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Thursday, February 27, 2014

Emailing an Appraisal

QUESTION: May I deliver an appraisal and other valuations to the applicant(s) via email, thereby reducing the waiting period required prior to closing? 

ANSWER:  In order to provide an answer to this question, many issues need to be discussed. 

By now, everyone in the mortgage industry should be aware of the new ECOA Valuations Rule which applies to all applications received on or after January 18, 2014. 

The ECOA Valuations Rule states as follows:
§1002.14: Rules on providing appraisal reports 

(a) Providing appraisals and other valuations.

(1) In general. A creditor shall provide an applicant a copy of all appraisals and other written valuations developed in connection with an application for credit that is to be secured by a first lien on a dwelling. A creditor shall provide a copy of each such appraisal or other written valuation promptly upon completion, or three business days prior to consummation of the transaction (for closed-end credit) or account opening (for open-end credit), whichever is earlier. An applicant may waive the timing requirement in this paragraph (a)(1) and agree to receive any copy at or before consummation or account opening, except where otherwise prohibited by law. Any such waiver must be obtained at least three business days prior to consummation or account opening, unless the waiver pertains solely to the applicant's receipt of a copy of an appraisal or other written valuation that contains only clerical changes from a previous version of the appraisal or other written valuation provided to the applicant three or more business days prior to consummation or account opening. If the applicant provides a waiver and the transaction is not consummated or the account is not opened, the creditor must provide these copies no later than 30 days after the creditor determines consummation will not occur or the account will not be opened.
If the appraisal is mailed to the consumer, you need to add additional time onto the three business days referenced in the statute. Conservatively, the appraisal should be placed in the mail for delivery six days prior to consummation. 

What if the appraisal is delivered electronically? May a lender use the delivery and read receipt to confirm receipt as the start of the three business day requirement?  The short answer is Yes, but there are other considerations.

§1002.14 (a) (5) states:
Copies in electronic form. The copies required by §1002.14(a)(1) may be provided to the applicant in electronic form, subject to compliance with the consumer consent and other applicable provisions of the Electronic Signatures in Global and National Commerce Act (E-Sign Act) (15 U.S.C. 7001 et seq.).
The E-Sign Act requires the applicant(s) to consent to the use of electronic signatures and records to satisfy any statute or regulation.  Prior to obtaining their consent, a financial institution must inform the applicant(s) of (a) an option to have the record made available on paper; (b) the right to withdraw consent; (c) the procedures the applicant must use to withdraw consent; (d) the procedures the applicant must follow to request a paper copy of the record and whether a fee will be charged for the copy; and (e) the hardware and software requirements for access to and retention of electronic records. 

While this seems simple enough, let’s not forget two of the general themes set forth by the CFPB: (1) emails from financial institutions containing non-public personal information (“NPI”) should be encrypted; and (2) financial institutions should adopt an information security program which protects non-public personal information.

Thus, the ECOA Valuations Rule and E-Sign Act allow for the delivery of an appraisal via email, but the email should be encrypted as there is non-public personal information contained in an appraisal.

One would think that if a financial institution has a methodology for sending secure disclosures that are full of NPI, than the same delivery method would work for delivering a copy of the appraisal.

Michael Barone
Director/Legal & Regulatory Compliance
Lenders Compliance Group