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Category Archives: Mortgage Field Chatter

Fighting Appraisal Board Complaints

by David Brauner, Senior Broker, OREP
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.
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.

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.

Consulting Services
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.
Related Stories
Beware of Consent Decrees

Victory for Customary and Reasonable Fees in Louisiana

by Isaac Peck, Associate Editor
There is some very good news for appraisers regarding fulfillment of the promise of customary and reasonable fees, as envisioned by the framers of Dodd-Frank. For now, the good news extends only as far as the borders of the state of Louisiana but new legislation has the potential to change the rules of the game nationwide.

As most appraisers know, the concept of “Customary and Reasonable” appraisal fees was written into Dodd-Frank legislation, only to be neutered by the Interim Final Rule, which interpreted the concept of customary and reasonable (C&R) as the lowest fee an appraisal management company (AMC) can persuade an appraiser to accept (find link to related story below). With the passage of new regulations, low-fee bidding, in Louisiana at least, may be a thing of the past.

Louisiana is not the first state to pass AMC regulation that addresses C&R fees, but it is the first to empower its Real Estate and Appraisal Board to determine whether a fee meets the C&R threshold and if not, to sanction the offending AMC. While it remains to be seen if other states will follow, the latest regulations passed in Louisiana should be of interest to appraisers nationwide.

How It Works
Joseph Mier, SRA and an Louisiana appraiser over 20 years, has been actively involved with industry partners such as the Louisiana Home Builders Association, Louisiana Realtors Association, Louisiana Banker’s Association, and the Real Estate Board, to craft the new AMC rules that passed in November of last year. Mier says that complaints have already been filed reporting AMCs for not paying C&R fees. “Appraisers have been notifying the Real Estate Board when they find a company they feel is not paying a customary and reasonable fee. For example, when a firm offers $200 for a full 1004 UAD appraisal, and then, when questioned about it by an appraiser for being too low, just sends the order to a different appraiser,” says Mier.

The Executive Director of the Louisiana Real Estate Board, Bruce Unangst, previously a Market-Area President for a Louisiana based bank, confirmed that the Board is currently investigating several complaints relating to C&R fees. “I can’t comment on the complaints we have received because they are not public record and we may find that no wrongdoing has occurred. However, I suspect you will see some enforcement actions relating to C&R fees over the coming year,” says Unangst.

When someone reports an AMC to the State Board for not paying a C&R fee, the Board contacts the AMC to inquire how its fees are determined. “The first thing we do when we receive a complaint,” said Unangst, “is to write the AMC stating the allegations against them and giving them a timeframe to respond. Once we get all the facts, we can determine whether we need to audit their activities, inspect their records, or take other actions such as fines or license suspension or revocation.” According to Unangst, the Board has the authority to fine AMCs up to $5,000 per violation and up to $50,000 aggregate per year.

Unangst says that the Board is doing its best to educate AMCs about what the requirements are. “We did not pass these rules to be punitive and our goal is voluntary compliance. With that said, these rules do give us the tools we need. If we have an AMC that would seek to gain unfair competitive advantage by not paying C&R fees, we plan to take enforcement action,” says Unangst.

In addition to empowering the state board to enforce C&R fee requirements, the new Louisiana AMC regulations have also empowered the board to conduct “full or partial compliance audits…to determine compliance with all provisions of applicable law and rules.” This provision is meant to assist the Board in conducting investigations and ensuring AMC compliance.

Fee Survey Said
Just like under Dodd-Frank, AMCs may choose between two presumptions of compliance. The first presumption, clarified in the Louisiana legislation, is “Evidence for such fees may be established by objective third-party information such as government agency fee schedules, academic studies, and independent private sector surveys. Fee studies shall exclude assignments ordered by appraisal management companies.”

To assist in the determination of what constitutes a C&R fee, a statewide survey was conducted by the Southeastern Louisiana University Business Research Center (SLUBRC). The survey focused on fees being paid by banks, not AMCs, to determine the C&R fees for specific assignments in specific areas. The survey also included appraiser input for comparison, based on their work with banks and other non-AMC clients. The table below represents the median appraisal fee reported in the survey paid by banks directly to appraisers. (Read the complete fee survey report here.)

*n represents the number of orders surveyed.

