Sample Apprasial Analysis . the Diligence Group

8/2/2019 Sample Apprasial Analysis . the Diligence Group

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The Diligence Group, LLC

196 Orange Drive Boynton Beach, FL 33436 Phone: (305) 814-4831 [email protected]

November 28, 2011

THE DILIGENCE GROUP, LLCAppraisal Analysis Performed for:

David D. Carolina, Jr.

6404 Memorial Drive

Frisco, TX 75034

Personal and Confidential

THE INFORMATION CONTAINED HEREIN IS CONSIDERED TO BE OF A PERSONAL AND CONFIDENTIAL NATURE. THISINFORMATION IS INTENDED FOR THE EXCLUSIVE USE OF THE BORROWER(S) AND THEIR LEGAL REPRESENTATIVE


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Servicer

CO-BORROWER: TBD

MIN NO: TBD

NotesLOAN INFORMATION AT CLOSING

Subject

The Diligence Group, LLC

196 Orange Drive Boynton Beach, FL 33436 Phone: (305) 814-4831 [email protected]

Notes

Property Address

City, State, Zip Code

Number of Units

Property Type

Stable

25-75%

$1,100,000.00

60% One Unit / 32% Vacant

Appraised Value

Name of Subdivision

Neighborhood

Growth Trend

Location /Built Up

Land Use

Market Conditions

Zoning Compliance

6404 Memorial Drive

Predominant Value

Subject

Purchase Price

Loan Amount Over Supply / Over Six Months

Chapel Creek

Suburban

Appraisal Purpose

Frisco, Texas 75034

See Notes

1930000 Estimated Purchase Price

Utilities

Legal/Conforming

Not Stated

(Typical/Atypical)

Home is Luxury

3 Car Garage / Typical

No. Properties for Sale

Sale Price Range

Financing Concessions

Site Size / Value

View

Special Features

Auto Storage/No. Cars

ConditionPhysical deficiencies

Adverse Conditions

Neighborhood conformity

9/1/2009

Two

(Purchase/Refi)

14

5

6 Full / 1 Half

Square Footage

Total No. Rooms

No. Bedrooms

Bo. Of Baths

Age of Subject/Yr Built

Effective Age

Date of Closing

No. of Stories

Functional Utility

Heating/Cooling

Porch/Patio/Deck

Fireplace(s)

Appraisal perf. For another borrower

Subject

Five (5) Total

Gunite

None - See Notes & Results24,1771 SF

Residential / Creek

New

Concrete, Brick & Stone

No Issues Noted

Pool

21 in Neighborhood

1,8250 - 3,400,000

Quality Construction

Exterior Materials Used

Functional Utility

SSN - Borrower

NoneNo Issues Noted

Typical

Covered Patio, Deck & Porch

Rooms Above/Below GradeExcellent Per Appraisal

2008New

Final Analysis

Final Analysis

Final Analysis

Subject Notes

One - Single Family detached

Planned Unit Development

TBD

TBD

Flood Zone

Audit Type

Review Value

Date of Appraisal

SSN - Co-Borrower

BORROWER/Owner: David Carolina

Date of ANALYSIS: 11/18/2011

Value appears to exceed purchase price by $230,000

10/1/2008

TBD

2,500,000

n/a

n/a

APPRAISAL ANALYSIS

Originating Lender TBD

Home Located on Creek

Original loan #

Notes


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The Diligence Group, LLC196 Orange Drive Boynton Beach, FL 33436 Phone: (305) 814-4831 [email protected]

CASE HISTORY

The appraisal submitted for analysis was used to grant the subject Borrower, David D.

Carolina, Jr., mortgage financing totaling $1,888,500, on August 17, 2009. A

subordinate lien totaling $111,500 was granted to the subject borrower by the same

lender Patriot Bank, a month later, on September 11, 2009. The amount of liens

encumbered by the subject property total $2,000,000.

According to the borrower, he located the subject property during a drive through the

Chapel Creek subdivision. The front yard bore a sign that stated easy financing.

The borrower contacted Patriot Bank, indicated to be the homes lender, and spoke

with Tony Bernard, Loan Officer and Senior Vice President. According to the

borrower, Patriot Bank owned the home via foreclosure proceedings and was willing to

sell the home at a significant sacrifice. According to statements made by, Sr. Vice

President, Tony Bernard, to the borrower, the home was valued at two million, five

hundred thousand dollars ($2,500,000). The borrower states that Mr. Bernard qualified

the borrower for financing and advised him that he qualified for a 20 year, fixed rate,interest only loan. Mr. Bernard advised the borrower that he was required to provide a

down payment totaling 5%, or $94,500.

According to the borrower, he attempted to negotiate the sales price of the home

downward. Patriot Bank refused, stating that the home was valued at $2,500,000 and

that it was, in essence, a really great deal at the price for which it was being sold and

that if the borrower wanted to acquire the home he had to move quickly. According to

Patriot Bank, the home was brand new, in excellent condition and advised the

borrower that no home inspection would be necessary. Also, if the borrower wanted to

buy the home, he had to move quickly and there was no time to perform a propertyinspection. The borrower was told that the home had only been occupied for six (6)

months and that it was in excellent condition. The borrower learned, post purchase,

that the home had actually home sustained significant water damage; damage of which

the borrower had not been made aware prior to taking possession of the home.

The borrower applied for mortgage financing with the Seller/Lender, Patriot Bank.

