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Editor’s Note: The rise in state board complaints-from consumers, agents and others, is one more headache appraisers face these days. Below are two stories that can help. One correction to our last News Edition: Victory for Customary & Reasonable Fees in Louisiana: the 2055 C&R fee is $325.
Fighting Appraisal Board Complaints
by David Brauner, Senior Broker, OREP
New lending guidelines are causing a spike in complaints to appraisal boards nationwide, and with it, more headaches for real estate appraisers. With borrowers now able to obtain a copy of their appraisal upon request, and agents/brokers attempting to intimidate appraisers by blaming low values on “bad appraising,” frivolous complaints to state boards are a new reality for more and more appraisers- even the careful ones.
A dashed off email complaint by a consumer, agent or other disgruntled party who didn’t get their value, can have serious ramifications to an appraiser’s business- innocent or not.
Dealing with a complaint, even one without merit, can be time-consuming and frustrating, and if not handled correctly, can be ruinous to your appraisal business. Most insurance companies, including the one’s OREP works with, provide free legal guidance to their insureds and this is often the best place to start, especially when dealing with legal suits. But untangling state board complaints, that accuse appraisers of specific violations of the Uniform Standards of Professional Practice (USPAP), require a different set of skills. To be on equal (or better) footing with the stable of attorneys your state board has at its disposal and to properly defend your interests, you often need an expert’s understanding of USPAP and an insider’s knowledge of how state boards operate to enjoy the best result.
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According to Bob Keith, Former Executive Director and Appraiser Program Compliance Coordinator for the Oregon Appraiser Certification and Licensure Board, what many appraisers don’t realize is that not all state board investigators are trained appraisers and few are experts in USPAP. “Only slightly more than one-half of one percent of all credentialed appraisers are qualified as experts in the minimum Uniform Standards of Professional Appraisal Practice. As a result, those making decisions about your professional license and career may be less of an expert in USPAP than you are,” says Keith. “It pays to have any expert on your side.”
Keith says to have a fair chance in a complicated and often unfair process, appraisers must understand a few basics about protecting their license and their livelihood and how to obtain expert advice when they need it.
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Keith is providing consulting services to appraisers facing state board complaints since leaving the Oregon Board. “Having a complaint filed against you is a frightening experience, but it does not automatically mean that you’re going to be disciplined by your state licensing board. Don’t panic but don’t delay either. You can ‘fight city hall,’ but you must be willing to utilize resources that are readily available,” Keith said.
You can learn more about Keith’s consulting practice at OREP.org (click Benefits). OREP Members and Affiliates and subscribers to Working RE Magazine receive the first half hour consultation from Keith free and a significant discount on consulting services if needed. Note: Due to his recent close association with the Oregon Appraiser Board, he is not providing consulting services to appraisers for properties located in Oregon at this time, but Keith can make a referral to a local expert that can be of assistance.
Beware of Consent Decrees
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This story below is republished from Working RE (Volume 27, Spring 2011).
Upcoming Webinar: There’s WHAT in Your Workfile? – Presented by Tim Andersen, MAI, M.Sc., CDEI; Get an expert’s insight into how to bulletproof your workfile from clients, your state appraisal board and others.
Editor’s Note:What you don’t know about how state boards handle enforcement issues may surprise you.
Understanding State Board Enforcement
By Timothy C Andersen, MAI
Like most real estate appraisal boards, Florida’s Board publishes an annual summary of the cases it finalizes against its appraisers. Florida’s Real Estate Appraisal Board (FREAB) does not intend these summaries to be lengthy analyses of “what went wrong” or something law students might study for insight. They are merely summaries of the charges the state brings against appraisers, why they bring them and the outcomes, as the state’s sunshine law requires.
The website is public record, listing names, dates, certification numbers and so forth, as is common in most states (click to view). We have included summaries here with appraiser names redacted. What is important is not the respondents’ names but the charges laid against them, as well as the charges that are not. This issue is important to all appraisers no matter where they live.
