAX INFORMATION OBTAINED FROM COUNTY
MARKET TRENDS OF CHAPEL CREEK AND STARWOOD SUBDIVISIONS
MARKET TRENDS FOR FRISCO, TEXAS
Glossary of Terms
Value is not supported -- the appraisers opinion of value is not adequately supported by the data or comparables provided on the appraisal document. Comps are not appropriate - review of the appraisal document reflects that the comparable properties used to establish value are not suitable. An appraiser must select comparable properties that are similar to the subject in size, room count, utility, design, appeal, marketability, and site size. Additionally the comparable properties must be located in the immediate neighborhood/subdivision as the subject to establish value. Or: The comparable properties utilized in the subject appraisal have significantly dissimilar characteristics than the subject property. Unsupported adjustments in the sales comparison approach -- the appraiser uses value adjustments in the appraisal report that are not supported by the subjects immediate market, the adjustments are not consistent, or required adjustments are not made, thus distorting the final, reconciled value of the subject property. Inadequate reporting of the sales history for the subject property and comparable sales -- the appraiser does not analyze and/or report the sales history for the subject property and comparable sales. Lack of analysis of, and reporting on, the listing, offering, or contract of sale for the subject property -- the appraiser does not comment on how the subject property transaction relates to the market. Misrepresentation of the physical characteristics of the subject property, improvements, and comparable sales -- the appraiser does not accurately report some aspect of the subjects physical attributes, i.e., room count, amount of square footage, site size, etc., thus distorting the subjects actual marketability and final reconciled value. Property Flip -- the practice of buying a property and quickly reselling (or "flipping") it for profit. A property is considered to be a flip if it is sold within the first 24 months of purchase. Properties bought and sold via flip transactions are purchased purely for speculative purposes, i.e., the purchaser does not intend to reside in the residence, and usually, performs no upgrades to warrant the increase in value, and subsequent receipt of profit. Flip transactions are prevalent in housing markets that have experienced rapid appreciation, and can artificially increase the value of a property that cannot be sustained, long term. Age of Comps not appropriate -- the actual sales date of the comparable properties exceeds Fannie Mae guidelines, in relation to the date the valuation of the subject property was performed. Distance of Comps to Subject is excessive -- The physical distance of the comparable properties relative to the subject property, in miles, exceeds the established standards. END GLOSSARY OF TERMS
Description & Logic of a Diligence Group, LLC Appraisal Analysis

The Diligence Group, LLC appraisal Analysis was developed to determine if the original lender, who granted a borrower a mortgage loan, utilized sound, reasonable judgment and quantifiable industry standards during their loan approval process. The Diligence Group, LLC performs each appraisal analysis utilizing Fannie Maes Appraisal Underwriting guildelines, which is considered to be the standard by which most appraisal analyses are performed throught the mortgage industry. A lender is required to review and approve an appraisal report on all properties which are intended to act as an underlying security for a mortgage loan before credit may be extended to a borrower. Appraisers, in the prepration of their reports, are required to utilize the Uniform Standards of Appraisal Practices, in addition to the guidelines imposed by Fannie Mae, and are are required to apply these principals to all one-to-four unit, residential properties utilized to secure a mortgage debt. The level of standardization inherent in the mortgage industry of today, came about to insure that each Institutional Lender who aspired to sell their loans onto the secondary market, utilized tested, time honored practices and guidelines, to assure the safety and soundness of the portfolios they sold. In addition to the confidence such standardization inspired, the documentation, terminology, and calculations utilized to prepare each valuation report were uniform from Lender to Lender, thus speeding up the pre-sale due diligence process, and thus insured that the securitization transactions proceeded smoothly. Unfortunately, the events of recent years make it apparent that the integrity of the appraisal process had been severely compromised by the actions of aggressive lenders, mortgage brokers and realtors. Appraisers who wanted repeat business from the very institutions who employed them, and whose products were designed to protect their cleints interests, were being pressured into providing valuations that returned the highest values possible. Appraisers whose values advsersley impacted the size of a Lenders mortgage amount, or Realtors sales price, frequently were not offered repeat business. And, as it is acknowledged that most mortgages were sold almost immediately upon their closure, it was rare for an original lender to have retained any interest in a loan. As a result, many lenders sold trillions of dollars in mortgae backed securities without having given adequate consideration to the underlying valule of the asset securing their mortgage portfolios. As a nation, are now reaping the consequences of their actions. Dozens of laws suits have been filed against many National Lenders, Mortgage Brokers and Realtors alleging they conspired to force appraisers to artificially inflate property values, conceal risk factors and misrepresent material facts which would have rendered a particular property, and loan, unsaleable in the Secondary Market. Currently, Attorneys General from coast-to-coast are filing suit against Lenders, Mortgage and Real Estate professionals for appraisal fraud and abuse. The Analysisor employed by The Diligence Group, LLC is an experienced Mortgage Due Diligence Underwriting Professional, trained to detect fraud and evaluate appraisals utilizing the highest industry and professional standards. Appraisals are analyzed to determine if the Lender utilized prudent underwriting guidelines, and sound, practical, logic to grant a particular borrower an extension of credit, and to determine if the final reconciled value returnd by the original appraiser, was supported. A revised estimate of value, if the original was overstated, is provided where possible and appropriate, and all exceptions noted, are thoroughly detailed in our findings report. Additionally, the original Appraisers current license status is investigated. Any disciplinary action, if present, is included in our findings report. Our Analysisor also has access to a highly sophisticated Automated Valuation Model (AVM) database, which is utilized to determine if the comparable
properties utilized by the appraiser to establish the value of subject property, were the best possible comparables available when the apraisal was performed. We highly recommend that the original appraisal document(s) used to establish the value of subject property, be obtained directly from the current loan servicer of record. The user of this report should request any and all additional supporting documents including, but not limited to, a second appraisal, desk review, field review, addendums and/or supplements that may have been ordered by the lender at the time the mortgage loan was originated. Underwriting guidelines frequently required supplemental valuation documentation for properties with a loan amount of $650,000 or higher, or at the discretion of the underwriter. Some lenders who originated jumbo or non-conforming loans may have required supplemental documentation for every loan approval. Supplemental documentation may include the following; Desk Review, Field Review, Second Appraisal or other automated valuation check utilized to support the value of the subject appraisal. In many cases the borrower(s) may have been be unaware these documents were ordered. If additional supporting documentation is obtained after the completion of this report, it is highly recommended that it be presented to MainStreet Resolutions, Inc. for further evaluation. Additional fees may be charged to evaluate supporting documents. IMPORTANT NOTE: Loans whose mortgage balances meet or exceed $650,000 should have been subjected to a secondary valuation, and are considered to be deficient if no additional valuation was performed. Lenders should have ordered and possess a secondary valuation document in their possession for a loan amount of $650,000 or more. If this document is not on file with the current loan servicer or was not ordered, the user of this report should obtain same in writing. Please present any such statements or correspondence from your Loan Servicer, so this deficiency information may be included in our findings report. The Diligence Group, LLC appraisal analysis reports are performed by an Underwriter, who is not a licensed real estate appraiser. The Underwriter is a due diligence mortgage underwriter of 30 years experience who is fully qualified to underwrite appraisals, and perform appraisal related analysis within a mortgage approval context. End Description & Logic of a The Diligence Group, LLC Appraisal Analysis
END OF REPORT