Although it was not requested, the borrower provided the bank with his tax returns and

financial information to help facilitate mortgage loan approval. According to the

borrower his loan request was approved in two days and was closed shortly thereafter,

on August 17th, 2009. According to the borrower, in a statement he made during adirect interview conducted by The Diligence Group, both he and his wife requested to

be provided with copies of his closing paperwork three (3) to four (4) days in advance

of the closing on the property. According to the borrowers attested statement, the

lender advised him that the closing paperwork was not yet ready. The borrower

continued to request that he be provided his closing paperwork, prior to closing, until

the final day came and the documents were thrust upon him, at the closing table.


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According to the borrower, he was not provided his documents in advance and was

provided no time to read or inspect the documents prior to their execution.

According to the borrower, the terms of the actual purchase transaction were actually

amended while the closing was being conducted. The borrower was advised that he

would be required to pay property taxes that were delinquent. The borrower was

advised by the bank that they had done a lot for him and if he wanted the property he

had to pay the delinquent taxes, there at the closing. A review of the purchase

contract reflects that the purchase price of the subject property was amended upward

from $1,940,000 to $1,990,000. The loan amount reflected on the purchase contracted

was revised from $1,843,000 to $1,890,500. Ultimately, the mortgage amount that the

borrower received totaled $1,888,500 per the Note, and the purchase contract that was

used to consummate the purchase transaction and the mortgage is considered to be in

error and non-compliant.

The appraisal analysis that was performed was two-fold; a review of the appraisal

itself was performed as of the date of the original appraisal, dated October 1, 2008. A

secondary review had to be performed in relation to the date that the subject property

was purchased and the borrowers mortgage loan was granted, nearly eleven months

later, on August 17, 2009. In essence;

1. The Underwriter was required to determine if the original appraisal that was

performed, in October of 2008, indicated that the value of the subject property

was reasonable and supported at that time.

2. The underwriter was further required to determine if the appraised value of the

home was sustained for the eleven month period of time that lapsed, until the

home was purchased and sold, and a loan granted to the subject borrower.

It is critical to note that the home was initially appraised and subsequently purchased

during two distinctly different periods of time, relative to economic conditions that

were unfolding in the United States. In October of 2008, when the home was initially

appraised, the housing market bubble had begun to burst and home prices had

begun to decline, nationwide. In August of 2009, when the home was sold and title

transferred to the borrower, the housing market was quite literally, in a full state of

implosion, and housing prices had begun a catastrophic free-fall, ushering in the worst

economic collapse since The Great Depression. To date, housing prices continue to

decline and have not yet begun to recover in major markets of the United States. It iswithin these two distinctly separate contexts that the value of the subject property

must be viewed.


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NOTES REGARDING THE SUBJECT SUBDIVISION

Chapel Creek, the subdivision wherein the subject property is located, was not fully

constructed. According to the appraisal performed in October of 2008, thirty percent (30%) of

the development consisted of vacant land; 68% had been developed or was under active

development. The Developer was in control of the homeowners association. The predominant

value of homes located in the development totaled $1,100,000. The Appraiser returned an

appraised value of the subject property totaling $2,500,000, or a value that exceeded itsimmediate, predominant Market by 44%.

According to the Appraiser, the subject property was located in a development whose supply

greatly exceeded demand. According to the Appraisers narrative, marketing times ranged

between six (6) to twelve (12) months and reflects a Market that was in severe decline. The

appraiser returned the $2,500,000 value based upon upgrades that the subject property

contained. After the appraisal was performed, the subject property languished on the market

for eleven (11) months until it was finally purchased by the subject borrower, after having been

sharply discounted.

According to the Appraiser, the lack of comparable homes in the subjects neighborhoodrequired him to extend his search for comparable homes outside of the standard 1 mile radius

for a home located in a suburban area. The Appraiser sought to obtain comparable sales from

a nearby subdivision called Starwood #4 Village. Market data indicates that Starwood Village

is considered to be superior whose homes have had more success at retaining their value

given the severe market downturn that overtook the nation between 2007 and continues to the

present date.

NOTES REGARDING THE MORTGAGE LOAN GRANTED THE BORROWER AND

EXECUTION AND SUBSEQUENT AMENDMENTS MADE TO THE PURCHASE

CONTRACT

According to the borrower, the initial purchase agreement was drawn up and executed a week

or so before closing. The borrower made a $100,000 down-payment. The lender advised the

borrower the he had been approved for financing, but that no loan approval letter would be

granted him until he had delivered his $100,000 down-payment to the title company. After the

contract was signed and the down payment paid, the lender advised the borrower that they

were requiring him to pay back taxes that were in arrears. The borrower was advised that if he

did not agree to these terms, they would not move forward with the transaction and simply

keep his $100,000 deposit. The borrower states that these amendments were made to the

contract, after it was initially signed and the terms agreed to. The lenders threat to take his

down payment and walk away, was baseless as the borrower was under no obligation toaccept amended terms. The lender appears to have manipulated the borrower into submitting

his down payment in an effort to black-mail him, to secure better contract terms once the

original agreement had been reached.

NOTES REGARDING THE ATTEMPTS TO RE-STRUCTURE THE ALL OF THE

BORROWERS MORTGAGE LOANS AND INCLUDE THE SUBJECT HOMESTEAD IN

WITH INVESTMENT RELATED PROPERTIES.