The result, in many cases, is that AMCs are simply using the fees from the statewide survey conducted by the SLUBRC. “A lot of very reputable AMCs are now paying the fees outlined in the survey and we have had AMCs change their fee structure to be in compliance,” said Mier. “I really think AMCs want to do the right thing now, but they are also under pressure because they don’t want to tell the bank that they need to pay more than they’ve been paying because they fear the bank will go elsewhere.”

Under the second presumption of compliance, AMCs have an option of not using a third-party fee survey, but they must then provide extensive documentation and justification for paying fees other than those supported in the surveys. Unangst reiterates that the fee survey is not a mandated fee schedule. “The survey was done because one of the complaints that many out-of-state AMCs had was that there is nothing out there giving them an indication of what C&R fees are in our state. Our rules simply state that if an AMC chooses to establish C&R fees that are not based on an independent fee study, they can as long as they verify certain quality provisions. There are six factors an AMC must consider in determining C&R fees under the second presumption of compliance. These conditions are required at the federal level and we simply wrote them into our state law,” says Unangst.

How It Began
According to Mier, the momentum for the new rules began in 2012, as many AMCs were rapidly entering the appraisal market with few regulations on how they should be conducting business. “It was a free-for-all and no one was following Dodd-Frank, so a group of fee appraisers approached our Real Estate and Appraisers Boards in Louisiana and asked them to take a look at what was going on,” says Mier.

Mier says that what started as a dialogue between fee appraisers frustrated with what was happening in the appraisal industry, soon became a statewide discussion that involved real estate professionals from many different fields. Mier describes how he and other fee appraisers began reaching out to not only the Louisiana Appraisers Board, but also to the state’s Realtors Association, Home Builders Association, and Bankers Association. “We told them ‘Look, this is hurting our industry as a whole because low fees are causing geographic competency to be compromised.’ AMCs are just looking for the cheapest appraisal fee in general, regardless of geographic competency. And one of the problems we recognize is that there were no policies in place to enforce the provisions of Dodd-Frank,” says Mier.

Louisiana appraisers found common allies among Realtors, bankers, and home builders, each of whom has an interest in quality appraisals that are compliant with federal laws. “We called in the other associations and partners in our industry. None of us were happy with the way some AMCs were doing business in the state. Realtors and builders were not happy with the way appraisals were being ordered because they had appraisers coming into their market who weren’t geographically competent,” says Mier.

According to Unangst, the issue of low appraiser fees was one that adversely affected appraisal quality. “I read an article in Working RE a few months ago regarding low-bid appraisal ordering and that’s exactly what we were dealing with here in Louisiana. Speaking strictly in terms of residential appraisals, what we saw happening was that more experienced appraisers, who weren’t dependent on AMCs, were declining assignments when they felt they couldn’t do an adequate quality job for the fee being offered. So the bottom 20 percent of appraisers in terms of experience, quality, and geographic competence were getting a lot of the residential work and it resulted in a lower quality product. Some AMC’s argue that price has no bearing on quality. However, our experience in Louisiana, working with the Banker’s Association and Realtor’s Association, is that price does have a significant impact. We were getting appraisers who lacked geographic competency, experience, and didn’t put time into doing quality appraisals,” says Unangst.

Passing the Legislation
Along with Realtors, bankers, and home builders, the Appraisal Institute was also very supportive and actively involved in helping to draft proposed rules to present to the legislative branch in Louisiana, Mier says. “The state took a really hard look at Dodd-Frank with help from the Appraisal Institute. Most of our proposed rules were already in Dodd-Frank. Obviously we had some pushback from the Real Estate Valuation Advocacy Association (REVAA) but we persisted and got the legislation through and it was signed by Governor Jindal,” says Mier.

Mier explains that once the rules were agreed upon, there was a need to implement enforcement mechanisms to ensure statewide compliance. “Our regulations allow the Real Estate Board to implement a process that will be followed if AMCs don’t comply with the law. That’s been the missing key of everything. Dodd-Frank is out there but there was no way to enforce it. The Louisiana law allows for our State Board to enforce the C&R requirement directly by sanctioning AMCs that fail to comply. Dodd-Frank states that appraisers must be geographically competent and the AMC must pay a C&R fee for the area and the type of the assignment, and now our state has been empowered to enforce these requirements,” says Mier.

