Don’t Ask, Don’t Tell About “The Weed”

Don’t Ask, Don’t Tell About "The Weed"My son is a police officer and when they smell weed on a traffic stop it enables them to search the car. Appraisers are being placed in the awkward position of not reporting something that they see during the inspection. This Corelogic work around seems very awkward to me. Then again, I’m not appraising in Colorado. Thoughts?

Engagement Letter Update – Marijuana Cultivation and Residential Appraisals

On March 15, 2018, CoreLogic Valuation Solutions will update the lender specific instructions for all Bank of America products. As a result, a new engagement letter will be generated for any open CoreLogic Valuation Solutions appraisal assignments in AppraisalPort.

New Marijuana Cultivation Appraisal Guidelines to be added in Bank of America Engagement Letter:

If marijuana cultivation is observed during the appraisal property inspection, it shall not preclude the assignment from being completed and delivered to Bank of America. In these instances, do not inquire specifically as to the purpose/legality of any cultivation activities. Do not request any specific information (such as grow permit/license) from the owner/occupant/entry contact regarding any cultivation activities.

The appraiser should photograph all areas required by the assignment type and report/analyze physical changes/conditions/characteristics that impact value/marketability of the property, as applicable.

If you have any questions, please contact the scheduler listed on your engagement letter.

Thank you,
Corelogic Valuation Solutions

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Jonathan Miller

Jonathan Miller

President & CEO at Miller Samuel Inc.
Jonathan Miller is President and CEO of Miller Samuel Inc., a real estate appraisal and consulting firm he co-founded in 1986. He is a state-certified real estate appraiser in New York and Connecticut, performing court testimony as an expert witness in various local, state and federal courts.
Jonathan Miller

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Image credit flickr - Cannabis Culture
Jonathan Miller

Jonathan Miller

Jonathan Miller is President and CEO of Miller Samuel Inc., a real estate appraisal and consulting firm he co-founded in 1986. He is a state-certified real estate appraiser in New York and Connecticut, performing court testimony as an expert witness in various local, state and federal courts.

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42 Responses

  1. Advocate says:

    The appraiser has the final determination of what is relevant and what goes in the report. If the appraiser believes it will impact market value based on research and data, it should be included. Even if there is no impact on market value, I, as an honest transparent appraiser, would include some verbiage and maybe a photo or two in the report. If the owner is not violating any laws, where is the harm in disclosing? Maybe the cultivating of marijuana changes the Highest and Best Use of the property. It would definitely need to be reported then.

    The thing that caught my eye that concerns me more:

    “As a result, a new engagement letter will be generated for any open CoreLogic Valuation Solutions appraisal assignments in AppraisalPort.”

    Sorry, CoreLogic, that is a new assignment. Pay the appraiser for their time on the original engagement and re-engage the appraiser for a new assignment.

    If this happened to any appraiser, please turn them into your state regulatory board.

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  2. Ross Grannan on Facebook says:

    Not in the scope of work to be a snitch, only if it’s detrimental to the value of the property, I work in MA and it’s legal for even residential properties under a certain amount of plants, I’m not going to get in the middle of something that is entirely legal, that is a set up for a law suit.

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    • Ross, has nothing to do with being a ‘snitch’ any more than calling out the absence of a heat source in New England would be; or say an ambulance business being run out of the back half of a single family zoned residential property’s garage if it has a lease that encumbers the property rights.

      The point is we have to ASK in order to make a determination. If I see a couple plants in a normal sized garden area there is no suspicion of commercial activity nor high enough volume where the property is likely to be subject to seizure. If I see a basement full of plants with sodium grow lights, specialized irrigation, and steel sheet covered doors that’s another story.

      I’ve appraised licensed medical marijuana sales facilities (& grow-warehouses) before. One was after the feds raided it (Hollywood area) and it was a defaulted loan as a result.  The other was a big warehouse and sales operation for a hard money lender putting out nearly a million dollars. You BET I disclosed AND made many extraordinry assumptions including one that an assumption is made that the licensed facility would continue to operate despite disagreement between state legislator and federal regulations…or words to that effect. Snitch? What are we, 15 years old? There was a neon green cross three feet high on the front of the building!

      I don’t opine as to the pros or cons aside from fact it is illegal, and the impact on value and marketability. (Pot warehouses rent for MUCH more than competing warehouse space does). Any objection I’d have is the AMC TELLING us not to ask questions needed to protect ourselves and the intended users/investors. THAT amounts to promoting fraud. Where is the line drawn, otherwise?

