Under Fannie Mae B4-1.3-04, how does legal nonconforming use affect the stated zoning-related purchase or securitization condition?
Correct Answer
D) It is acceptable if the appraisal reflects any adverse effects
Fannie Mae permits the stated legal nonconforming-use treatment when the appraisal analysis reflects any adverse effect on value and marketability. This addresses the zoning-related condition, not satisfaction of every other loan or property eligibility requirement. Legal nonconforming and illegal use are distinct, and the zoning status and relevant effects should not be ignored.
Why This Is the Correct Answer
Option D is correct because Fannie Mae will purchase or securitize a loan on a property that is a legal nonconforming use provided the appraisal analysis reflects any adverse effect on value and marketability. This addresses the zoning-related condition only. Other loan and property eligibility requirements still apply.
Why the Other Options Are Wrong
Option A: It bars purchase or securitization of the loan
Option A, saying legal nonconforming use bars purchase or securitization of the loan, is wrong because Fannie Mae expressly allows such loans when the appraisal reflects any adverse effect on value and marketability.
Option B: It is treated as an illegal use, without any distinction made
Option B, saying legal nonconforming use is treated as an illegal use without distinction, is wrong because Fannie Mae distinguishes legal nonconforming (grandfathered) use from illegal use and treats them differently.
Option C: Its effect on value must be omitted from the appraisal report
Option C, saying its effect on value must be omitted from the appraisal report, is wrong because the appraisal must reflect any adverse effect the nonconforming use has on value and marketability, not leave it out.
Grandfathered is okay if analyzed
Fannie Mae accepts legal nonconforming use as long as the appraisal shows any adverse effect on value and marketability.
How to use: Use this when a question asks how legal nonconforming status affects Fannie Mae eligibility.
Exam Tip
Keep legal nonconforming and illegal use separate; the first is acceptable to Fannie Mae with proper analysis of adverse effects.
Common Mistakes to Avoid
- -Assuming legal nonconforming use makes a loan ineligible
- -Treating legal nonconforming use as illegal
- -Leaving out the effect of nonconforming status on value
Concept Deep Dive
Analysis
This question tests Fannie Mae's treatment of legal nonconforming use under B4-1.3-04. Fannie Mae will purchase or securitize such a loan provided the appraisal reflects any adverse effect on value and marketability. The reasoning is to distinguish legal nonconforming from illegal use and to recognize that the effect must be analyzed, not omitted.
Background Knowledge
A legal nonconforming use is one that was lawful when established but does not meet current zoning, and it is typically allowed to continue under local rules. Such status can affect value and marketability, for example if rebuilding after damage is restricted. Fannie Mae requires the appraiser to report zoning status and analyze any adverse effects.
Real-World Application
An appraiser values a duplex built before its area was rezoned for single-family use. The appraiser reports it as legal nonconforming, researches local rebuild rules, and analyzes whether buyers discount such properties.
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