AMC Perspective

Throughout the drafting, and eventual passage of Louisiana’s AMC regulations, REVAA has actively participated in crafting the legislation according to Don Kelly, Executive Director.

However, REVAA opposes several parts of the regulations that were eventually passed into law and currently holds the position that the Louisiana’s State Board does not have the authority to act on its own to determine C&R fees. “We disagree that the Board can enforce their own version of what C&R fees are. We think it is illegal for a state to enforce federal law. Our understanding of the C&R provisions of the Truth in Lending Act (TILA) is that a Board has the authority to sanction an AMC only after the AMC is found to be in violation of the C&R Fee requirement. That finding can come through the state Attorney General or through a federal agency action, but cannot come directly from the Board,” says Kelly.

Kelly says that the regulations create unnecessary confusion and additional bureaucracy. “It ultimately leads to inconsistent standards. The Louisiana Board is applying its version of C&R fees and then we have federal C&R requirements, based on the presumptions that are articulated in the Interim Final Rule. Ultimately the cost of doing business will go up. The more regulations, the more it costs to ensure compliance. Banks aren’t typically the ones who pay these costs. Who pays? The consumer often pays. In this case, we just don’t think that added regulations are justified,” argues Kelly.

REVAA also objects to the idea that the State Board can audit AMCs or mandate timely payments on the grounds that the board lacks authority over these issues as well. Louisiana’s Licensing and Registration Act, passed in 2010, forbids AMCs from “withholding timely payment for an appraisal.” “We don’t think they have jurisdiction to audit AMCs. They are also trying to dictate when AMCs should pay appraisers and we can’t find any statutory authority for them to do that,” says Kelly.

Kelly makes it clear that despite its opposition to parts of Louisiana’s AMC legislation, REVAA is committed to paying C&R fees. “REVAA companies (members include Clear Capital, CoreLogic, DataQuick, and ServiceLink) pay and will pay C&R fees to the appraisers that we engage. The problem is that because Louisiana wants to strike their own C&R rates, it will be a state that is different than all the other states. I believe, and our members believe, that appraisers absolutely deserve to be paid C&R fees. That is the law of the land throughout the country. But fees are set by the marketplace and if the Louisiana Board comes in and sets a fee, I don’t know that the appraisers, or AMCs, or anyone else involved can be sure that those fees are going to be C&R,” says Kelly.

According to Kelly, REVAA plans to address the Louisiana State Legislature in spring 2014 and encourage it to reopen this issue. REVAA plans to continue advocating that Louisiana’s State Board lacks the authority to determine C&R fees and is hoping to convince state legislators to reconsider the current language in the AMC regulations.

Going Forward
With REVAA planning to push for revisions to the current AMC legislation, appraisers in Louisiana are preparing to push back and defend their hard-won victory. According to Mier, REVAA and other AMCs have had attorneys at every Board meeting and committee hearing about this issue. “They recently had a committee hearing to discuss whether or not the state has the right to enforce these rules. Attorneys representing the AMCs showed up in full force. But we also had dozens of fee appraisers, home builders, Realtors, and consumers show up to that committee hearing and we filled the room! They decided not to go ahead with the meeting because there was such a large representation of people against their position,” says Mier.

Mier says that the argument coming from the AMC industry is that fees should all be market based. This argument only works based on the presumption that there is a fair playing field, he adds. “There isn’t a fair playing field because there are major banks that own some of the AMCs. They’re charging the consumer what would be a C&R fee for an appraisal and then telling the appraiser ‘this is going to be your fee, take it or leave it,’ so the appraiser takes the fee under duress, afraid they won’t get any more work if they don’t accept the fee,” says Mier.

In response to the position of many AMCs who believe that state boards don’t have the right to enforce federal rules, Mier believes that this is what the Federal government intends. “Our state board is simply trying to follow federal law,” Mier says. “I think that’s what the Feds intend. They want states to take it into their own hands. What the state has done, with the help of the Appraisal Institute, is to help all of us stand up on the same platform, voice our concerns and put some things in force. REVAA says states don’t have any right to do that. Well then, who is going to do it?”

