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Beware of Consent Decrees

by Tim Andersen, MAI
Editor’s Note: Author Tim Andersen, MAI shows you how to protect yourself from your state board and have as happy a New Year as possible. His advice? Beware of consent decrees.
The letter arrives. You know, the letter from the state appraisal commission. You are not expecting it since you always do your best to complete your appraisals credibly and properly. Yet, despite your best efforts, here it is anyway. It’s in your hand. You have to open it and your stomach turns. This literally may be the future of your appraisal career, condensed to what amounts to a form letter- black ink on (cheap) white paper: cold and bloodless. Here’s how to handle it in your best interests.

You read it and fact-check. Yes, you did that appraisal on that date. Yes, you came up with such-and-such a dollar value. Yes, you have appraisal license number thus-and-so. But other than these details, what you read cannot possibly apply to you. It can’t apply to you since the letter, in its dry legalese, details your “…lack of due diligence in finding appropriate comparables to the subject property…”; your “…failure to reconcile the value indication via the Cost Approach with that of the Sales Comparison approach, thereby forming a value opinion that lacked credibility…”; and/or your “…failure to develop, and then summarize within the report, your conclusion of the subject property’s highest and best use…”.

This litany of infractions goes on for numerous pages, listing violations in the Uniform Standards of Professional Appraisal Practice (USPAP) Standards Rules, Ethics Rule and the Scope of Work Rule. It calls out violations of state statutes and state administrative codes and on and on. What’s worse is that the letter makes it sound as if you are already GUILTY of all of these charges. What? It’s innocent until proven guilty, right? With state appraisal boards, it’s often the other way around.

Consent Decrees
Toward the end of this horrible letter the attorney/author who seemingly holds your fate in his/her hands, generously offers what may be your professional salvation. Behold, an offer for a consent decree. Yes, salvation is near! You read it through. It is relatively short (a whole lot shorter than the document you just read containing your bill of indictment). It basically says that while the state is convinced you are already guilty of dozens of heinous appraisal infractions, if you will just sign the consent decree, all but two of them will be dropped, and you will be required to take a 15-hour USPAP class, pay a $750 fine, and be put under state supervision for six-months.

Life is looking better. You know you can take the 15-hour USPAP class online for less than $300 and you can probably complete it in less than seven hours. The $750 fine is just two appraisals. And you already know the state is too short-handed and underfunded to look over your shoulder for six months. An administrative law attorney and a USPAP consultant will cost a lot more than the total of the state’s fees. It will take you just two minutes to sign the decree, cut a check from your business account and get online to sign up for the USPAP class. This is just too simple! Woohoo!

Admitting Guilt
If such a quick solution feels a little too simple and a little too painless, that’s because it may be. You open the letter back up, pull out the full package of doom from the state and read it carefully this time (which, due to your panic, you did not do earlier). You read it again and then again. Now you understand why at first it seemed so simple, so painless, and why the state wants you to sign the consent decree- now!

Now you realize that as soon as you sign that consent decree you are admitting your guilt to whatever charges the state included in the decree. You consent to whatever administrative penalties the state chooses to impose. Since your state appraisal board is a public entity, the consent decree, in its glorious entirety, with your signature on it, will soon become public record that any yahoo with Google® can find in less time than it takes to write a check.

If you sign that consent decree, not only have you admitted you are guilty of those specific violations, and accepted the administrative penalties associated with the admission of your guilt, you have also put every Errors and Omissions (E&O) provider in the world on notice that you are an insurance liability risk. And E&O providers don’t want to cash your check if they think there is any chance they will have to pay all the money back, and then some, defending you.

Bad for Business
In addition to what you just told your E&O provider, you have also just notified every potential client on the planet that, when performing an appraisal, you chose not to exercise due diligence in forming a value opinion (at least in this case). If you think that makes clients skittish, you’re right. Books of business composed of skittish clients tend to be rather thin.

When you sign that consent decree, you also have just notified every attorney in the jurisdictions in which you work that you are an ineffectual expert witness. Why? Because you just admitted to all of them, your failure to appraise per the rules and regulations governing you. This is not something you want coming out in a trial or deposition, so you’ll have to admit it up-front to your clients. Given that, some will choose not to use you.

Don’t Panic
When that letter comes in, don’t panic. First, before you respond to the state, call your E&O provider and get their advice. That’s why you pay for E&O insurance. Many providers have free claims lines. If you are not covered, for whatever reason, you need to contact an administrative law attorney before you respond to the state. An A/L attorney is experienced representing respondents in front of professional boards. Have your administrative law attorney respond to the state. The state appraisal board has a stable of attorneys representing it; you should have one too. Then take your attorney’s advice. Then, if necessary to defend yourself, you might want to retain a USPAP expert to determine if you really violated USPAP, and if the charges against you are based on its proper understanding and interpretation. (For more, please read Tim’s article Dealing Effectively with Complaints: When the State Comes Calling at WorkingRE.com, Library, Volume 24.)

It’s possible that, when all is said and done, you may end up signing a consent decree anyway but you want to sign it as a last step, not as a first one. Make the state prove its contentions that you are guilty of USPAP and/or state statute violations. Many appraisers have fought and won. You can, too.

About the Author
Timothy C. Andersen, MAI has been in real estate and consulting since 1975. He is a commercial real estate appraiser, AQB-certified USPAP instructor, USPAP consultant, Special Magistrate for the Palm Beach County Value Adjustment Board, author, instructor and expert witness. As a USPAP consultant, he works nationwide as an expert with appraisers whom the state has charged with license law violations. He is an instructor with the Appraisal Institute and has worked all over the U.S. with various proprietary schools, as well as a community college. The University of St. Thomas in Minneapolis, MN recently awarded him a Master of Science degree in Real Estate Appraisal. Tim’s e-mail address is maitca@bellsouth.net.

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