If the bank issues an adverse action denial due to the value or type of collateral being insufficient, wouldn't that be a denial rather than a withdrawal (which is what is on the LAR)?

BTW - there was no appraisal completed (because the applicant did not want to pay for one), but the bank perfomed internal research to determine approximate value and it would have been way too low.

It would be a denial and should be coded as such. Make sure that there is evidence in the file to support your denial reason.

there was no appraisal completed . . . the bank perfomed internal research to determine approximate value and it would have been way too low.

You may want to review the Commentary to 1002.14(c). An internal review is an appraisal and you should have provided them the right to receive copy of appraisal notice. The applicant is entitled to a copy of your evaluation just as they are any other appraisal.

That can get you into a fair lending issue as well and is one reason the appraisal disclosures came out in the first place.