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1,000 Appraisals a Year: Realities of Appraiser Liability By Richard Hagar, SRA At American Home Appraisals, we provide extensive expert witness work for a variety of law firms all across the U.S. When attorneys call and engage our services, we don’t always know if the appraiser is the plaintiff or the defendant. As a result, we sometimes are on the side of the appraiser and sometimes not. We try not to pick sides, we’re simply the experts hired to explain how an appraiser’s report, methodologies or standard of care fits within USPAP and Fannie Mae requirements or the Interagency Appraisal Guidelines. We are the people who try to help both sides understand the appraisal process. In a series of articles and Webinars for OREP/Working RE, we’ll explain some of the appraisal, AMC and lending failures that I’ve seen over the past year as well as your Rights and Responsibilities in Understanding the New Mandatory Reporting Laws. Hopefully appraisers will learn how to avoid making the same mistakes as many others. Information comes from civil and criminal cases where we were hired as the expert-witness or consultant. So, with that said, please don’t shoot the messenger - I’m just trying to help!
Case #1:
One Thousand Appraisals a Year In deposition he was asked how he produced so many appraisals. His response was: “I really like appraising.”
Problem The appraiser was placed on the lenders internal black list and the appraiser was turned into the state for disciplinary action. In 2007, the loans started to go into default and the bank losses mounted. Full reviews indicated that the appraisals had problems and incorrect values. A year after closing the loan, the bank was experiencing losses so they sued the mortgage broker for selecting the appraiser and the appraiser for producing substandard appraisals.
In other words, the bank wanted the mortgage
broker and appraiser to pay for their loan losses. The suit against the
appraiser was for more than $2.5 million (ouch) based upon the failure of 10
reports.
What we found The law firm issued the appraiser a subpoena demanding 10 work files. The files were handed over to us and we were asked to see if the work files, methodologies and final report conformed to all appraisal laws, regulations and guidelines. We got to look at the appraiser’s entire work file including every note, diagram, MLS data sheet and Email. That alone would send shivers up the spines of most appraisers.
In reviewing his work we found the following
general failures:
Details and Examples At the appraiser’s trial, how is that going to look to the judge and jury? Random coincidence that the value requested is also the appraised value? It’s going to be tough for the appraiser to say, “I have no bias during the creation of this appraisal.” Really? Convince the jury in two minutes or less! [Read USPAP Advisory Opinion - AO-19.]
Example #2 When I receive an appraiser’s work file, I should be able to recreate the appraisal right down to the adjustments, land value and construction costs. Since this appraiser’s file did not contain information explaining how he determined adjustments, how he determined land value and his source for construction costs, his work file was a failure. Yes, he had that boiler plate statement about “obtained construction costs from a book and local builders” blah, blah, blah. However in deposition he acknowledged that he didn’t own the construction cost book and couldn’t remember which builder he talked to as part of this appraisal assignment. His work files were a failure and he was caught making false statements in his appraisals. [See USPAP; Ethics - Conduct and Record Keeping sections.]
Example #3 Right here it looks like there’s a bias in selecting and analyzing the sales. There was no attempt to bracket the sales price. No attempt to look for sales outside the plat or sales where there was an additional information source (MLS). Everything looked biased, which is exactly what we said in our report to the law firm. [See USPAP; Ethics - Conduct section; Failure Standards Rule 1-1, 1-4, 1-6, plus so many more.]
Example #4
Process Space prevents me from going over all of the failures but there were dozens. Eighty percent of the failures reoccurred on all ten appraisals. While some mistakes are expected, why are the same mistakes on ten appraisals? Why did all of the mistakes result in a higher sales price? In a criminal court this could be shown as “intent” to mislead - fraud. His appraisal was so bad that our narrative review was 30 pages in length. We included examples along with the applicable USPAP Standards and Fannie Mae requirements. Our reports make it easy for our clients to understand the failures. After reading our review the law firm deposed the appraiser. They went into the deposition armed to the max and ready to skewer the appraiser. The appraiser was placed in a south facing room, with the air-conditioning set to 85 degrees on a hot August day in Phoenix. For the next seven hours he was asked dozens of questions about his value conclusion, appraisal order, work file and interaction with the mortgage broker. To this point the appraiser had $85,000 in legal fees, spent days if not weeks producing files, answering written questions, working with his attorney, not working at his job and trial was still months and another $50,000+ away.
Result My purpose for this series of articles is to provide you with some insight into what happens when an appraiser fails to do the job properly. I also provide numerous classes to help you be a better appraiser. One of your choices in life: education or prepare to face pain.
This time I described some simple appraiser
failures. Next time I’ll describe how an AMC instructed an appraiser on what
should be included in the report. Who got sued? Well, the appraiser of
course. But that story takes an interesting twist. To learn more about Richard Hagar, check out his resume here.
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