Divorce Equity Buyouts - Which Appraisal Is Used For The Mortgage?

Mortgage and Lending with CMG Mortgage, San Diego, CA NMLS 259027

Understanding HVCC's Impact On The Appraisal Process

If Divorcing Parties order their own appraisal, why does a Mortgage Lender need to order a separate appraisal?  If there are multiple appraisals, which one is used for the Divorce Equity Buyout loan process?  The answers stem from unintended consequences of the federally mandated Home Valuation Code of Conduct (HVCC).

Prior to HVCC, there were several report incidents of alleged collusion between Lenders and Appraisers, to include:

  • Positive Reinforcement – Example: “If you can ‘bring in’ the value of the property high enough for the deal to work, I (the Lender) will give you (the Appraiser)…” (this could have been the promise of more referrals, monetary incentives, etc.)
  • Negative Reinforcement – Example: “If you do NOT ‘bring in’ the value of the property high enough for the deal to work, I (the Lender) will NOT give you (the Appraiser)…” (this could be the threat of no more future referrals, “blacklisting” the Appraiser, etc.)

In short, HVCC was created in 2008 amidst the Housing Crisis (aka Mortgage Meltdown) with the goal of eliminating collusion between Mortgage Originators (Lenders) and Licensed Residential Appraisers.  Essentially, HVCC put a chaperone called an Appraisal Management Company (AMC) between the Mortgage Lender and Appraiser to eliminate any contact between these parties. Now that HVCC is in place, the AMC handles communications between Lender & Appraiser.

With the above in mind, the standard method of ordering and obtaining Residential Appraisals is typically as follows:

  1. Lender orders the appraisal report through the 3rd Party AMC
  2. Borrower (typically) pays the AMC directly for the amount owed to complete the appraisal
    1. As with all 3rd Party Non-Recurring Closing Costs, the Lender is NOT permitted to “mark-up” the cost of the appraisal
    2. NOTE: appraisal fees vary by county, size/value of property, and/or other characteristics
  3. Upon receipt of Borrower payment, AMC assigns the Appraiser via the “next up” approach based on an Approved Appraiser List for a given geographical location near the Subject Property
  4. Upon receipt of the order from the AMC, the Appraiser reaches out to the point-of-contact necessary to gain access to the Subject Property (the Appraiser must have access to the interior of the property to perform the appraisal)
    1. For “Purchase” Loans, the typical point-of-contact is the Listing Agent (although the Buyer’s Agent may request to be the point-of-contact “in addition to” or “in lieu of” the Listing Agent)
    2. For “Refinance” Loans, the Homeowner is typically the point of contact
  5. Upon completion of the report, the Appraiser sends the appraisal to the AMC for an audit
  6. Upon completion of the audit, the AMC send the finished appraisal report to the Lender
    1. It is typically at that point where the Lender discovers who the actual Appraiser was on this report
    2. By only discovering the identity of the Appraiser this late in the process, the Lender has no influence on the Appraiser to determine value (as value as already been determined)
  7. Lender sends a copy of the appraisal directly to the:
    1. Buyer & Buyer’s Agent (Purchase Loans)
    2. Homeowner (Refinance Loans)

How Does HVCC Impact Appraisals Intended for Divorce Equity Buyouts?

Oftentimes, as part of the process of equalizing the assets, the Divorcing Parties will hire an Independent (non-Lender involved) Appraiser to render a valuation of Subject Property.  While the value estimate of the Independent Appraiser might be used between the Divorcing Parties and/or their Attorneys for negotiation purposes, the Mortgage Lender will ultimately need to obtain their own appraisal (due to HVCC).

Potential issues that may arise amidst "multiple appraisals" include (but are not limited to): paying additional fees for what appears to be the "same process" along with the high probability that the 2 appraisals will come in at different values (which almost assures that one party will be happy with the Mortgage Lender's appraisal, while the other party might feel compelled to cry foul).

