Federal Agencies Offer Guidance on Appraisals for Residential Tract Developments (Financial Institutions Reform, Recovery and Enforcement Act of 1989‪)‬

Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) provides for minimum appraisal standards for all federally related transactions. Among the minimum standards is a requirement that all appraisals must "analyze and report appropriate deductions and discounts for proposed construction or renovation, partially leased buildings, non-market lease terms, and tract developments with unsold units." (1) In September 2005, five federal agencies (2) jointly issued the Frequently Asked Questions on Residential Tract Development Lending (FAQs) to assist financial institutions in complying with the agencies' appraisal and real estate lending requirements for residential tract developments. (3) The FAQ document, with its question and answer format, provides much-needed clarification on this topic, but does not result in any new regulatory requirements. Specifically, the FAQs address how institutions should determine collateral value and calculate loan-to-value (LTV) for loans secured by tract development.