Unangst rebuts REVAA’s position that the Board lacks authority to enforce the new rules. “We have absolute confidence that we are legally within our power under Dodd-Frank to do what we are doing. Dodd-Frank mandates that states license and regulate AMCs. The opposing viewpoint is that C&R fee provisions under TILA must be enforced by federal regulators. However, we are not enforcing or trying to enforce TILA or federal law. We are enforcing our own state law,” says Unangst.

According to Mier, the fight taking place in Louisiana offers a lesson for appraisers across the country. “Appraisers need to look up from their monitors for a moment and pay attention to what’s happening in their industry and become active in protecting the consumer. First and foremost, we are protecting consumers on the biggest investment of their lives. By doing that, we need to pay attention to what’s happening in our industry and be prepared to voice our opinion as one group wherever you’re located. We can make a difference, but we have to step back from our monitors, talk to our peers and get involved in our industry,” says Mier.

When asked what advice he can offer to appraisers in other states who want to enact similar legislation, Mier says that appraisers should start by reaching out to others in their industry. “The first discussion that needs to happen is with your partners in your industry, Realtors, home builders and bankers. They are having the same problems and issues as appraisers, they want to be in compliance, they want to help the consumer purchase their home, they want to help the Realtor sell the house, the builder build the house, and the banker make the loan. It takes all four of these parties to voice their opinion and desire to change what’s going on in this industry,” Mier says.

Mier also urges appraisers to join an industry association. “Join somebody who’s out there doing something for you. It costs less than a dollar a day to join most appraiser organizations. If you don’t have the time to be at meetings trying to make our industry a place that protects quality working conditions and compliance on your behalf,” argues Mier.

Mier says that he is sure that the new regulations are going to be challenged by REVAA and other AMCs. “We are prepared for that and we are ready to address those items when presented. They are going to have to introduce a substantial reason why this should be changed or repealed, and that is going to be difficult to do as the state is just following federal law.”

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.

Positive Resolution to Chase Blacklisting Saga

by Isaac Peck, Associate Editor
Editor’s Note: Nearly two years have passed since Working RE first reported the story of John Dingeman, an appraiser who faced the difficult choice of either violating USPAP’s Confidentiality Section or suffering the wrath of JP Morgan Chase by refusing. Finally, this holiday season, there is some good news to share.
You may recall Dingeman’s story: Chase, one of the largest and most influential banks in the country, was not the original client on the appraisal in question. Despite the Uniform Standards of Professional Appraisal Practice’s (USPAP) confidentiality requirements, Chase demanded that Dingeman respond to its requests or else. Dingeman chose to stand his ground and follow USPAP. His decision cost him dearly. Finally, this holiday season, there is some good news to share.

In March 2012, Dingeman refused Chase’s initial request to discuss an appraisal with the bank because of the Confidentiality Section of USPAP. Immediately following his refusal, Dingeman was placed on Chase’s Ineligible Appraiser List. Chase then filed a complaint against Dingeman with the Arizona Board of Appraisal. The complaint was promptly dismissed and found to be without merit.

As Working RE reported, Chase responded by challenging the mainstream interpretation of USPAP, arguing that whenever a client sells a loan, the transfer constitutes authorization for the appraiser to discuss the confidential aspects of the appraisal with whoever purchases the loan. What happened next shocked many in the industry. After deciding to follow USPAP, Dingeman was not only placed on Chase’s blacklist, but also on the U.S. Department of Agriculture’s (USDA) national blacklist, since Chase underwrites USDA loans. This type of action can all but put an appraiser out of business.

The good news? After battling for over a year, Dingeman recently learned that he has been removed from Chase’s “Ineligible Appraiser List.” He’ll be the first to tell you that it didn’t happen without a fight.

OCC Contacts Chase
Shortly after being placed on Chase’s blacklist, Dingeman filed several complaints with the Consumer Financial Protection Bureau (CFPB) and the Office of the Comptroller of the Currency (OCC), only to have the OCC dismiss his complaint and the CFPB decline to take action against Chase.

Over a year after the OCC initially dismissed his complaint, Dingeman reports that the OCC sent him a letter, dated August 8, 2013, indicating that “based on OCC discussions with Chase, you are no longer on this [Ineligible Appraiser] list.” After calling around to both local and national appraisal management companies (AMCs), Dingeman confirmed he was removed from the list. He says he checked with several AMCs who update their appraiser lists regularly and they confirmed that on August 7, 2013 he was on Chase’s ineligible appraiser list and the next day, on August 8, he was not.