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The lender contacted the borrower after the home had been purchased and the closing

documents were signed, and advised him that they (Patriot Bank) had been audited by the

FDIC that a review of their loan portfolio had been performed and restructuring of his mortgage

loans was mandatory. They did not ask, they instructed, and advised the borrower that they

would foreclose if the borrower did not agree to the restructuring of his loans. The borrower

had been making his mortgage payments on time within the contractual constraints

stipulated in his Note. The borrower made his payments at the bank, in person. The lender

advised the borrower that for the purposes of restructuring his loan portfolio with them, he

needed to stop making all mortgage payments. He was told he would benefit as he would have

a respite from making mortgage payments, and no late fees or penalties would be assessed.

The lender/seller promptly began assessing fees and penalties and commenced foreclosure

proceedings once the borrower stopped making mortgage payments.

The Note the borrower executed at closing is not a standard Fannie Mae form. The terms

included therein are not standard and are considered to be harsh in the extreme. The lender

also advised the borrower that all of his loans were cross collateralized. There are no

documents recorded to indicate that the borrowers primary residence was used to

collateralize any other loan, save itself. The Note for the borrowers primary residence, as it

does not follow standard Fannie Mae form, contains terms that even a seasoned home

purchaser may not be aware existed, unless they submitted the note to an experienced real

estate attorney or professional and the terms were revealed. The borrower as a lay-person

could not have reasonably read and fully understood the potential harm the terms that were

contained in the note Portended. The borrower appears to have been granted mortgage terms

that are not usual or customary whose conditions are considered to be harsh and predatory.

The borrower at each and every turn, has been subjected to continual threat by the Lender.

Prior to closing the borrower was told that if he did not agree to their revised sales terms, the

lender/seller would not consummate the agreed-to transaction and pocket his $100K down-

payment. After the loan was closed the borrower lived with the constant threat of foreclosure.The lender does not appear to have any right to have foreclosed on the subject property and

appears to have manipulated the borrower to stop making his mortgage payments in an effort

to blackmail him into restructuring his loans to benefit the bank.

The borrower is an African American male.

END CASE HISTORY


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Fannie Mae Underwriting Guidelines

B3-1-01General Assessment of Risk

Per Fannie Mae Underwriting guidelines, lenders are fully responsible for:

Evaluating the default risk of the subject loan. Proper and thorough review of the credit report to determine if the data contained therein

is complete, accurate, and that the borrower had the ability to repay the debts listed. Assessing the adequacy of the property used to act as collateral for the mortgage loan

requested.

Fannie Mae Underwriting Guidelines

B4-1.1-01General Appraisal Requirements

The lender does not appear to have competently or adequately discharged its duty to verify the value of the subjectproperty. Per Fannie Mae Underwriting Guidelines, the lender is responsible for the following:

1. Insuring that the data contained on the appraisal is complete, accurate, and provides an accurateassessment of the marketability of the subject property.

2. The Appraiser meets Fannie Maes minimum professional standards.3. Underwriting the completed appraisal report to determine whether the subject property presents adequate

collateral for the mortgage.4. Evaluate the appraisers work through normal underwriting review.5. Spot Check the quality of the appraisers work via field review as part of its quality control system.6. Ensure that the Appraiser used sound reasoning and provide evidence to support the methodology used to

establish the value opinion.7. Ensure that the appraiser provided an accurate value opinion, an adequately supported just market valueand provided an adequate description of the subject property.

8. Ensure that the appraiser is licensed and that the license number is provided on the report.9. Compliance with theAppraiser Independence requirements.10. Ensure that the appraiser does not engage in unacceptable appraisal practices.11. Ensure that Appraisers are not subjected to outside influence, pressure or interference in the appraisal

analysis process, or the honest valuation of the property.12. Lenders may not use a report that provides a value that is not supported by the Market.13. Lenders may not use a report that violates Fair Housing laws.14. Develop a report that misrepresents characteristics of the subject property, improvements or comparable

sales.15. Use a report that does not provide commentary on negative factors with regard to the subject

neighborhood, property, or proximity of the subject property to adverse influences.16. Use a report that utilizes inappropriate comparable sales.

17. Use a report that fails to use comparable sales that are the most locationally and physically similar to thesubject property.

18. Fail to analyze and report any current contract for sale, option, offering or listing of the subject propertyand comparable sales.

19. Create comparable sales by combining vacant sales with the contract purchase price of a home that hasbeen built or will be built on the land.

20. Use a report that includes comparable sales that have not been personally inspected by the appraiser.21. Use adjustments to comparable sales that do not reflect accurate market reaction to the differences

between the Subject and the Comparable sales.22. Use of a report that provides unsupported adjustments made in the sales comparison approach.23. Fail to make adjustments when they are clearly indicated or required.24. Base a valuation, particularly comparable sales data, provided by parties who have a financial interest in


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the sale or financing of the subject property.25. Use a report that favors the cause of the client or any other related party, or party to the transaction.26. Use a report where the appraiser has been influenced by an outside party, in order to receive

compensation, or a promise of future employment.27. Use a report that does not conform to the Uniform Standards of Professional Appraisal Practices.28. Use a report that fails to address adverse factors or conditions that affect value or marketability with

respect to the neighborhood, site or improvements.29. Use a report that includes unsupported descriptive comments or that draws unsupported conclusions from

subjective observations, as these actions may have a discriminatory effect.30. Use of unsupported assumptions, interjections of personal opinion or perceptions about factors in the

valuation process.31. Provides no adjustments to a comparable sale for special or creative financing, or sales concessions that

are not typically paid by sellers as a result of tradition or law in a market area.32. Lend on a property that has physical conditions that affect the safety, soundness or structural integrity of

the subject property.

