With an HECM Mortgage (Reverse Mortgage) Foreclosure can the fair market value of the property be established with a drive-by(exterior only, where the appraiser does not enter the property) for use of the Trustee's Sale but not for establishing fair market value for a short sale or do they both require a full interior and exterior inspection by the appraiser??
Answer
There is no legal requirement governing what type of appraisal is done for foreclosure. The appraiser who conducts a pre-foreclosure sale appraisal does so at the lender's request, not pursuant to any state or federal law.
Establishing the market value of the property is irrelevant for a nonjudicial foreclosure conducted by way of trustee's sale, because the foreclosing lender is barred from obtaining a deficiency judgment once the sale is completed. (Code Civ. Proc., sect. 580d.) The only exceptions to the ban on deficiency judgments would be if the lender intended to sue the borrower for waste or fraud, post foreclosure, and intended to avoid making a full credit bid. (See Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226.)
Similar exceptions were drafted into the anti-deficiency legislation governing short sales. (Code Civ. Proc., sect. 580e, subd. (c).) From a practical standpoint, however, a lender would be wiser to have a full inspection done by a real estate appraiser for a short sale, to get a better determination of the market value of the premises, which establishes the market value that the lender will accept to sell "short." But this is not governed by any state or federal law, but rather by good business practices of the lender.
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