Real Estate Matters

Real Estate Matters: The headache of a low appraisal

By Ilyce R. Glink and Samuel J. Tamkin
Saturday, November 14, 2009

Q: I applied for a refinance with my current lender. I did my application over the phone and was then told the rates and options. I was told I would most likely not need an appraisal, but if I did need one, the lender would pay for it.

I locked in the rate and terms and paid the $395 application fee by credit card. Three weeks later, I was told that the lender did want an appraisal -- but I would not be responsible for payment of the appraisal fee.

My home appraised for $50,000 less than my mortgage balance, so the rates and terms changed drastically. I was sent an e-mail saying that my initial terms and rate could not be given to me, and if I didn't take the new terms and fees, I would lose my $395 application fee.

This does not sound legal or ethical to me because the terms I was offered after the appraisal were different than what I was quoted. Am I stuck with the higher rates and points, and will I lose my $395 if I don't go through with the refinance?

A: You told the lender on the phone what your property was worth. The lender priced the loan based on that information. Unfortunately, your estimate of what your property was worth was $50,000 short. Because you don't have the equity that the lender requires, you cannot get the loan you were hoping to get.

If you look at the paperwork, you'll probably see language that requires your home to appraise out in order to qualify for the quoted interest rate, fees and terms.

The lender isn't trying to scam you. It's that the government is backing about 90 percent of loans out there, and Uncle Sam is extremely strict about the home equity you have during a refinance.

Your biggest problem is that you're $50,000 underwater with your mortgage. While you'll be out the $395, you may be best off sticking with the loan you have (provided that the interest rate isn't over 8 percent) until you have paid down more of your balance.

If you think the appraiser was in error in determining the value of your property, you might want to research what homes have recently sold for in your area. If homes are selling for prices that approach what you thought was the value of your home, you might be able to go back to the lender.

Q: I bought a house in a short sale at the end of August and have since received a claim-of-lien letter from a painter. The builder must not have paid the painter. Am I responsible for the debt owed by the builder?

A: You may be responsible for the lien because it wasn't settled at the closing and paid out of the closing proceeds. This is one of the problems with doing a short sale as opposed to a foreclosure, where all liens are usually wiped out.

Unpaid contractors in most states have the right to file a lien months after the work has been finished.

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