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      • Ross Grannan on Facebook says:

        I said if there was no impact on value I won’t mention it, pot warehouse, grow operations would affect value and probably violate zoning restrictions. I wish people would read what I write. This all started with the lame comment about a cop smelling pot in a car and relating to pot being grown in a home. It didn’t specify how much or what for. Maybe the AMC is right, we are not in the business of turning people into LE for personal use.

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        • Ross No one suggested turning anyone in to LE (presumably law enforcement). The issue for an appraiser is NOT legality of pot. It is the (1) potential commercial use of property that simply requires questions of the type BofA and CoreLogic (& apparently ServiceLink) say we don’t need to ask. (2) Value and marketability if title insurers wont insure title? (OR our complicity in loan fraud if we ignore it). I’ve had UWs inquire about ‘commercial use’ of  4 rows of corn ten feet long in Urban L.A.. Zoning/General Plan designated area as ‘urban agricultural’ within R3-1 zone. It was personal / family consumption. Simple questions of type BofA doesn’t want asked, resolved it. Is it commercial “no.” Is it a permitted and legal use? “Yes” . They said the chickens I saw were the neighbors.

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  3. Jessica Hufstedler on Facebook says:

    Exactly Ross Grannan. It’s legal in NM where I work and I respect one’s privacy. I actually agree with Corelogic’s policy. We don’t throw out red flags when someone is on pills for their medication why get all bent out of shape over an herb that grows naturally if it’s legal in your state?

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    • Ross Grannan on Facebook says:

      I work in CT where it’s still “illegal” still wouldn’t call LE, as long as the property is not negatively affected I wouldn’t report it to the bank either. Still not in my scope of work to be a snitch. Anybody that has a large grow operation wouldn’t be inviting an appraiser on to the property anyways.

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  4. Audrey Cox Boyd on Facebook Audrey Cox Boyd on Facebook says:

    My question, is, regarding the income producing potential. We can’t ignore hair salons, dog grooming, ect, even if income generated is only hobbiest level. While I recognize that pot has stigma that can be detrimental, given the sporadic legality, can we really simply ignore what could be an income generating Enterprise, while insisting that we cannot fail to mention other income producing enterprises? While that hobbiest groomers wing may not preclude the home being a residential appraisal, due to low income generation, we cannot fail to document it’s presence. I’d say, given how the pot industry is growing, it’s questionable at best, negligent and discriminatory at worst, to simply ignore plants, after just a few. I don’t see how banks can request appraisers to ignore one specific type of potential income. We don’t ignore cell tower leaeses, crop leases, home based businesses, ect. While I don’t believe my job is to “snitch”, unless I see life threatening situations, I find the stipulation to ignore “grow operations” questionable and overly broad. We cannot ignore income production.

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    • Advocate says:

      Exactly, legal or not,  it just simply can not be ignored. Each subject will have to be analyzed for impact, highest and best use, market acceptance, etc. If the amount of grow is large, a dealer could have lived there. New owners most probably would not want someone knocking on the door at all hours looking for a buy.

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    • Dawn Aubrey says:

      I agree! One cannot generalize this. Not only does it potentially change the HBU, but depending on the extent of growth and home alterations required for such a growing operation, this may affect the stigma of the property OR desirability to the typical buyer. All of which **should** be evaluated by the appraiser on a case by case basis and discussed if appropriate. I don’t think appraisers should be worried about “legality.” Appraisers have a fiduciary responsibility to discuss the impact on value. And depending on the state, it may or may not heavily impact value.

      Sure, it saves time to ignore it…. but is it ethical? There is no across the board answer for this…..

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    • Bank isn’t making the request – CoreLamode is. Either at the behest of the bank or on their own volition. Either way, it is an unacceptable assignment condition.

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  5. Henry B. Torn on Facebook says:

    Appraisers adding extra work and costs….I didn’t get the memo when all of a sudden Appraisers are qualified and required to demand more improvements must be made to subject property. Than why have city and property inspections? More and more redundancy adding to the sales process. If Appraisers are required to become inspectors as well can your organization please have the courtesy of advising RE Brokers, Sellers, Attorney’s that these are the new rules?

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    • Henry, appraisers have always been required to analyze and consider impact of all conditions affecting marketability and value. That includes safety and habitability. Personally I couldn’t care less if a house has smoke detectors, hand railings or self closing gates and fences around pools. My clients do though.

      I’ll concede that some go overboard with it. Maybe we need to explain ourselves better and note that it is a client (end user) imposed condition of value rather than our own.