Fannie Maes Definition of Just Market Value

Just Market Value is defined as the most probable price that a property would bring ina competitive and open market under all conditions that are requisite to a fair sale.

The buyer and the seller, each acting prudently, knowledgably and are acting under theassumption that the price of the subject is not affected by undue stimulus.

The appraisal that is the subject of this report was believed to have been used by thelender to assign value to the subject borrowers home and ultimately relied upon forthe extension of credit.

Appraisal Exceptions Observed

1) Does the data contained on the appraisal appear to be complete, accurateand provides and accurate assessment of the marketability of the subjectproperty?

The value of the subject property appears to have been over-stated on theoriginal appraisal by $1,490,000.

The subject property, when originally appraised, contained significantupgrades. It would appear that these upgrades,despite the appraisersassertion to the contrary, were highly individualized and suited the tastes ofthe original owners, but whose qualities and aspects did not necessarily

offer universal appeal, or translate to an actual increase in the homes truejust market value. Simply put; just because a feature of a home costs more,it does not necessarily mean that the inclusion of the feature contributes toan increase in the homes resale value overall. Such appears to be the casein this instance.

The subject property is located in luxury home market where homebuyers purchase a tract of land and have a custom home built upon it. Insuch a market a home mustcontain certain luxury features, such as high


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end appliances, counter top surfaces, wood flooring, superior materials,architecture and construction, wet bars and so on, if the home is to retainits value over time. Additionally, as customization is the draw for mosthome purchasers in such a market, the builder/developer is the realcompetition and the true resale value of a home is generally not realizeduntil all lots are sold and the development is sold out. Per the appraiser,32% of the subdivision was un-developed and the supply of fully

constructed homes listed for sale, outpaced demand. Marketing timesranged between six to twelve months, at the time the appraisal wasperformed, and public records show that the two unsold listings that theappraiser offered as comparable properties, endured price reductions andwere actually removed from the market for a period of time. Nationaleconomic factors, such as the bursting of the housing bubble theconstriction of credit and recessionary pressures that caused widespread

job loss, the plummeting of financial markets and the resultant losses thatAmericans suffered, wholesale, served to severely harm all housingmarkets, including the market wherein the subject currently resides.

-Does the appraiser appear to have used unacceptable practices?

According to statements made by the appraiser, reflected on page three (3)of six (6), certain aspects of his valuation were based upon informationprovided to him by the lender and the original purchaser, and were notbased upon verifiable data. According to the appraiser, if this informationwas found to be false, he reserved the right to amend the value of thesubject property accordingly. The report was to be used, however, to arriveat a just market value upon which a mortgage and sales price were to beestablished, and as principal parties in the transaction appear to haveinfluenced the appraisers opinion based upon unverified information the

value conclusion that the appraiser reached cannot be considered to bearrived at in an impartial, market based manner. Also, any further evidencethat the appraiser might have learned, post appraisal, would be useless asall of the involved parties (Realtor, Lender, Seller, and Borrower) wouldhave already used the report in its original form. The report was required tobe correct and all information fully verified when it was submitted to thelender, not after the report had been completed and the data already used.

The Appraiser appears to have exceeded the maximum one (1) miledistance tolerance relative to Comps Two (2) and Three (3). He alsoappears to have based his appraisal upon two comparables that sold

outside of the subjects immediate subdivision, in an effort to justify the$2,500,000 value conclusion that was reached. Fannie Mae underwritingguidelines require that two comparable sales come from within thesubjects immediate subdivision and only one come from an alternatedevelopment to establish market acceptance. The appraiser used twoactive listings that had not gone to contract, from within the subjects samesubdivision in an effort to further support his value conclusion. As theselistings had not actually sold (gone to contract), they cannot be consideredto be appropriate to have used to establish the value of the subject


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property. Indeed, Comps 4 and 5 languished on the market for some periodof time, post appraisal and did not sell. Their initial sales prices weredropped as the market continued to decline, and public records reflect thatListing Comp 4 was removed from the market for a period of time, andListing Comp 5 which was currently listed for sale when at the time of thesubject t review, and had languished on the market for 479 days withoutgoing to contract.

Finally, comparable sales two (2) and three (3) are located in a gatedcommunity and were not physically inspected by the Appraiser, personally.The photos that are represented on the appraisal report were taken fromMLS listings. Per Fannie Mae underwriting guidelines, the appraiser isrequired to physically inspect all properties that are used as Comparablesto establish the value of a subject property so that he may fully assess theattributes of the neighborhood, the quality of construction and materialsand the comparables overall marketability in relation to the property beingvalued.

It must be noted that the appraiser who performed the physical inspectionand performed the actual valuation appears to have been a Junior appraiserwhose work was reviewed and approved by a senior appraiser.

-Does the appraiser appear to have been under the influence of outsideinterference in the appraisal analysis process or the honest valuation of theproperty?

Per the appraisers own statement, he consented to use data provided tohim by the Lender and the Purchaser. He does not specify what thisinformation was or how it impacted his valuation process. Apparently, this

information was accepted as fact pending evidence to the contrary, postappraisal. The Appraiser appears to have based his value opinion usingunverified data supplied by parties who had a vested interest in the valuethat was returned and represented on his appraisal document. Theappraiser appears to have arrived at a value conclusion that does notappear to have been established in an objective, market based manner,using un-verified data and/or documentation, and as a result, the valueconclusion that was returned does not appear to be valid.

-Does the appraiser appear to have misrepresented the characteristics ofthe subject property or comparable sales?