While Dingeman can’t be sure what prompted Chase’s reversal, the timeline suggests that a follow-up call from the OCC may have caused the bank to finally remove Dingeman from the blacklist. The disappointing reality for Dingeman is that it took the OCC over a year to take action.

Chase Responds
Wanting Chase to confirm in writing that he was removed from the blacklist, Dingeman had his lawyer contact the bank and request a statement regarding his eligibility to perform appraisals for them. In its response to Dingeman, the bank denied all wrongdoing and said, “In the interest of avoiding further expense to the parties and to bring about closure to this matter, we can confirm that as of the date of this letter John Dingeman is not on the list of appraisers ineligible to receive Chase appraisal assignments.”

Chase’s Case, TAF and USPAP
In their responses to Dingeman’s complaints with the OCC and the CFPB, Chase insisted that the sale of the loan constitutes authorization for the appraiser to discuss with them the confidential portions of the appraisal report, even though they were not listed as the client originally. Chase argued that because they were assigned the loan, the report is no longer “confidential” to them.

In an earlier story, Working RE reported that Dingeman cited FAQ 69 of the 2012-2013 edition of USPAP which indicates that there is no provision for terminating appraiser-client confidentiality the way that Chase suggests. Through further research, Dingeman discovered that The Appraisal Foundation (TAF) had addressed this exact issue in a Brochure titled Appraisers, Appraisals & You, A Lender’s Guide to USPAP.

TAF’s interpretation in the Q&A below, taken from the Brochure, leaves little room for misunderstanding:

(Question) I have a copy of an appraisal performed for another client. I would like to ask the appraiser some questions about this appraisal. Does USPAP prohibit the appraiser from discussing the appraisal with me?

(Answer) Yes. USPAP prohibits the appraiser from communicating assignment results or confidential information (both, as defined in USPAP) to anyone other than the client and parties specifically authorized by the client (with the exception of those authorized by due process of law, state appraiser regulatory agencies, and a duly authorized professional peer review committee under certain conditions). Even if you were identified as an intended user in the original appraisal report, you are not part of the appraiser-client relationship. Therefore, authorization from the client would be needed if you wanted to discuss assignment results or confidential information with the appraiser.

Without an agreement between the appraiser and the original client allowing the release of the information pertaining to the assignment, the appraiser is prohibited from communicating assignment results which include the appraiser’s opinions, assumptions, conclusions, the value conclusion or any confidential information as defined in USPAP. The appraiser may confirm that he or she performed an appraisal on the subject property, unless he or she was contractually obligated with the original client not to make such a disclosure.

This statement by TAF, in a document specifically addressed to Lenders to explain the meaning and intent of USPAP, seems to directly contradict Chase’s interpretation of USPAP.

Lessons Learned
One of the lessons for Dingeman, and perhaps for appraisers everywhere, is that getting the attention of regulators is not easy or automatic. “I’m very fortunate to have been removed from the list, when many appraisers in the same situation have not been, but it requires hard work,” Dingeman says. It is bittersweet for Dingeman that the OCC, who originally dismissed his complaint with no explanation, was quite possibly the agency that prompted Chase to remove him from the list, after languishing on it for more than a year.

Placement on a blacklist can seriously damage an appraiser’s career, Dingeman says. “I’m still removed from certain AMC panels and it can be hard to get back on them. Certain AMCs have had to go back into their systems and pull a new query before they reinstate me. Even then, the market is slower, so they don’t need more appraisers on the panel right now.”

In the process, Dingeman says he has diversified his practice to include non-lender assignments, consulting, and appraisal instruction. “I have spent an enormous amount of time familiarizing myself with guidelines and regulations within the industry. All of which have afforded me the opportunity to serve my peers as Vice-President and now President of the Coalition of Arizona Appraisers and on the Government Affairs Committee for the National Association of Appraisers. My advice to any appraiser is to continue to learn, branch out into different disciplines, and be professional in your day-to-day business,” says Dingeman.