As a Certified Divorce Lending Professional (CDLP), I am constantly involved in these dynamics and completely respect the appraisal neutrality concerns which may be present by the non-borrowing spouse and/or their attorney. My hope in creating this article is to provide clarity on HVCC's impact of Divorce Equity Buyout appraisals to help insure all parties that complete neutrality is administered when ordering the Mortgage Appraisal whether or not a divorce is involved.

Comments (16)

Charles Ross - eXp Realty LLC
eXp Realty LLC Salina Group - Salina, KS
Love To Help People

Hello Jason, your article offers a comprehensive understanding of the HVCC and its implications in divorce equity buyouts. Your ability to clarify complex processes is commendable. This information is extremely useful for both professionals and clients alike. #InformativeRead #KnowledgeSharing 👏📘

Nov 14, 2023 05:27 PM
Jason E. Gordon

Really appreciate you taking the time to articulate such a well-written (and complimentary) comment Charles Ross - eXp Realty LLC!

Nov 15, 2023 12:30 PM
Thomas J. Nelson, REALTOR ® e-Pro CRS RCS-D Vets
Big Block Realty 858.232.8722 - La Jolla, CA
CEO of Vision Drive Realty - Coastal San Diego

This is why emotional people need to trust certified experts in divorce like you and I to help them make informed decisions, not emotional (or coerced) ones. 

Having been through a divorce, it's amazing how both formulaic the outcome is and how ass-backwards the system is depending on what county you divorce in. Find, hire and trust your true professionals like Jason E. Gordon 

Nov 14, 2023 05:38 PM
Jason E. Gordon

As one of the ~1% of Realtors nationwide who has taken the time to earn a divorce real estate credential (RCS-D), you are absolutely qualified to comment on these dynamics. "Life logic" and "Lender logic" do not always go hand in hand...especially when you mix in the nuances of the divorce process & guidelines. Thanks Thomas J. Nelson, REALTOR ® e-Pro CRS RCS-D Vets 

Nov 15, 2023 12:32 PM
Thomas J. Nelson, REALTOR ® e-Pro CRS RCS-D Vets

Congratulations on the Feature my friend, well deserved!
Thanks for the kind words here and the great info you shared with me on Zoom today!

Nov 16, 2023 04:43 PM
Richard Weeks
Dallas, TX
REALTOR®, Broker
Great information, thanks for sharing.  I hope you have a great day.
Nov 15, 2023 04:17 AM
Jason E. Gordon

Thank you Richard Weeks!

Nov 15, 2023 12:32 PM
Bill Salvatore - East Valley
Arizona Elite Properties - Chandler, AZ
Realtor - 602-999-0952 / em: golfArizona@cox.net

Great information. Thanks for sharing and enjoy your week!

Bill Salvatore, Realtor- Arizona Elite Properties

Nov 15, 2023 05:00 AM
Jason E. Gordon

Much appreciated Bill Salvatore - East Valley (you too)!

Nov 15, 2023 12:33 PM
Kat Palmiotti
eXp Commercial, Referral Divison - Kalispell, MT
Helping your Montana dreams take root

An easy to understand overview of the appraisal process, both in general and as part of a divorce proceeding.

Nov 16, 2023 04:38 AM
Jason E. Gordon

Thank you for taking the time to provide this feedback Kat Palmiotti!

Nov 16, 2023 11:39 AM
Carla Freund
Keller Williams Preferred Realty - Raleigh, NC
NC Real Estate Transition & Relocation 919-602-848

Thank you for sharing. Most divorce cases I come across as a Real Estate Agent is when the house is being sold. This is good to know though.

Nov 16, 2023 07:22 AM
Carla Freund

Thanks Jason. I'll keep that in mind. I appreciate it. Happy Thanksgiving!

Nov 17, 2023 06:30 AM
Jason E. Gordon

Thank you Carla Freund. Should you ever need any feedback and/or insights from the "divorce mortgage" side of these escrows, please feel free to reach out. Roughly 1/3 of my business involves divorce, and the nuances within these cases versus Fannie/Freddie/HUD underwriting guidelines can be quite complex.

Nov 16, 2023 11:41 AM
Stephen Turner
House Broker Realty - York, PA

Well-written explanation of the process. Also, I work with several of the largest AMCs, and I can say that Divorces are the #1 driver of their business currently. It's a sad but true reality. 