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  6. Wyatt Powell on Facebook says:

    I guess it all depends on the level. Here in WA it is legal now so most of the grow houses have gone away. That being said, way back when I used to see some serious damage done from growing. Holes in multiple walls for ventilation system, heavy moisture in the dry rooms, rigged up electrical systems, ect.

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  7. E J B says:

    I receive orders here in my rural market area saying that I must stop the report and disclose any agricultural activity to the Client/AMC because the presence of such would disqualify the property.

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    • Exactly! If the guy has 200 avocado trees in the back yard and a truck hauling a load away, there is a distinct possibility this is a commercial land use! Not a FNMA loan candidate! If it turns out owner is a little old lad that gets ZERO income from them, and truck is a charity’s hauling them away so they don’t rot; and all other nearby farms have gone over to new SFR developments, it may be another matter. Either way it needs a LOT of questions in order to determine actual highest and best use. It COULD still conceivably be as a carrier property sfr (if all new sfr projects have a lot of unsold units.

      Far fetched? Riverside, CA; San Bernardino CA…only substitute avocados for orange trees.

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  8. Kathy Hubbard Bright on Facebook Kathy Hubbard Bright on Facebook says:

     = Appraisers.

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  9. No appraiser can accept those engagement/assignment conditions for federally regulated transactions. USPAP? What USPAP?

    The questions appraisers are being told not to ask are exactly the kind of questions necessary to determine if the property is being used for commercial purposes or not. It also raises other issues related to highest and best use; not to mention appraiser independence.

    Once again, appraisers are being mislead as to what their obligations are under USPAP. Once again one of the perpetrators is CoreLogic. At minimum these conditions and issues make all such assignments “complex appraisal assignments”.

    Marijuana cultivation & sale is still against federal law.

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  10. Steve says:

    I don’t think it matters where you live, all marijuana is still illegal at the federal level.

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    • Baggins Baggins says:

      So many fictitious reasons we continue to wage a war on liberties in order to promote major corporations whom profit from such activity. 25% of the worlds incarcerated, 5% of the world populace, clearly it’s gone too far already. Conflicts of interest in rescheduling MJ for it’s known medical benefit. They’re curing skin cancer and tumors with it, and that’s a fact.

      The guidance is incomplete by not distinguishing residential from commercial. Commercial grows usually bring with them a total revitalization of the building and utility, from light to water to electric, security and other. For residential, normal safety rules apply, no open electric, has to be moisture managed, etc.

      Amendment IV – The right of the people to be secure in their persons, houses, papers, and effects…

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      • Different issues Baggs. I am an appraiser. I am hired to analyze a property for a federally regulated lending institution. The property owner is free to not seek a loan from a bank that taxpayers will have to stand behind. Fact is, the feds CAN seize the property and the lender is then left with no collateral and likely no loan payments being made.

        My brother has terminal cancer, and medical MJ has been prescribed…right along with the morphine and fentanyl. Objection is not about whether pot should or shouldn’t  be illegal. Its about whether any AMC should be telling us how to do our jobs…especially about something like this where the impact in the end is on the appraisers license. The feds won’t shut B of A down, but either they or state will sure as heck take OUR license away.

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        • Baggins Baggins says:

          I’m just saying it’s illogical for this substance to be on schedule 1 and be legal in an increasing count of states at the same time. Appraisers do not have the luxury of clever work arounds so in this regard, I believe most here are in agreement this new policy does not make sense. One is then led to ask the question, has the issue of federal seizure for law abiding citizens in deregulated states been questioned legally before? These are rather new legal issues. You bring up another point, could the appraiser face legal charges for abiding such a policy?

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  11. Greg Boyd on Facebook says:

    It’s not so much the banks as it is the title companies not insuring.

    Fed & State Laws RE Marijuana cultivation

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  12. Greg Boyd on Facebook says:

    Completing an income approach because they are growing pot on the effective date of value is kind of silly, or an exercise in futility.

    OTOH… a property where the owner has managed to complete all the steps in collecting the entitlements could have a higher value than one that has not.

    But that is a matter for the sales approach (and maybe the cost approach.)

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    • Baggins Baggins says:

      Mikes comments above are compelling, where is the line drawn? A don’t ask don’t tell mandate, the lender is saving face while simultaneously leaving the appraiser holding the bag should foreclosure happen. Every day homes turn over from long time owners, and the city inspector is not invited at any point into the home, or to review any inspection or valuation reports. The government could never protect individual interests like other individuals could. So no, it’s not over reach for the appraiser to demand alterations or improvements for health and safety of home and residents. In many sales and refinance scenarios, we’re the only ones who would actually do so. 

