On July 1st, recreational marijuana became legal in Oregon. Homeowners can now lawfully have up to four plants in their home, not just for “medicinal uses”. I am not a marijuana user, but this issue has implications for appraisers who do refinance or other lender type appraisal work in Oregon.
The problem is that although possession of marijuana is legal here in Oregon, it remains highly illegal in the eyes of federal government. Since banks are federally regulated, and most residential loans are federally backed, banks can be subject to fines related to lending when there are illegal activities. If you grow marijuana in your home, you may not be able to refinance your home loan.
The following is a quote from an email that A Quality Appraisal received from one bank regarding Oregon’s marijuana law. (The name of the bank has been removed from the quote.)
“If you encounter a property with an active marijuana grow operation, please take at least one descriptive photo, complete your inspection of the property then cease work on the file and immediately contact your Appraisal Coordinator. Please do not attempt to quote our lending policy. We will take care of that and you will, of course, be compensated for the time you’ve already invested in the appraisal.”
This bank asks appraisers to record something that many homeowners may feel is extremely personal. I think that this could be so personal that some homeowners might become violent if a photograph is taken and not explained. Just imagine if the homeowner works for a company that would fire them if they are found growing marijuana. An appraiser taking a photo could be in particular danger if the appraiser cannot tell the homeowner the truth about why the photo is being taken.
This leaves appraisers in a very difficult position. Are we being turned into government watchdogs? Does the right to privacy end if homeowners are engaged in a (locally) legal marijuana grow in (or on) private property? Does this policy only apply to growing marijuana plants? What about possession of legal amounts of dried buds or commercial products made from the active ingredient of marijuana, THC?
In pondering all of the above, I have decided that perhaps the best course for the appraiser (aside from just not accepting work from such lenders) is to be very up front with homeowners. When scheduling the inspection with a homeowner, a quick word about the implications of visible grows may just be the stich that saves nine.
Have you dealt with this in the past? What do you think is the best way to handle these issues? Did I leave anything out or do you want to join in the conversation? Let me know in the comments below.
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When talking to appraisers and other real estate professionals, I often hear that it is the job of an appraiser to protect the bank. In my judgment, this is not true. An appraiser’s job is to develop and report opinions of value and to protect the public’s trust by complying with the strict Uniform Standards of Professional Appraisal Practice (USPAP).
Bank Underwriters are required on most loans to use an appraiser’s opinion of value as a way to determine if there is sufficient collateral for the loan. An appraisal is only one factor in many that helps a lender determine the overall risk of a loan. Banks themselves (and bank regulators) protect the bank’s and the public’s interest.
This begs the question, “If an appraiser’s job is not to protect the bank, then why do appraisers ask for repairs or inspections when performing an appraisal on a home for the mortgage?” Appraisers “call out” repairs because lenders have internal and regulatory guidelines that require minimum property condition standards prior to funding most loans. When a property has a condition that fails the minimum requirements set out by the guidelines, then the appraiser typically conditions the appraisal report for a repair.
Appraisers can value a property both “subject to” or “as is”. A “subject to” appraisal is based on a hypothetical condition that a repair has been made. Most lenders do not want to loan on a home with defects that may cause harm to the occupants or to the structure if left unattended. This is because a home that needs no repair makes a less risky loan in terms of both liability and repayment. Therefore, with appraisals for loans, the appraiser will typically make note of these issues and make the appraisal report “subject to” repair or further inspection. Typically, the loan cannot fund until the “subject to” repairs are made or when further inspection finds that repairs are not necessary.
Did I leave anything out or do you want to join in the conversation? Let me know in the comments below.