The characteristics of the subject and comparable sales appear to havebeen accurately represented.

-Did the appraiser NOT comment on negative factors with regard to thesubject property, the neighborhood or proximity of the subject property toadverse influences?

No issue noted.


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-Does the report fail to address adverse factors or conditions that affect thevalue of the subject property with respect the neighborhood, site orimprovements?

No Issue Noted.

-Does the appraisal include any unsupported descriptive comments or drawunsupported conclusions from subjective observations?

2) Are Adjustments to Value reasonable and supported?

A. Single line adjustments exceed 10%No Issue.

B. Gross adjustments exceed 25%No Issue.

-Are the comparable sales used appear to be the most locationally andphysically similar to the subject property?

Comparable sales two (2) and three (3) are both located 1.5 miles distantfrom the subject property and are each located in a neighboringsubdivision.

All of the comparable properties are considered to be superior to thesubject property in terms of square footage. Comps 1, 3 and Comparablelisting No. 5 are all considered to be highly superior to the subject propertyin design, appeal, materials, and quality of construction. Comps 2 and 3 are

both located in a subdivision that is considered to be superior to thesubjects subdivision. Chapel Creek, the subjects subdivision permits theconstruction of homes whose square footage exceeds 7,000 square feet asa standard, on small tract-style lost. Homes of such excessive size aregenerally expected to offer grounds and be built upon lots that offers spacebetween the residences. The homes in Chapel Creek are built so close toone another that certain residences almost appear to touch.

-Do the Adjustments to the comparable sales appear to reflect an accuratemarket reaction to the differences between the subject property and thecomparable sales?

As the comparables used to establish the subjects do not appear to beappropriate, the adjustments that the appraiser made to arrive at thesubjects just market value are considered to be meaningless.

-Does the report appear to include unsupported adjustments made in thesales comparison approach?

As the comparables used to establish the subjects do not appear to be


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appropriate, the adjustments that the appraiser made to arrive at thesubjects just market value are considered to be meaningless.

-Did the appraiser fail to make adjustments to value when such adjustmentswere clearly indicated or required?

As the comparables used to establish the subjects do not appear to be

appropriate, the adjustments that the appraiser made to arrive at thesubjects just market value are considered to be meaningless.

3) Are the Subject and Comps located in the same neighborhood/market area?

Comp one (1) was taken from Chapel Creek Phase II; the subject property islocated in Chapel Creek Phase I. Comps two (2) and three (3) are bothlocated in a Planned Unit Development (PUD) known as Starwood, anentirely different subdivision located 1.5 miles distant from the subjectproperty, and not subject to the same market conditions. None of the

comparable properties appear to have come from Chapel Creek Phase 1where the subject is located.

A. Are the subject and comps influenced by the same market conditions?

Comps two (2) and three (3) are located in a different subdivision whosesites appear to be larger, whose homes appear to contain superior squarefootage and amenities, and that are located in a different marketdemographic.

4) Are the distances of the comps to the subject within the maximum distancetolerances?

Per prior exception comments, Comps two (2) and three (3) are both located1.5 miles distant from the subject property, and exceed the 1 mile distancetolerance for a home located in a suburban location.

5) Are the Comps and the Subject property similar in square footage, utility,design, appeal and marketability?

A. Square footageComps one (1), two (2) and three (3) all possess superior square footage asdo the two comparable listings.-Subject; 7150 square feet-Comp 1; 8184 square feet-Comp 2; 8130 square feet-Comp 3; 8253 square feet-Listing/Comp 4; 7511 square feet


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-Listing/Comp 5; 7294 square feet

B. Number of Bedrooms & Baths-Comps 1 and 3 offer a superior bedroom/bath count-Subject; 5 bedrooms, 6 full baths, one half bath-Comp 1; 6 bedrooms, 7 full baths, 2 half baths

-Comp 3; 6 bedrooms, 6 full baths, 2 half baths

C. Comparable Site SizeThe site sizes of comparables 2 and 3, located in the Starwooddevelopment, offer superior site sizes-Subject; 24,712 square feet-Comp 2; 38,202 square feet-Comp 3; 28,836 square feet

D. Similar AgeNo Issue

E. Similar ViewsComparable sale no. 3 and listing known as Comp no. 5 is both possessesresidential views. The subject is located on a creek.

F. Similar in visual style, design & appeal-Comp 1 is considered to be highly superior to the subject in design andappeal and is constructed of superior materials. Photos reflect that theexterior of the home is palatial in its overall aspect and is of Tuscandesign. The home provides a barrel tile roof, superior architecturalamenities, such as exterior columns and rounded windows and balconies.

-Comp 3 is also considered to be of superior design and appeal, is ofFrench design and is constructed of superior materials. The home alsooffers superior exterior amenities such as a barrel tile roof, and is ofsuperior architectural design.

The subject property, while attractive, offers fewer architectural details andis made of good, but standard materials, such as a flat shingle style roof.

G. Possess similar amenitiesThe most significant disparity in amenity appears to be garage related;Comps 1, 2 and 3 all offer four car garages. The subject and the two

additional listings offer three car garages. All of the homes offer multiplefireplaces, pools, spas and falls however the number of these amenitiesvaries from home to home with relatively minor affects upon value overall.

H. Possess similar functional utilityNo Issue.


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6) Is the land-to-value tolerance appropriate?No issue.