At the end of the day, Dingeman is grateful to be off the blacklist. He says removal from the list and the Arizona Board of Appraisal’s dismissal of Chase’s complaint against him are final vindication that the original appraisal in question was fully compliant with USPAP.

2014-2015 USPAP
Julie Friess, SRA is an Arizona appraiser and USPAP instructor who says that the 2014-2015 USPAP training materials place an added emphasis on the Confidentiality Section of USPAP. “There is a whole section in the new 2014-2015 USPAP instructor training class regarding the responsibility of confidentiality that appraisers have to their clients. In the very beginning of the new 2014-2015 USPAP, they redefine assignment results with the purpose of communicating that USPAP’s Confidentiality clause includes more than just the appraiser’s opinion of value. Instead of the focus being on the value, the focus is now also on the appraiser’s opinion and conclusions. An appraiser develops an entire analysis of a market and how comparable sales are related to the subject property and that analysis is also confidential and falls under the definition of assignment results. The class also reiterates that the Ethics Rule prohibits discussing the assignment results with anyone other than the parties outlined therein,” says Friess.

While the added clarification is certainly a positive, Friess isn’t sure it is necessary. “I think it should have been very clear before the new changes to USPAP, there are so many USPAP FAQs and Lender’s Guides that have already clarified this point. It’s also interesting that Chase has a clause in their engagement letters that says the appraiser is not to discuss the assignment results with anyone but them. So they expect exclusivity and to have all of their information kept confidential, but they want people to bend the rules for them.”

As far as what lenders intend to do to address this issue, Friess says that some potential solutions are being considered. “I’ve been in meetings where it was proposed for lenders to have it in their engagement letters that if the loan is sold, the purchaser would automatically become the new client, but I don’t think anyone has adopted this practice yet. A potential problem with this is that it might put the appraiser on the hook to have to answer questions to a ‘client’ many, many years down the road.”

Union Busts Chase
Dingeman’s case attracted attention from many appraisers and appraiser organizations alike. The American Guild of Appraisers (AGA) took a special interest because Dingeman is a member of the Guild. The AGA is registered under the Office and Professional Employees International Union (OPEIU), which is chartered under the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO). The AFL-CIO is the largest and most powerful union in the United States, with over 12 million members.

When Dingeman was first placed on Chase’s blacklist in 2012, the AGA leveraged its position as a member of the OPEIU/AFL-CIO, to engage representatives who were responsible for managing the union’s relationship with Chase. At the time, Chase had Union Privilege Status with the AFL-CIO, making it a preferred vendor, allowing members to enjoy preferred deals on Chase credit cards, mortgage services, car loans, and other banking services, and driving significant business to the lender.

Peter Vidi, President of AGA, says he was actively involved in pressing for a resolution of Dingeman’s case. He says that after the AGA took up the issue with the Union Privilege representatives, a dialogue about Chase’s treatment of Dingeman began. The fact that Chase was blacklisting a union member, and not being forthcoming about it, gave the Union Privilege representatives good cause to request an explanation from Chase, according to Vidi. Vidi says that the Union representatives were displeased with the way Chase was handling the situation.

Shortly after, Chase’s Union Privilege status with the AFL-CIO was revoked. While Vidi notes that there were a variety of factors that came into play regarding the union’s decision to revoke Chase’s Union Privilege status, the bank’s treatment of Dingeman was certainly “another nail in the coffin.” The monetary benefit to Chase as a preferred vendor to the union is difficult to estimate but Vidi says he’s certain that if Chase had a choice, it would rather not lose the business of such a powerful organization.

Vidi says this is an example of the benefits that an appraiser union can bring. “This is a clear demonstration of the actions that our group takes on behalf of our union members. That’s the way a union works, if one of the members is mistreated, the union goes to bat for them,” says Vidi.

“Low Bid” Appraisal: AMC Rebuttal

by George R. Mann, CRE, FRICS, MAI
Editor’s Note: You may be interested to hear what (at least one) Appraisal Management Company (AMC) thinks about the effect of low-bid appraisal ordering on quality, the topic of last issue’s News Edition (Low Bid Appraisal Ordering and Its Effect on Quality). Appraiser George Mann posted the following comments to his blog. Given all that we hear about the overall low quality of appraisals, his response and rational for “low bid” ordering might surprise you.
December 9, 2013 – Post No. 34 – Some of you may have seen a recent article by Isaac Peck, Associate Editor of Working RE. His article was titled Low Bid Appraisal Ordering and Its Effect on Quality.

