Texas Commercial Law Firm
Foreclosure
1. Appraisal: Is the property worth foreclosing? Prior to sending the file to counsel to undertake foreclosure proceedings, a lender should determine with reasonable certainty the property's value. Residential lenders frequently obtain a broker's price opinion which is an inexpensive “ball park” estimate of a property's value. Commercial lenders may also obtain broker's price opinion type appraisals costing substantially less than the typical, full blown commercial appraisal. After obtaining a broker's price opinion, if a question remains as to whether there is value in the property over and above outstanding liens, encumbrances and other liabilities, a complete appraisal may be obtained. In the event the lender plans to seek a deficiency then a complete appraisal is recommended at the outset in order to have evidence available to respond to any challenges to value the borrower may bring under the Deficiency Statute (discussed in §III below).
Depending upon the size of the loan, the nature of the property, and the corporate makeup of the lender itself, there is a wide range of appraisal practices. It is recommended that the appraiser be provided with written instructions directing them to obtain the fair market value in compliance with the Deficiency Statute. National banks are required to provide written instructions to the appraiser requiring that the appraiser discount cash flows generated by the property in the event the appraiser determines the holding period for the property is likely to exceed 12 months. 12 C.F.R. §7.3025. Additionally, national banks must have annual appraisals from independent, qualified appraisers of “fair value” as to each foreclosed property.
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