In a recent Saskatchewan case, the court rejected a bank’s application in a foreclosure proceeding, highlighting the potential issues raised by drive-by appraisals.
A drive-by appraisal is where an exterior inspection of a home is conducted by a licensed real estate appraiser who inspects the property without leaving their car and then relies on the MLS listing for size, photos and room allocation.
Bank Commissions Drive-By Appraisal
The CIBC bank loaned $120,000 to the property owner secured by a mortgage agreement signed on March 21, 2017 against his land in Saskatchewan.
The owner did not make scheduled payments and the mortgage loan fell into arrears, with $124,496 owing.
CIBC had commissioned a drive-by appraisal from a professional appraiser, who estimated the market value of the property at $20,000-$32,500 as of November 7, 2019.
CIBC began foreclosure proceedings on January 10, 2020 by filing Notice of Application for Leave to Commence Action.
On August 4, 2020, CIBC filed a Notice of Application for an Order Nisi for Sale by Real Estate Listing.
The court heard the application on September 1, 2020, but expressed concern with the proposed upset price of $16,000 and directed that: “A full appraisal should be done on the exterior and interior of the home.” The fiat went on to allow for “a more comprehensive appraisal or [Comparative Mortgage Analysis] CMA on interior and exterior of the home”. The application was adjourned to September 15, 2020.
On September 11, 2020, CIBC filed an affidavit of a real estate agent, attaching a CMA for the Property. The affidavit and the CMA did not state whether an interior inspection was completed. The CMA ended with the following summary:
A suggested list price for this property would be between $63,500 and $71,500 in today’s market conditions. This would potentially bring a selling price between $43,500-$63,500. The market is active for well priced homes. Pricing too high in this buyer’s market does not attract potential buyer’s quickly.
On September 15, 2020, the court again adjourned the application to September 29, 2020 to allow the same real estate agent to file an affidavit in respect of the interior of the home.
On September 24, 2020, CIBC filed a second affidavit of the real estate agent in which she stated she had access to the interior of the property when completing the CMA.
Court Rejects Bank’s Application
The court began by observing:
“CIBC considered the Property to be sufficient security to make a mortgage loan of $120,000 in March 2017. Canadian banks have a well-deserved reputation for prudence and generally ensure their loans are well-secured.
The November 2019 drive-by appraisal valued the Property at $20,000-$32,500, or a fraction of its previous presumed value. The September 2020 CMA recommended “a selling price between $43,500 – $63,500”, based upon a review of sales of comparable properties. The estimate of value in the latter CMA is twice that of the earlier appraisal. There are other inconsistencies between these two valuations.[…]
There is no explanation in the application for the different estimates of value or to explain the apparent drastic devaluation of the Property since the time of the mortgage loan. The second affidavit […], including in its review of the condition of the Property, does not explain why its value might have fallen so far and so fast.”
The court held that the contradictory information was not reliable enough to grant the application, especially in consideration of the proposed upset price. The court then concluded:
“Simply put, something does not add up. Or if it does and can be explained, an explanation should have been put forward. CIBC was given the opportunity to provide an answer. No satisfactory explanation was provided.”
As a result, the court dismissed CIBC’s application.
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