Guilty until Proven Innocent
It is interesting to note that to violate a state’s appraiser certification law is not a crime, per se. It is not illegal, either, which means it is not “breaking the law.” It is unlawful, however, which means to do something in a manner the law does not authorize. Since violation of a state’s appraiser certification law is not a crime, the protection of our Federal Constitution- “innocent until proven guilty,” does not apply. When the state sends a letter it informs you that you are guilty of a violation of USPAP and/or state law. There are no hearings, no trial, no judge, no jury. You are guilty. You can defend yourself and the state may even drop some of the charges. However, you are guilty of something for no other reason than the state says you are.
Failure to Exercise Reasonable Diligence
In the state of Florida, an omnibus charge leveled no matter what an appraiser does or fails to do, is that he or she “failed to exercise reasonable diligence” in performing that appraisal. Most states have a similar omnibus charge. It is also interesting to note the state of Florida does not, in its appraisal statute (FS 475, part 2) nor in its administrative code (FAC 61J1), define, explain, or elaborate on what the exercise of reasonable diligence means, how the state applies it, when the state may choose to apply it or what constitutes such a failure. Despite this lack of elaboration, the state of Florida chooses to level this charge frequently. Inspection of the 2010 Disciplinary Activity Report shows that of the 144 disciplinary actions listed, 96 (67 percent) specifically contain this charge. It is equally interesting to note that any of an appraiser’s omissions or commissions can result in this tacked on charge.
Consider Case #20080608591 (names redacted). Here, the state charges the appraiser with violation of the Departure Rule, as well as with “failure to exercise reasonable diligence,” whereby one charge becomes two. In Case #2009017685, the respondent’s workfile failed to contain “[the] documentation to support the adjustments and conclusions in the Sales Comparison and Cost Approach sections of the report,” which is by definition also a “failure to exercise reasonable diligence.” Again, one violation becomes two by an action no more complex that the stroke of a pen. In Case #2008047867, “failure to exercise reasonable diligence” includes a misstatement of the subject’s zoning (as if merely misstating the zoning was not enough, in and of itself, to justify a charge).
Case #2009007431 illustrates the problem of charging an appraiser with “failure to exercise reasonable diligence”; the charge reads: “Respondent failed to reconcile the sales contract price of the Subject property with the opinion of value in the report. Respondent also had the incorrect depreciation amounts in [sic] the Cost Approach section of the report. Respondent’s work file [sic] lacked documentation to support the adjustments made in the Sales Comparison approach section of the report. Violation: guilty of having failed to exercise reasonable diligence in developing an appraisal report”; two charges become three.
What is interesting is the state’s using “failure to exercise reasonable diligence” to convert an appraiser’s benign action, which is not a violation of statute or the Uniform Standards of Professional Practice (USPAP), into a malignant violation. For example, USPAP does not require the appraiser to “reconcile the sales contract price…with the opinion of value in the report” as the charge states. SR1-6, the reconciliation standard, puts reconciliation in the context of “data available and analyzed within the approaches used” and “the applicability of the approaches, methods and techniques used.” Clearly, if there is a sales contract, the appraiser should analyze it and explain why the final value opinion and the contract price vary (if they do). Nevertheless, USPAP does not specifically mention such reconciliation nor does Florida state statute. Yet with this added charge applied, the appraiser’s failure to take a step USPAP does not even require, this “violation,” is elevated to the same level as a violation of USPAP’s Ethics Rule.
Inspection of the other cases the state closed in 2010 show that Florida equates “failure to exercise reasonable diligence” with numerous other violations, in addition to those this essay treats specifically. These additions are as diverse as improperly maintaining a workfile and/or failure to have within the workfile documentation of the derivation of adjustments2. The state also includes under this tent, the failure to include and/or calculate depreciation properly, as well as failure to reconcile discrepancies in data. This tent even includes a charge that the appraiser certified he completed the appraisal in compliance with USPAP, even though the state concluded this was not true.