Nov 16, 2023 08:00 AM
Jason E. Gordon

Agreed Stephen Turner. Certainly none of my team are ever celebrating divorce or breaking up marriages in order to generate a commission. That said, divorce is a sad reality of our society, and this population needs extra guidance given their specific dynamics. I appreciate your comment!

Nov 16, 2023 11:43 AM
Lise Howe
Keller Williams Capital Properties - Washington, DC
Assoc. Broker in DC, MD, VA and attorney in DC

this is so very helpful - Thanks for sharing with us!  Have a great day! 

Nov 16, 2023 08:49 AM
Lise Howe
Keller Williams Capital Properties - Washington, DC
Assoc. Broker in DC, MD, VA and attorney in DC

I just shared this with a family member who is going through a divorce - I think that this will be helpful to him

Nov 16, 2023 09:22 AM
Jason E. Gordon

Thank you very much Lise Howe. Should this individual (and/or any others) desire an individualized consultation, please feel free to share my eCard, which can be found at www.divorceloanpro.com

Nov 16, 2023 11:44 AM
Dr. Paula McDonald
Beam & Branch Realty - Granbury, TX
Granbury, TX 936-203-0279

Excellent information that is explained very well. Thank you so much.

Nov 16, 2023 02:48 PM
Jason E. Gordon

Thank you very much for your thoughtful comment Dr. Paula McDonald 

Nov 16, 2023 04:21 PM
Laura Cerrano
Feng Shui Manhattan Long Island - Locust Valley, NY
Certified Feng Shui Expert, Speaker & Researcher

What is settlement is not something I’m not familiar with but it’s interesting as a topic for that exact reason..

Nov 16, 2023 08:23 PM
Jason E. Gordon

Happy to walk you through any logistics if/when desired. Thanks Laura Cerrano 

Nov 17, 2023 01:28 PM
Peter Mohylsky, Beach Expert
PMI. Destin - Miramar Beach, FL
Call me at 850-517-7098

Now I need to google this subject to see what the folks where I live have to say  

Nov 17, 2023 01:24 PM
Jason E. Gordon

Let me know if you find any additional insight beyond what I wrote above. I'm always open to more perspectives!

Nov 17, 2023 01:26 PM
George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Jason E. Gordon this can be confusing for those who are not familiar with the lending process, and particularly appraisals.  It needs to be an independent appraisal, even the lender can't influence it.  Good job of explaining this in this blog.

Nov 17, 2023 03:55 PM
Jason E. Gordon

Thanks George Souto, I always appreciate your input. In this case, my goal is to inform the public that the HVCC acquired appraisal will be used for loan qualifying purposes (as opposed to the independent appraisal that might have been obtained earlier by the divorcing parties and/or their attorneys)

Nov 17, 2023 04:07 PM
Ed Silva, 203-206-0754
Mapleridge Realty, CT 203-206-0754 - Waterbury, CT
Central CT Real Estate Broker Serving all equally

A very thorough explanation of the appraisal process. For a divorce, when there is so much anger and each side is trying to get an advantage, an independent third set of eyes makes a lot of sense.

Nov 18, 2023 06:04 AM
Jason E. Gordon

Indeed Ed. In many cases, the non-borrowing out-spouse doesn’t trust the lender appraisal because they assume the mortgage professional is conspiring with the appraiser on behalf of their borrower, which is simply not an accurate perception

Nov 18, 2023 09:33 PM
John Juarez
The Medford Real Estate Team - Fremont, CA

I remember the "good old days" when it came to light that an appraiser could be "bought" or "shunned". Then came the AMCs with their appraisers who too often came from out of the area and had no clue as to local values. And the reduction of appraisers' compensation which drove many out of the business.

Thankfully, things have been pretty well ironed out over the ensuing years.

Nov 18, 2023 02:35 PM
Jason E. Gordon

Aaaah yes John Juarez, spoken like a professional who was around during the early (sloppy) inception of HVCC. It was like pouring gas on an open flame initially

Nov 18, 2023 09:35 PM