The 1004D for Disaster Inspections – Advice
When Disaster Happens…
The phrase “disasters happen” is, unfortunately, all too common. Fires, floods, vehicle accidents, wind storms, hurricanes, tornadoes are all factors that can affect real property.
When a local disaster happens, and is officially declared, lenders often ask appraisers to observe the current condition of their mortgaged properties. The assignment date may be days, weeks or months after the declared disaster.
The hiccups, hang-ups and head scratching occurs when the lender or AMC asks for a ‘Disaster Inspection Condition Report’ to be done on the wonderful 1004D form. Something it is not designed to do. And this is all too common.
Unfortunately, there is no ‘one common property condition inspection form’ that lender clients can use, like there are for residential, condo, and multi-family properties. Because their systems only recognize common GSE forms, they, and we are stuck with the 1004D – at least as the ‘starting’ form. This is something the GSE’s should correct!
Before you begin screeching at me, yes, the GSE 2070 or 2075 form is a possibility. But those require inputting local market data statistics and trends, which the lender client may not need or want. All the client really cares about is whether their property is still standing, with doors, windows, walls, and roof, with no observed damage to the structure or property, at a low fee. These forms are not normally ordered for a ‘Disaster Inspection Condition Report’ anyway.
The 1004D is designed to provide a notice to the lender if the property HAS GONE DOWN IN VALUE, which technically is an appraisal assignment. Or if the property HAS BEEN COMPLETED per original plans & specs, or subject-to repairs or recommended inspections.
If the property is sitting there ‘today’ all pristine, unaffected by any events surrounding the declared disaster, and you have no record of a prior appraisal, you cannot check either box in the 1004D update section, without conducting at minimum two desktop appraisals. One as of the day before the disaster date, and the other as of the current date, which is not normally the Scope of Work for a low fee ‘Disaster Inspection Condition Report.’ I don’t recommend checking either Update box, regardless of the property condition. If you do, you are committing yourself to a USPAP appraisal.
And you can’t use the Certification of Completion either!
The solution to this requested nonsensical form for this disaster inspection is to use verbiage like I have on the 1004D. And then add a Property Condition Report form to the 1004D, along with photos, such as you see in the PDF below. This is an actual report I recently did. The added Property Condition Report form with photos gives the lender enough info to satisfy their evaluation of their property at a current date.
Be real careful if you suspect any potential damage that cannot be readily observed from the street. You may need to add an Extraordinary Assumption statement in the report.
Each of the various appraisal report software vendors should have a similar form as the one in my report. So check yours and pick one that works.
Observing exterior conditions and reporting what you see in a simple format is not an appraisal assignment because no value statement is made. But I suggest you maintain a workfile for the ‘Disaster Inspection Condition Report’ assignment, per USPAP’s Record Keeping Rule.
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Thanks Dave, great advice. I just type a letter and include the photos. I don’t use any form for disaster inspections.
Thanks for the information. I’m guessing with these types of situations they can’t rely on their computers to help them. Maybe they can have a fleet of drones to fly around the properties and the they won’t need us at all…jking Sorry Dave long busy weekend working (not a complaint).
I remember the good old days when 2075’s aka the PIR, were used for streamline refinances, and not just disaster or visual verification. We were getting 250 for those at one point. The FHA specifics on the 1004d is that it rides ‘by attachment’ to an original report. It is not a stand alone report, and I have never, and will never, provide a 1004D without an accompanying report for it to attach to. Personally I refuse to follow up with a 1004D, unless I’m the originating appraiser. Anything else is misleading to the report user. It is the appraisers responsibility to provide appraisal consultation if necessary. Appraisers completing stand alone 1004d’s in leu of 2075’s are operating incompetently. I’ve recently moved my 1004d verification of condition fee up 50 bucks, and value recert is more. The check box for verification of MV should only be requested, and should only be checked by the appraiser, when there is an issue with expiring age life of the appraisal effective date, per FHA shelf life rules. I think that’s 4 months, but it’s fluxed between 4 and 6 if I recall correctly. If lenders need a renewed effective date outside of FHA, they should order a new appraisal entirely, but should also be able to cop a discount if the same appraiser revisits the analysis. Most of the heavy lifting is done, but anything which requires a renewed effective date analysis, practically requires an entire new workfile to accommodate the market data. Lenders often reject the proper use of 1004D w/ value recert, because that nullifies the original market data. And of course, the 1004D does not require the MC, and that’s where the whole thing goes haywire in the underwriting xml review process. A true 1004D with value recert, probably comes with a fresh grid and a new comp or two. How else could the appraisal remain compliant with the new 2 in 90, 2 a or uc, and other bracketing sales? If the shelf life has expired, checking value recert without providing a new U90 comp, is misleading itself because theoretically, the U90 is why there is a change to value. You can’t state value recert for a new grid inclusion, without including that. The fact the 1004D does not have 6 grid slots which require filling if the value recert is checked, is a developmental short coming.
After the Northridge earthquake of 1992 (?) my old firm did virtually hundreds and hundreds of post disaster driveby “inspections”. I think the fee in 1992 was $200 to the company with the actual appraiser getting about 1/2 that. Maybe it was only half that $200 memory. After all it WAS LSI, Chase & WAMU I think.
The ‘form’ we used was a hybrid with very few lines. Address; borrower or owner name, file number, and check boxes essentially asking if there were visible chimney crack, exterior surface crack or visible foundation cracks.
HUGE disclaimer addendum!
We could do about 10 to 20 of these a day depending on how far apart the properties were.
Clients need to know what their specific objective is. IF it is only stating whether there is obvious damage, then its relatively easy. IF an opinion of value trend or impact of the hurricane is being requested then frankly that simply cannot be done in ANY Credible manner.
The market has not yet demonstrated a reaction to the disaster. The most any one could do is opine using extraordinary assumptions based on other disaster areas like Louisiana or Florida or past events in Texas itself. What would the point of that be? Conclusion would be entirely assumptive.
With enough extraordinary assumptions most appraisers could make property located on the volcano lip of Mount St. Helens seem like a sound investment.
Much work will involve UAD/1004 forms for proposed renovation or new construction. FNMA should assure appraisers are really qualified; and that borrowers are not also being taken advantage of.
Some assignments may be condition (collateral verification) related for existing loans whether in default or not or for possible forbearance purposes. FNMA should not render these meaningless by extraneous requirements.
Still others may be some type of drive-by for as yest undetermined purposes. Just be careful what ever you do. THIS is where we really prove ourselves to be professionals helping our fellow Americans and neighbors…or mere opportunistic hacks.
Just did one of these (on the 1004D). Feel free to plagiarize, “The client has requested a “Disaster Inspection” be completed on this 1004D form. The question above in this section is irrelevant to the assignment and neither box can be checked. Original Lender/Client (above) name & address are assumed to be the same as provided in the engagement letter for this assignment; I was not provided with an “Original Appraisal”. Please see the following page for comments and pictures relating to the Disaster inspection.”
I included the single page “Disaster Area Inspection” (the one with space for two photos) as the second page and added the comments, “The subject property has not been physically damaged by the disaster.” and “The neighborhood has not been physically damaged by the disaster.” to make it clear that I’m only evaluating physical condition and am not evaluating the market.
Four years after it was written your blog is still helping – thanks much Dave!
did anyone hear of the catastrophic disaster area property inspection report? i’ve been using this, its the most relevant for both exterior and interior.
Dave Towne, Thank you so much for this informative article on how to complete a 1004D. I have just been asked to do one in Cape Coral, FL after the hurricane.