By contrast, were there any 2010 cases in which the appraiser did not “[fail] to exercise reasonable diligence”? In Case #2008052576, the charges against the appraiser state, “in June 2007, Respondent (name redacted) appraised a property in Apopka…relying exclusively on the developer’s sales office for data on the Subject Property [sic] and one Comparable Sale [sic], misstated the sales price for that Comparable Sale [sic] and failed to maintain in the workfile a fully executed copy of the sales contract for the Subject Property [sic].” Despite these omissions and commissions that prima facie seem as egregious as the others (supra), the state did not charge the appraiser with “failure to exercise reasonable diligence” in the preparation of that appraisal and report. Therefore, if an appraiser were to conclude that the state is not consistent in its charges and judgments, that conclusion would be difficult to refute from the data in the record. The state, as you might guess, is under no legal obligation to charge and judge equitably.
If the state of Florida is a bellwether, and in matters such as these it usually is, it looks as if the states may be willing to negotiate away X-percent of the original set of charges against an appraiser but that the umbrella charge of “failure to exercise reasonable diligence” or something similar remains, even if there is only one substantive charge. While this term is clearly as ambiguous as the term “moral turpitude,” this is not enough to extinguish its use against appraisers by the states. What is at stake? When an E&O provider sees that an appraiser has been charged with “failure to exercise reasonable diligence,” red flags will go up and in some cases so will the appraiser’s E&O premium, even though the failure may have been a single one of a minor nature, requiring but a small state penalty.
Also, if states do not uniformly apply the “failure to exercise reasonable diligence” charge, it leaves appraisers wondering under what circumstances failure to maintain a workfile properly is “failure to exercise reasonable diligence” and when such an omission is not. The appraiser has the burden of understanding his or her state statutes and administrative codes relative to real estate appraisal, their limitations on appraisers and how and when those limitations apply. Failure to understand the law will not protect appraisers from it.
Enforcement Across States
A common complaint is that USPAP is not enforced uniformly by the states. According to a recent story in Working RE (visit WorkingRE.com, Didn’t Make it to Print; The Appraisal Foundation Raising the Bar), the Appraisal Foundations (TAF) has the uniform enforcement of USPAP by the states on is priority list. The problem, however, is that each state is sovereign in the creation and enforcement of its laws, so the complaint of unequal enforcement is both true and irrelevant. While it is the appraiser’s job to conform him/herself to the law of the state(s) granting certification, it is not the job of the states to conform themselves to what other states are doing.
The following is a true story: an appraiser certified in both states X and Y recently shared an anecdote about the lack of uniform enforcement between the two states in which he works. State X charged him with various violations and applied a sanction. Since most states have, as part of their certification law, verbiage that discipline in one state can trigger discipline in another state as well, this appraiser told the authorities in state Y of the sanction by state X. The authorities in state Y asked him to send in the charges, etc. from state X. He complied knowing full well that it could result in his being sanctioned in state Y also. After looking at the case, the certification officials in state Y told this appraiser that not only were they not charging him with any violation, but that their state would never have even opened a file given the evidence. So what got him charged and sanctioned in one state was innocuous to another.
Another case (details in author’s possession) shows a western state sanctioning a residential appraiser for violation of the COMPETENCY RULE. In the offending appraisal report the appraiser disclosed s/he was “not a home inspector and only performed [sic] a visual inspection of the site and this appraisal cannot be relied upon to disclose conditions and or defects in the property.” This is a common disclosure many appraisers use daily so their clients and intended report users more completely understand the scope of what an appraiser does and cannot do as part of an appraisal.