7) Does the final reconciled value exceed the predominant value of thesubjects neighborhood?The final reconciled value of the subject property greatly exceeds the valueof homes located in its immediate market area. The appraised value of thesubject property totals $2,500,000. The predominant value of homeslocated in the subjects immediate neighborhood is $1,100,000. Theappraiser seeks to compare the subject property to Comp No. 1, which islocated within blocks of the subject. Comp No. 1, however is of superiorsize, design, appeal and marketability and is constructed of superiormaterials. The home also appears to be located in a different phase ofChapel Creek which appears to offer homes that are significantly moreupscale than the homes located in Phase 1.

It is the opinion of the underwriter that the purchase price of the subjectproperty was affected by interior upgrades that were selected to suit theindividual taste of the original owners. These upgrades may not necessarilytranslate to enhanced marketability or resale value. The subject property islocated in a subdivision that appeals to homeowners who are seeking aluxury home that is specifically built and customized to suit their individualtastes and lifestyle. Such home-purchasers are more apt to have a customhome built for them directly by a Builder, rather than to accept the designchoices made by a prior owner.

The appraisal states that 32% of the subject s subdivision contained vacantland. Photos take of the subdivision indicate the availability of a significantnumber of lots. Until the development is fully built out, all homeownersmust compete with the Builder/Developer and his capacity to offer acustomized product to any potential purchaser. As a result, homeownerswho seek to sell their homes find that they must not only offer superioramenities and upgrades, but also offer their homes at a discount in order tocompete with the offerings of the builder/developer.

8) Has the appraiser described the marketing time, location type, growth rateand demand/supply appropriately?Per the appraiser, homes in the subjects subdivision were in over-supplywhen the appraisal was performed with marketing times that rangedbetween 6 to 12 months. The average marketing time ranges between 3 to 6months. It would appear that the subjects market was experiencing thesame state of collapse as was being felt nationwide, during the severedownturn of the housing market that began in 2007.


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A. Are supply, demand and marketing times in balance?Per the appraisal, the inventory of unsold homes was in over-supply, andthe marketing times were considered to be excessive.

B. What is the predominant occupancy of the neighborhood?Overall occupancy was not stated.

9) Does the subject property represent the highest & best use of the Land?No Issue.

10) Does the appraisal contain discrepancies and/or informationcontradictions?None were noted.

11) Are sale dates of the comps within the six month tolerance?As indicated elsewhere in the report, the housing market had begun todecline in the subjects immediate subdivision and marketing times rangedbetween 6 to 12 months. Such a market is considered to be slow and indecline.

12) Does the final reconciled value exceed the cost to replace?No Issue.

13) Does the subject property have access to utilities and ingress/egress?No Issue.


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14) Is there any evidence of functional obsolescence?No Issue.

A. Are any of the subjects features unmarketable?No Issue.

B. Is the floor plan marketable?No Issue.

15) Does the subject property have physical conditions that affect the safetysoundness or structural integrity of the subject property?No Issue.

16) Has the value of the subject, comps or neighborhood been influenced byproperty flip activity?No Issue.

17) Does the appraiser adequately explain all guideline exceptions?

The review underwriter considers the selection of comparable properties tobe questionable and the methodology used to arrive at a value conclusion

suspect. The explanations provided to justify guideline exceptions isconsidered to be inadequate.

18) Does a review of the location map indicate that the subject and comps areseparated by highways, natural or man- made barriers, or are subject tonegative market influences (airports, landfill, highway, etc).Comps 2 and three are located 1.5 miles distant from the subject property ina subdivision known as Starwood. Starwood and Chapel Creek appear tobe divided by the Dallas Parkway.

19) Is the basic information contained in the appraisal accurate?

A. Address of the subject & Comps No issue noted.B. Sale dates No issue noted.C. Public record data No issue noted.


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20) Has the appraisal been performed on a compliant/current 1004 form?No Issue.

END OF EXCEPTIONS


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UNDERWRITERS FINAL CONCLUSIONS

SOUNDNESS OF LENDERS UNDERWRITING PROCESS,GUIDELINES AND METHODOLOGY.The lender appears to have based their original mortgage using anappraisal whose value conclusion appears to have been established

using comparable properties that are not considered to be appropriate,using data supplied by parties who had a vested interest in the valueconclusion that was ultimately returned. While the subject property isconsidered to be a luxury home, the comparables used are of generallysuperior design, style, quality, marketability and appeal. Further, theLender, who in this instance provided a jumbo loan in a severelydeclining market, appears to have been content to use an outdated,eleven month old appraisal using stale dated comparables. Marketconditions and the size of the loan being requested, demanded that thelender update the appraisal, at minimum, and obtain a second valuation

before granting any mortgage loan request.

APPROPRIATENESS OF THE MORTGAGE GRANTED THEBORROWER RELATIVE TO THE JUST MARKET VALUE OF THESUBJECT PROPERTY.As the home appears to have been severely over-valued, the loan that theborrower was granted exceeded the homes actual just market valuewhen the home was sold to the subject borrower and he mortgage loangranted. It appears that the 1st and 2nd liens granted the borrower byPatriot Bank exceeded the homes just market value by $300,000.

DID GRANTING THE SUBJECT LOAN MAKE FINANCIAL SENSEBASED UPON THE VALUE OF THE SUBJECT PROPERTY.It is the opinion of the review underwriter that the purchase price of thesubject property should have been reduced and the mortgage amountreduced accordingly. As the loan amount was considered to be a superjumbo the Loan to Value Ratio should not have exceeded 70%. Theborrower was only required to make an investment of 5% in the subjectproperty. The home appears to have been owned by the Bank when itwas sold to the subject borrower and prudence demanded that the bank,given market conditions evaluate both the borrower and the propertywith great care so as to reduce its financial exposure. The loans thatwere granted to the subject borrower were considered to be excessiveand predatory, and imprudently granted.


