Big Banks Blacklisting Appraiser

Brian L. Trotrier

Brian L. Trotrier

Executive Vice President and Chief Operating Officer at FREA
A former practicing attorney with more than 30 years experience in real estate and risk management. The Foundation of Real Estate Associates (FREA) has specialized in providing Errors & Omissions Insurance to appraisers and home inspectors since 1993. As a membership organization with over 6,000 members, FREA is one of the largest and most well respected professional associations in the country, providing E&O Insurance for appraisers and inspectors as well as educational opportunities, member benefits, and legal support.
Brian L. Trotrier

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Big Banks Blacklisting Appraisers

Big Banks Blacklisting: Is there Light at the End of the Tunnel or Is It Just the Train Coming the Other Way?

In September of 2013, Joe Appraiser (not his real name) was notified by one of the big banks that he had been placed on ineligible status due to an incorrect review. Immediately, Joe contacted the bank regarding his placement on the “do not use” list believing this was all a simple mistake. In hopes of reversing his eligibility status, Joe submitted a detailed rebuttal where he provided a line-by-line response to each alleged deficiency in his appraisal report.

In part 1 of our series on blacklisting, we talked about the process Joe Appraiser went through to be reinstated using his FREA Professional membership benefits. After several months of back and forth emails, FREA was able to have Joe removed from the bank’s “do not use” list and reinstated. However, even winning comes at a cost. Joe’s fear of repercussions for even letting us tell his story made it necessary for him to remain anonymous. Plus, while he was on the blacklist, his business dropped by more than 30%.

The high cost of being blacklisted

Joe’s business suffered greatly just because he was blacklisted by a single big bank. Thankfully, before every other bank and AMC followed suit and also dropped Joe, he was able to get reinstated with FREA’s help and the help of attorneys Sanjay Bansal and Todd Stevens.

Here is why being blacklisted could/would have been more disastrous if Joe was not promptly reinstated. The ramifications of being blacklisted extend far beyond receiving appraisal work from just the one bank who drops you. In the case of big banks like the one that dropped Joe, much of the loan volume they do comes from smaller banks, mortgage brokers, and other sources. This means that being on one big bank’s “do not use”/blacklist can mean losing business from many lenders and also mean getting dropped from AMC panels as well.

While the bank in question allegedly provides its “do not use”/blacklist to only those direct lenders it does business with and to secondary market loan sellers it buys from, the bank is aware that its list is broadly circulated. Therefore, any bank that may potentially end up selling a loan to this big bank also cannot use any ineligible appraiser.

Furthermore, since AMCs do not have the capability to sort which lender clients do and do not (or may or may not) sell loans to this big bank, it is far easier for the AMC to just drop any appraiser placed on a blacklist. This creates a trickle-down effect that results in appraisers also being removed from other lenders’ lists, which then essentially crushes an appraiser’s business and professional reputation.

GSE’s apparently do not trust the big banks to handle appraisal quality review…

What is coming next may be even more frightening. Both Fannie Mae and Freddie Mac are now creating their own respective “do not use” lists. This is the result of a combination of factors, the first being the GSE’s apparently do not trust the big banks to handle appraisal quality review well (imagine that) and the second being the GSE’s themselves now have a new appraiser quality monitoring (AQM) system as mandated by new regulations. Yes, this is exactly what it sounds like – both Fannie and Freddie will now have their own blacklists and if you think getting off a bank’s blacklist is tough, you have no idea what you will have to do to get off one of their lists.

As one industry expert observed, “if you get on the do not use list for either Fannie Mae or Freddie Mac, you’d better find another job because your days of being an appraiser just ended.”

If you find yourself on a “do not use” list, no matter the source, attorney Sanjay Bansal suggests getting in touch with FREA or an attorney right away. “A lot of what you do at the outset can have an effect down the line,” Bansal said. “You want to make sure that you don’t waive any of your rights or the processes that might be in place to protect you.”

The appraiser’s right to a timely and meaningful review

While the big bank in question claims to not use the term “blacklisting”, the bank’s own actions suggest that this is precisely what they are doing. Whether it’s due to an honest mistake or due to a bad review, appraisers are regularly being placed on the “do not use” list without any meaningful opportunity to receive a timely and meaningful review. To us, this is the very definition of a blacklist. Like Nathaniel Hawthorne’s Scarlet Letter, being blacklisted can leave a permanent mark. If you are facing a blacklisting situation, attorney Todd F. Stevens suggests creating a paper trail. “Whether it’s by email or letter, you want to have a clear record of the facts,” Stevens said.

FREA advocates for the voluntary adoption of a formal review policy by all banks and GSE’s to ensure the current “do not use” system is operating fairly and transparently. Failing the voluntary adoption of such a policy, FREA believes appraisers need to lobby Congress or one of the many regulatory agencies overseeing the banks and the GSE’s to take action. “Congress would be interested in finding out the abuses that are taking place,” Trotier said. “We don’t believe Congress ever wanted to allow banks to blame or punish appraisers for the real estate market falling apart, but that’s clearly what’s happening.”

As a last resort, it is entirely possible someone like Joe could file a class action lawsuit on behalf of all appraisers who have ended up on a “do not use” list without a chance to appeal and whose business and professional reputation have been damaged. Now, there’s a thought…a class action where appraisers get to be the plaintiffs. Hmmm…kind of makes you smile, doesn’t it?

Brian L. Trotrier

Brian L. Trotrier

A former practicing attorney with more than 30 years experience in real estate and risk management. The Foundation of Real Estate Associates (FREA) has specialized in providing Errors & Omissions Insurance to appraisers and home inspectors since 1993. As a membership organization with over 6,000 members, FREA is one of the largest and most well respected professional associations in the country, providing E&O Insurance for appraisers and inspectors as well as educational opportunities, member benefits, and legal support.

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4 Responses

  1. Retired Appraiser Retired Appraiser says:

    If you guys put 1/1000th of the effort that you put into completing appraisals, keeping up with ever changing regs, complaining about AMCs, getting deblacklisted, and dickering around with AMCs you would be millionaires by now.

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  2. New York Appraiser says:

    Clear Capital, a Chase preferred AMC stoops to a new low. A new low in AMC fees, working for peanuts. a $8,500,000 Condo in NYC for $300 end of story. We asked for an increase explaining that a condo of over eight million needs sufficient detail and that takes up a lot of time, but it was like talking to a wall. The girl that called back hardly spoke English and explained that if we don’t take the $300 fee that order will be cancelled and reassigned. Our banking system is now at a greater risk than ever before and something should get done before its too late.

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    • Retired Appraiser Retired Appraiser says:

      Shhhh…you may alarm the other 90,000 appraisers who are busy grinding out made to order valuations for their masters.

      Do appraisers sing blue’s songs and hymns while having the whip cracked across their backs? Just curious.

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  3. Jeremy Hall Appraisals - Colorado Jeremy Hall Appraisals - Colorado says:

    The GSE master approval list is something to be reckoned with. I’m most concerned they will rely on automated methods to identify variances, and manually orientated appraisers who apply thoughtful individual analysis and adjustments will be the apparent targets. While the automated reliant appraiser who runs with the same thing indefinitely, regardless of the appraisal problem and appraisal scenario, will coast under the radar. The irony is lenders can continue to sell to gse’s, and they get to blame it all on the appraiser.

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