A Stipulation and Consent Order is a document where both parties involved (state and respondent) agree to all the material and statements in the order and which binds them both to its stipulations and conditions. The Order in this case states that the “[r]espondent [also] failed to disclose this lack of competency prior to acceptance of the assignment.” In other words, in this western state, an appraiser must also be a competent home inspector in order to be a competent real estate appraiser, according to the stipulation and consent in this Order.
In another Stipulation and Consent order from the same state, its certification authorities found that the appraiser violated the ETHICS RULE. Here is the quote from the Order: “The original client was (Bank X) but this was changed to (Bank Y) by altering the statement of the intended user of the report without full disclosure of the original client or why a new user appeared, which is misleading.” The key is the phrase “without full disclosure of the original client.” If one looks over the ETHICS RULE one does not find anywhere any requirement that the appraiser must disclose who the client was on a previous appraisal assignment. Yet, by signing the Stipulation and Consent Order, this appraiser agrees that such a failure to disclose is a USPAP violation. Indeed, had the appraiser so disclosed, that would likely have violated the Confidentiality provision of this RULE! Thus, the state made the appraiser stipulate to an admission of breaking a rule that does not exist, as well as consent to a sanction for so doing.
One more anecdote is in order, this from a metropolitan southern state. To quote the state, the appraiser “[v]iolated USPAP by misreporting a date signed on an appraisal and failing to maintain a copy of all communicated appraisal reports within the workfile.” The problem is that USPAP does not require an appraiser to maintain copies of all communicated appraisal reports within the workfile. USPAP merely requires appraisers to retain such copies. USPAP does not state where those copies must be retained nor does it make an issue of the medium on or by which the appraiser retains them. The appraiser merely must have them and be able to access them when and if the need arrives. For failing to do what USPAP does not require appraisers to do, this appraiser received a $750 civil penalty, as well as the requirements to take a 15-hour Site Valuation and Cost Approach course and a course in Residential Report Writing. Interesting sanctions for violating a rule that does not exist, aren’t they?
The summaries here, which are not meant to be a scientific sampling of anything, show that the states are enforcing USPAP on a level more sophisticated and imaginative than most appraisers might expect. Since the only appeal to these state decisions is via the time-consuming and expensive circuit court, it behooves appraisers to be aware of these decisions and conform themselves to them. It is likely not necessary to maintain a five-inch pile of paper in a manila folder for every appraisal assignment that comes in the door. However, having one CD for every report, with copies of every scrap of paper the appraiser generated during the production of the report, is likely the only acceptable response to state actions such as these. The CDs must be kept in a safe, easily acceptable place. In addition, the appraiser must have the technology to reduce all of the contents of that CD to paper easily, should that be necessary.
As for the states, don’t stand on one foot waiting for any changes from them. The Appraisal Sub Committee and The Appraisal Foundation look to the states to enforce their individual appraisal statutes in a timely and vigorous way. States are lauded for bringing charges against their appraisers and then clearing those charges from their books ASAP. Because of the states’ essentially unassailable power to sanction and punish, state Boards must do a better job distinguishing between those circumstances that require serious sanction and those where education and counsel are more suitable.
1This State charged the appraiser with the violation in 2008, but the violation took place in 2006 when the Departure Rule was still in effect.
2This, despite the fact that USPAP does not require the appraiser to adjust anything for any reason. Indeed, Standards One and Two do not even mention the word “adjustment” in any context. The words “adjustment” and “adjustments” do not appear until AO-16.
February 13th: There’s WHAT in Your Workfile? – Presented by Tim Andersen, MAI, M.Sc., CDEI
New rules are leaving appraisers more exposed than ever to legal and regulatory complaints. Get an expert’s insight into how to bulletproof your workfile from clients, your state appraisal board and others.
March 11th: Fannie Mae’s New Appraisal Quality Monitor (AQM) – Impact on Appraisers – Presented by Richard Hagar, SRA
This webinar is designed to keep appraisers trouble free. It describes the new AQM process and what to expect from Fannie Mae (FNMA).
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