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WAS THE LOAN AMOUNT GRANTED THE SUBJECT BORROWERAPPROPRIATE RELATIVE TO THE VALUE OF THE SUBJECTPROPERTY?As stated above, the review underwriter is of the opinion that the lendershould have updated the appraisal, obtained a 2nd opinion of value andreduced their lending exposure to 70%. The loan the borrower wasgranted is considered to be excessive.

END UNDERWRITERS FINAL CONCLUSION


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SUBJECT PROPERTY

6404 Memorial Drive, Frisco, TX


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Comp 1: 6897 Memorial Drive, Frisco, TX

3 Blocks from Subject


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VALUE OF COMP 1 WHEN APPRAISAL WAS PERFORMED IN 2008


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VALUE OF COMP 1 WHEN SUBJEC PROPERTY WS SOLD IN 2009


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STREET SCENE


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COPY OF TRANSFER DEED OBTAINED FROM PUBLIC RECORDS


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PROPERTY TAX RECORDS


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Comp 2: 5206 Monterey Drive, Frisco, TX

1.5 Miles from Subject


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VALUE OF COMP 2 IN 2008 WHEN APPRAISAL WAS PERFORMED

VALUE OF COMP 2 IN 2009 WHEN SUBJECT PROPERTY SOLD


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STREET SCENE AND NEIGHBORHOOD VIEWS


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TITLE TRANSFER DEED OBTAINED FROM PUBLIC RECORDS


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PROPERTY TAX INFORMATION OBTAINED FROM COUNTY


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Comp 3: 5609 Monterey Drive, Frisco, TX

1.5 Miles from Subject


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ESTIMATED VALUE OF COMP 3 WHEN APPRAISAL WAS PERFORMED IN 2008

ESTIMATED VALUE OF COMP 3 WHEN SUBJECT PROPERTY WAS SOLD IN 2009


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STREET SCENE AND PHOTOS OF NEIGHBORHOOD


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COPY OF TITLE TRANSFER DEED OBTAINED FROM COUNTY


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COPY OF PROPERTY TAX DATA OBTAINED FROM COUNTY


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Comp 4: (Active Listing at time of appraisal)

6422 Memorial Drive, Frisco, TX Same Block, Phase II of Chapel Creek


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VALUE OF COMPARABLE LISTING 4 AT APPRAISAL IN 2008


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VALUE OF COMPARABLE LISTING 4 IN 2009 AT SUBJECTS SALE


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PROPERTY TRANSFER DEED OBTAINED FROM PUBLIC RECORDS


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TAX DATA OBTAINED FROM COUNTY


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Comp 5: (Active Listing at time of appraisal) 8019 Brookhollow Blvd., Frisco, TX

2 Blocks from Subject


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ESTIMATED VALUE OF COMPARABLE LISTING 5 IN 2008 AT APPRAISAL


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ESTIMATE OF VALUE OF COMPARABLE LISTING 5 WHEN SUBJECT PROPERTY

SOLD IN 2009


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COPY OF TRANSFER DEED NOT AVAILABLE


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TAX INFORMATION OBTAINED FROM COUNTY


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MARKET TRENDS OF CHAPEL CREEK AND STARWOOD

SUBDIVISIONS


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MARKET TRENDS FOR FRISCO, TEXAS


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Glossary of Terms

Value is not supported -- the appraisers opinion of value is not adequately supported by the data orcomparables provided on the appraisal document. Comps are not appropriate- review of the appraisal document reflects that the comparable properties

used to establish value are not suitable. An appraiser must select comparable properties that are similar tothe subject in size, room count, utility, design, appeal, marketability, and site size. Additionally thecomparable properties must be located in the immediate neighborhood/subdivision as the subject toestablish value. Or: The comparable properties utilized in the subject appraisal have significantly dissimilarcharacteristics than the subject property. Unsupported adjustments in the sales comparison approach -- the appraiser uses valueadjustments in the appraisal report that are not supported by the subjects immediate market, theadjustments are not consistent, or required adjustments are not made, thus distorting the final, reconciledvalue of the subject property. Inadequate reporting of the sales history for the subject property and comparable sales -- theappraiser does not analyze and/or report the sales history for the subject property and comparable sales. Lack of analysis of, and reporting on, the listing, offering, or contract of sale for the subject

property -- the appraiser does not comment on how the subject property transaction relates to the market Misrepresentation of the physical characteristics of the subject property, improvements, andcomparable sales -- the appraiser does not accurately report some aspect of the subjects physicaattributes, i.e., room count, amount of square footage, site size, etc., thus distorting the subjects actuamarketability and final reconciled value. Property Flip -- the practice of buying a property and quickly reselling (or "flipping") it for profit. Aproperty is considered to be a flip if it is sold within the first 24 months of purchase. Properties boughand sold via flip transactions are purchased purely for speculative purposes, i.e., the purchaser does notintend to reside in the residence, and usually, performs no upgrades to warrant the increase in value, andsubsequent receipt of profit. Flip transactions are prevalent in housing markets that have experiencedrapid appreciation, and can artificially increase the value of a property that cannot be sustained, long term. Age of Comps not appropriate -- the actual sales date of the comparable properties exceeds Fannie

Mae guidelines, in relation to the date the valuation of the subject property was performed. Distance of Comps to Subject is excessive -- The physical distance of the comparable propertiesrelative to the subject property, in miles, exceeds the established standards.