      It would be more comprehensive for the lender to publish publicly, their position they will lend on MJ related housing, then specifically define their thresh holds and tolerance levels. The guidance which is the topic of this article looks more like a work around to dump liability on the appraiser. Disclose, disclaim, and yes, based on political leanings of the day, the legality of this activity could be brought into question in the future. Unacceptable assignment conditions?

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      • Greg Boyd on Facebook says:

        Baggins, No idea of what you’re talking about. Sorry.

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        • Baggins Baggins says:

          Simply put, don’t ask don’t tell is not an acceptable work around because like you said, we have a duty to disclose all tangible aspects of real property analysis.  If they alter the home in any manner which would not be acceptable to non growing sf participators, the appraiser has a duty to disclose, disclaim, or both.  Appraising in CO since before legal, have never run across a grow home outside of reo.

          The policy statement which is the topic of this article is most likely related to this:

          Exclusive: U.S. Justice Department blindsided banking agency on pot policy flip

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          • Ross Grannan on Facebook says:

            The Justice Department already getting forced to change direction on this because a Colorado Senator put up stink. Nothing coming from the Feds right now can be counted on. Appraisers should not create extra work for themselves.

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      • Greg Boyd on Facebook says:

        Baggins, I describe everything about a property. Period. 

        I think my comment was specific regarding the development of an income approach for a property where cannabis is cultivated.

        OTOH… it would probably be irresponsible to not take into account the market reaction to a property that is set up to grow pot. 

        The concept of “anticipation” comes in.

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        • Baggins Baggins says:

          We are in agreement.  The cultivation of mj on residential is a specialized practice with tricky legal points.  The majority of sf participators would not do that, therefore improbable and not tangible to normal arms length transaction mv.  One must be in a commercial setting to caretake for more than x people, there is some caretaker grow limit in sf I believe, but it’s state by state. MJ is for all intensive purposes legal, but only for regular law abiding citizens.  It’s probable these new lending ‘guidelines’ are in response to doj tightening the previously loosened up banking restrictions.  One notable challenge for mj store owners is how to access regular banking, as well as having to hire armed security if they’re all cash businesses.  The legally questionable points for medical mj being errantly left on the dea schedule 1 creates a cash and banking management crisis for participators.  Clear definitions of tolerable activity should be stated by lenders, and not left to a grey area of appraiser interpretation. I think they did it wrong, if it’s legal, and they’re willing to loan on a property where the owner is acting as a caretaker (personal use grower for themselves and possibly for a limited amount of others as defined by state law), there should be clear definitions as well as requirements to furnish evidence of valid caretaker documentation to answer both appraiser and lenders concerns on legality. But how to package those loans… Hence the work around.

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  13. Greg Boyd on Facebook says:

    I see properties with small and giant cannabis productions going on. It’s called “Cannabis Capitalism” around here.

    I don’t see what all the excitement is about. If you don’t like the terms of the engagement just decline or withdraw. 🙂 (no marijuana emoticon.)

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  14. Greg Boyd on Facebook says:

    This is a tempest in a teapot. CLVS is just saying don’t pester the property owner or tenant about permits and such. Just take photos and describe.

    Let the loan staff and UW’s decide if they want to proceed.

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  15. Greg Boyd on Facebook says:

    Honest to Pete! As gramma Boyd would say.

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  16. “like” the terms of the engagement contract? It’s a case of no appraiser being legitimately able to accept them for FRTs that is the issue. “Cannabis Capitalism” or in other words commercial enterprise. Property that could not get title insurance if conditions are honestly described.
    Title 18 USC? No big deal.

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    • Greg Boyd on Facebook says:

      We appraise. They lend. If they want a loan and their particular lender says no, they can get another lender or make a bonfire of the crop.

      It’s probably personal property anyway.

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      • Baggins Baggins says:

        Can personal property, if it could effect the legal use of the land, be considered an unpermitted addition? What happens when and if the DOJ re-suspends all financial banking related access for producers and sellers of pot? Refinanceers using the big banks get a free pass? What gets me is the fine detail of the directive. The appraiser is asked to not inquire about legality then in the next paragraph is asked to analyze the characteristics and subsequent marketability of the property. Would repossession by the Marshall service perhaps effect it’s marketable state in the future? If in doubt, simply opt out.

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Don’t Ask, Don’t Tell About “The Weed”

by Jonathan Miller time to read: 1 min
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