NAR Letter to Regulators Regarding AMC Indemnification Clauses

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NAR Letter to Regulators Regarding AMC Indemnification Clauses

Calling for a ban on the use of indemnification clauses used by AMCs

On August 11, 2011, National Association of REALTORS® (NAR) President Ron Phipps sent a letter to federal regulators calling for a ban on the use of indemnification clauses used by appraisal management companies (AMCs). The letter was sent to Federal Financial Institutions Examination Council (FFIEC), the US Department of Housing and Urban Development, the Federal Housing Finance Agency, and the US Department of Veterans Affairs.

Dear Secretary Donovan, Secretary Shinseki, Chairman Matz, and Acting Director DeMarco:

I am writing on behalf of the 1.1 million members of the National Association of REALTORS® (NAR) to urge you to bar the use of indemnification clauses increasingly being used by appraisal management companies (AMCs). These indemnification clauses are becoming more common in service contracts used to engage AMC appraisers.

The National Association of  REALTORS® is America’s largest trade association, including NAR’s five commercial real estate institutes and its societies and councils. REALTORS® are involved in all aspects of  the residential and commercial real estate industries and belong to one or more of  some 1,400 local associations or boards, and 54 state and territory associations of  REALTORS®. NAR has approximately 30,000 appraiser members from across the country and approximately 750 have earned our Residential Accredited Appraiser (RAA) and General Accredited Appraiser (GAA) designations.

Appraisers provide an independent and impartial analysis of  the market, and a credible opinion of  the value of real property. This analysis is a critical component of the mortgage transaction and, in recent months, has become the subject of unnecessary pressure. The mounting use of  indemnification clauses by AMCs may be interfering with the appraiser’s independence and objectivity. In many cases, appraisers are asked to sign contracts that include language to indemnify and hold harmless the AMC against any suit, threat, or claim on any work product or service provided as part of  the contract agreement. In some instances, the appraiser is even required to indemnify the lender and the AMC for amounts equal to their costs in repurchasing a mortgage loan, regardless of  any proof of culpability on the part of the appraiser. The AMC is free from any legal obligation and the appraiser bears all responsibility. As a result, some appraisers may be less than objective in their analysis, which causes them to be more conservative and report artificially lower values for real property.

NAR strongly supports the independence of appraisers and the appraisal process. Appraisers are often asked to include distressed transactions as comparable sales, to complete the appraisal in an unreasonable and unrealistic short time span, and to comply with a broad scope of  work not supported by the fee paid. In some situations appraisers are required to provide as many as eight comparable sales and/or listings. The practice of passing all liability on to the third party is causing unnecessary pressure on appraisers.

We believe these indemnification clauses pressure the appraiser, compromise their independence, and have a negative effect on the quality of appraisal reports. The increasing use of indemnification clauses by AMCs adds risk for both consumers and lenders, and diminishes the much needed public trust in the appraisal profession.

Thank you for your time and consideration of  this matter. If  you wish to further discuss this please do not hesitate to contact our Senior Regulatory Policy Representative, Jerry Nagy, at 202.383.1233 or j…@realtors.org.

Sincerely,

Ron Phipps, ABR, CRS, GRI, GREEN, e-PRO, SFR
2011 President, National Association of  REALTORS®

Download (PDF, 108KB)

Image credit flickr -Vince
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