END GLOSSARY OF TERMS


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Description & Logic of a Diligence Group, LLC Appraisal Analysis

The Diligence Group, LLC appraisal Analysis was developed to determine if the original lender, who grante

a borrower a mortgage loan, utilized sound, reasonable judgment and quantifiable industry standards durin

their loan approval process. The Diligence Group, LLC performs each appraisal analysis utilizing Fann

Maes Appraisal Underwriting guildelines, which is considered to be the standard by which most appraisaanalyses are performed throught the mortgage industry. A lender is required to review and approve a

appraisal report on all properties which are intended to act as an underlying security for a mortgag

loan before credit may be extended to a borrower. Appraisers, in the prepration of their reports, ar

required to utilize the Uniform Standards of Appraisal Practices, in addition to the guidelines imposed b

Fannie Mae, and are are required to apply these principals to all one-to-four unit, residential properties utilize

to secure a mortgage debt.

The level of standardization inherent in the mortgage industry of today, came about to insure that eac

Institutional Lender who aspired to sell their loans onto the secondary market, utilized tested, time honore

practices and guidelines, to assure the safety and soundness of the portfolios they sold. In addition to th

confidence such standardization inspired, the documentation, terminology, and calculations utilized to prepareach valuation report were uniform from Lender to Lender, thus speeding up the pre-sale due diligenc

process, and thus insured that the securitization transactions proceeded smoothly.

Unfortunately, the events of recent years make it apparent that the integrity of the appraisal process had bee

severely compromised by the actions of aggressive lenders, mortgage brokers and realtors. Appraisers wh

wanted repeat business from the very institutions who employed them, and whose products were designed t

protect their cleints interests, were being pressured into providing valuations that returned the highest value

possible. Appraisers whose values advsersley impacted the size of a Lenders mortgage amount, or Realtor

sales price, frequently were not offered repeat business. And, as it is acknowledged that most mortgage

were sold almost immediately upon their closure, it was rare for an original lender to have retained an

interest in a loan. As a result, many lenders sold trillions of dollars in mortgae backed securities withohaving given adequate consideration to the underlying valule of the asset securing their mortgage portfolios

As a nation, are now reaping the consequences of their actions. Dozens of laws suits have been filed again

many National Lenders, Mortgage Brokers and Realtors alleging they conspired to force appraisers t

artificially inflate property values, conceal risk factors and misrepresent material facts which would hav

rendered a particular property, and loan, unsaleable in the Secondary Market. Currently, Attorneys Genera

from coast-to-coast are filing suit against Lenders, Mortgage and Real Estate professionals for appraisal frau

and abuse.

The Analysisor employed by The Diligence Group, LLC is an experienced Mortgage Due Diligenc

Underwriting Professional, trained to detect fraud and evaluate appraisals utilizing the highest industry an

professional standards. Appraisals are analyzed to determine if the Lender utilized prudent underwritin

guidelines, and sound, practical, logic to grant a particular borrower an extension of credit, and to determine

the final reconciled value returnd by the original appraiser, was supported. A revised estimate of value, if th

original was overstated, is provided where possible and appropriate, and all exceptions noted, are thorough

detailed in our findings report. Additionally, the original Appraisers current license status is investigated. An

disciplinary action, if present, is included in our findings report. Our Analysisor also has access to a high

sophisticated Automated Valuation Model (AVM) database, which is utilized to determine if the comparab


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properties utilized by the appraiser to establish the value of subject property, were the best possib

comparables available when the apraisal was performed.

We highly recommend that the original appraisal document(s) used to establish the value of subject property

be obtained directly from the current loan servicer of record. The user of this report should request any and

all additional supporting documents including, but not limited to, a second appraisal, desk review, field

review, addendums and/or supplements that may have been ordered by the lender at the time the mortgage

loan was originated.

Underwriting guidelines frequently required supplemental valuation documentation for properties with a loa

amount of $650,000 or higher, or at the discretion of the underwriter. Some lenders who originated jumbo o

non-conforming loans may have required supplemental documentation for every loan approval. Supplementa

documentation may include the following; Desk Review, Field Review, Second Appraisal or other automate

valuation check utilized to support the value of the subject appraisal. In many cases the borrower(s) ma

have been be unaware these documents were ordered. If additional supporting documentation is obtaine

after the completion of this report, it is highly recommended that it be presented to MainStreet Resolutions

Inc. for further evaluation. Additional fees may be charged to evaluate supporting documents.

IMPORTANT NOTE: Loans whose mortgage balances meet or exceed $650,000 should have beensubjected to a secondary valuation, and are considered to be deficient if no additional valuation was

performed. Lenders should have ordered and possess a secondary valuation document in their possession

for a loan amount of $650,000 or more. If this document is not on file with the current loan servicer or was

not ordered, the user of this report should obtain same in writing. Please present any such statements o

correspondence from your Loan Servicer, so this deficiency information may be included in our findings

report.

The Diligence Group, LLC appraisal analysis reports are performed by an Underwriter, who is not a licensed

real estate appraiser. The Underwriter is a due diligence mortgage underwriter of 30 years experience who

is fully qualified to underwrite appraisals, and perform appraisal related analysis within a mortgage approva

context.

End Description & Logic of a The Diligence Group, LLCAppraisal Analysis


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END OF REPORT

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