The Law Of Unintended Consequences - Reusing Appraisals After New York Rent Laws Were Revamped
Last month, New York State’s residential rent statutes were substantially rewritten. For now, let’s focus on appraisals of multifamily buildings. FDIC appraisal regulations permit a bank to re-use an existing appraisal for a subsequent modification or extension of a loan, even when new money is advanced, if “There has been no obvious and material change in market conditions or physical aspects of the property” that threatens the adequacy of the collateral protection.” Many commentators are suggesting that the new statute may have a substantial negative effect on the value of multifamily properties. The Wall Street Journal has suggested that the value of community bank stocks with significant multifamily loan portfolios has been adversely affected by the new law.
Today’s Takeaway? If you are modifying an existing credit in your portfolio and advancing new money in excess of reasonable closing costs, ask yourself two questions. Has the market value of the type of mortgaged property declined? Is the LTV on your loan, with the new money, close to your loan policy LTV limit? If the answer to both questions is yes, consider whether the effect on value is material and requires you to bring the appraisal current –and probably charge your borrower for your out-of-pocket costs of doing so. If you decide a new appraisal is not required, make sure to document why you made that decision and put it in the file.