Sample Apprasial Analysis - The Diligence Group

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Sample Apprasial Analysis - The Diligence Group

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November 28, 2011

THE DILIGENCE GROUP, LLC

APPRAISAL SUMMARY PAGE

Home Located on Creek Notes

Subject 21 in Neighborhood 1,8250 - 3,400,000 None - See Notes & Results

Appraisal perf. For another borrower

Functional Utility Heating/Cooling Porch/Patio/Deck Fireplace(s) Pool

NOTES REGARDING THE SUBJECT SUBDIVISION

END CASE HISTORY

Fannie Mae Underwriting Guidelines B3-1-01 General Assessment of Risk

Fannie Mae Underwriting Guidelines B4-1.1-01 General Appraisal Requirements

Is the land-to-value tolerance appropriate? No issue.

Does the appraisal contradictions? None were noted.

Has the appraisal been performed on a compliant/current 1004 form? No Issue.

Comp 1: 6897 Memorial Drive, Frisco, TX 3 Blocks from Subject

VALUE OF COMP 1 WHEN APPRAISAL WAS PERFORMED IN 2008

VALUE OF COMP 1 WHEN SUBJEC PROPERTY WS SOLD IN 2009

COPY OF TRANSFER DEED OBTAINED FROM PUBLIC RECORDS

PROPERTY TAX RECORDS

Comp 2: 5206 Monterey Drive, Frisco, TX 1.5 Miles from Subject

VALUE OF COMP 2 IN 2008 WHEN APPRAISAL WAS PERFORMED

VALUE OF COMP 2 IN 2009 WHEN SUBJECT PROPERTY SOLD

STREET SCENE AND NEIGHBORHOOD VIEWS

TITLE TRANSFER DEED OBTAINED FROM PUBLIC RECORDS

PROPERTY TAX INFORMATION OBTAINED FROM COUNTY

Comp 3: 5609 Monterey Drive, Frisco, TX 1.5 Miles from Subject

ESTIMATED VALUE OF COMP 3 WHEN APPRAISAL WAS PERFORMED IN 2008

ESTIMATED VALUE OF COMP 3 WHEN SUBJECT PROPERTY WAS SOLD IN 2009

STREET SCENE AND PHOTOS OF NEIGHBORHOOD

COPY OF TITLE TRANSFER DEED OBTAINED FROM COUNTY

COPY OF PROPERTY TAX DATA OBTAINED FROM COUNTY

VALUE OF COMPARABLE LISTING 4 AT APPRAISAL IN 2008

VALUE OF COMPARABLE LISTING 4 IN 2009 AT SUBJECTS SALE

STREET SCENE AND PHOTOS OF NEIGHBORHOOD

PROPERTY TRANSFER DEED OBTAINED FROM PUBLIC RECORDS

TAX DATA OBTAINED FROM COUNTY

ESTIMATED VALUE OF COMPARABLE LISTING 5 IN 2008 AT APPRAISAL

ESTIMATE OF VALUE OF COMPARABLE LISTING 5 WHEN SUBJECT PROPERTY SOLD IN 2009

STREET SCENE AND PHOTOS OF NEIGHBORHOOD

COPY OF TRANSFER DEED NOT AVAILABLE

TAX INFORMATION OBTAINED FROM COUNTY

MARKET TRENDS OF CHAPEL CREEK AND STARWOOD SUBDIVISIONS

MARKET TRENDS FOR FRISCO, TEXAS

Description & Logic of a Diligence Group, LLC Appraisal Analysis

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