This is a well-written article and obviously presented some factual situations. However, as a review appraiser for almost 22 years, I feel obliged to present the other side of the coin. I have overseen the order and review of about 15,000 appraisal reports over the years. Whether I was an employee of a bank or acting as their Agent, I was/am essentially an AMC. We do the same thing whether we are employees or hired companies/contractors.

Some facts based on what I have seen over the past two decades:
1. Around 90% of appraisal assignments are awarded to the low bidder.
2. The vast majority of assignments, whether awarded to the low bidder or not, are acceptable.

Therefore, awarding to the low bidder should not adversely affect the quality of appraisals over the long run.

All of the good appraisers out there need to realize that almost every assignment they have won is because they were the low bidder! I doubt they would say their work product was inferior for all of those assignments.

Let me provide some actual numbers from the past few months of awarding assignments in a specific market for a specific client. Amazingly, all of these appraisals have been reviewed and accepted without any significant revisions. All of them were awarded to the low bidders.

In October, we awarded 31 appraisals with fees totaling $77,600. If we had the philosophy that all low bids would result in poor quality appraisals and we went with the second lowest bids (who is to say all of them would result in better products?), the fees would have totaled $99,900! What kind of service would we be providing to our client (or employer) if we had them (or really the borrowers) pay $22,300 more for these appraisals that had no assurance of being any better than the low bid reports? That would be the kind of service that would drive you out of business (or fired, if an employee).

I once told an appraiser that we were concerned about engaging him because his fees were so much lower than others in the market. He retorted, quite strongly, as to what right I had to opine about how much money he thought his time was worth! Also, he said there are a lot of bad $5,000 (commercial) appraisal reports out there. You get what you pay for certainly doesn’t hold true in the appraisal arena.

While there is a lot of concern about AMCs saving $50 and getting a poor report that might be off by $50,000 on a house appraisal, this pales in comparison to the errors on the high end. We once had to lower a $500 million appraisal to $400 million. Just because the fee was $50,000 didn’t mean the report was good. How many erroneous residential appraisals are needed to get to this $100 million error for one assignment?

KC Conway, CRE, published a report a few years ago that showed that appraisals on average were in error by about 20% (my personal data over the years shows an average of 22%-23%, albeit my data isn’t a scientific study like Mr. Conway’s). These appraisals probably had fees ranging from around $5,000 to $50,000. There is no guaranty of quality as fees go higher.

One common question I have been asked over the years was why do we go with low bids? There is a logic to this. If we have grouped a set of appraisers that we know are equal in competency, then the major decision maker becomes fee (and time in some situations). As with the 31 appraisals I mentioned above. We know all of the appraisers in this market. We know which appraisers are say Level A or Level B (we don’t go down to the Level C or lower quality appraisers). So when we have them bid we know the competency is about equal and the likelihood of approving their reports is very high. Where is the logic in not going with the low bid?

There will always be those situations like Mr. Peck encountered. Every industry probably has something similar. But, what about the 60% or 70% or 80% or 90% of all appraisals that are done right and selected because they were the low bid. Not enough stories are written about those.

Postscript: Mann owned and operated his own AMC for five years (Collateral Evaluation Services), selling his interest this year. He currently runs the AMC operation for Situs.com. He handles mostly commercial work but orders residential appraisals occasionally and says he finds no difference in the results between commercial and residential. “Even if we ordered mostly residential appraisals say, for a bank’s mortgage company, we would all (commercial AMCs) operate the same way. First, derive a list of quality appraisers. Second, bid to them and the low bid would win 90%+ of the time. And 95%+ of the appraisals would be acceptable on first review. But I get to select only the good appraisers. That is 95 percent of the battle,” Mann says. “As I have told appraisers for a decade or more, you can fire your clients. I have had many tell me later that that was the best advice they ever got.”

About the Author
George Mann is a member of the Counselors of Real Estate (CRE). During his 27-year career, he has been a fee appraiser, assessor, and reviewer. Mr. Mann has overseen the review of 15,000+ commercial appraisals across the USA and in eight foreign countries. His weekly blog can be viewed here.

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