Source of Appraisals and Reg B

Question: I know that we have to provide copies of a full appraisal, but what if we only use a tax appraisal? One of the examples that the regulation provides for things that are not covered by the rule is governmental agency statements of appraised value, and valuation lists that are publicly available. If we use one of these sources to establish the value of the property, we don't have to give the customer a copy, do we?

Answer: The requirement to provide a customer with a copy of the appraisal has a long and bitterly debated history that dragged on for almost two decades before the rule was finally included in Regulation B. The arguments by the consumers were that they had a right to know how their property was being valued and that they should have the ability to determine that the valuation was fair. Lenders and appraisers took a very different position. They raised arguments ranging from a concern that the appraisers' First Amendment right to free speech would be compromised to the possibility that having a copy of the appraisal would enable the applicant to commit some sort of fraud with respect to their application. After a lawsuit by the Department of Justice and some slightly less dramatic activity, Congress finally came down on the side of the consumers.

With that history in mind, the Federal Reserve drafted a fairly reasonable rule, giving creditors two options: notifying customers of their rights or simply providing a copy of the appraisal. The rule works on two levels. If there is a formal appraisal or a valuation developed by or obtained from a source that is only available to the lender, the lender must provide the consumer with a copy of this information. If the source used to value the property is a readily available public source, such as tax assessments maintained by local governments, the lender can provide the customer with information about the source used. In short, if the customer can find the same information on their own, the lender does not have to make and send a copy. But any lender would be foolish to refuse to tell the applicant what information was used. In an environment with concerns about unfair or deceptive practices and predatory lending, that refusal would amount to spitting into a wind of hurricane force.

Copyright © 2005 Compliance Action. Originally appeared in Compliance Action, Vol. 10, No. 12, 10/05