When a lending institution loses confidence in an appraiser’s work, the bank or AMC will put them on a “do not use” list, also known as a blacklist.
In some cases, this means an appraiser has made a costly mistake. However, some banks are taking blacklisting to an extreme by treating appraisers as guilty until proven innocent without cause or reason why.
If unchallenged, this practice can be devastating because being blacklisted even once can have permanent detrimental effects on an appraiser’s career, income, and reputation.
By engaging in blacklisting lenders are trying to insulate themselves from future risks when doing business with Fannie Mae and Freddie Mac. However, there is no formal review process in place to ensure these “do not use” decisions are justified. In an attempt to prove accountability to these government-sponsored enterprises (GSEs) big banks in particular are demonstrating a repeated and ongoing lack of accountability to the appraisal profession. (more…)
For many appraisers and also some AMCs (appraisal management companies), the only reason they purchase professional liability insurance (E&O) is because a client requires them to show coverage in order to receive work. The fact that some appraisers and AMCs only look at insurance as an “E&O ticket” leads to some unfortunate examples of fraud, which appraisers, firms, AMCs and clients should be aware of.
Before I get to the fakery, however, I’ll explain that our purpose in providing E&O, and also the reason that most of our insureds purchase it, is because E&O first serves the insured by providing a defense for covered professional negligence claims against the insured and, then, if legal damages are established or resolved against the insured, paying those damages for which the insured is liable. A big part of the value in this equation is providing access to knowledgeable, experienced legal counsel in connection with appraisal claims. In other words, E&O insurance exists for the primary benefit of the insured appraiser or AMC.
Outright “Fake” E&O
Nevertheless, the reality is that because (more…)
In helping real estate professionals find the right professional liability (E&O) insurance policy, one of the most common issues we come across is whether someone you hire to help with your intermittent workload is an employee, a subcontractor, or an independent contractor.
The IRS perspective vs. the insurance perspective
This is often confusing because what you intended to do may not be what you actually end up doing. There are a number of reasons for this. First and foremost is the fact the IRS will view this question in a different way than the insurance industry will. So, even if you get solid tax advice about which is which and why, you may find your E&O provider looks at the same situation and reaches a different conclusion.
Next, an errors and omissions provider is not concerned with tax treatment or revenue sharing issues or even with whether someone does or does not share office space with you. E&O providers are only concerned about whether they might have to defend you and pay a loss on a claim even if someone other than you did most of the work on a project. Many people think this cannot happen if the person they give a project to has their own E&O policy (more…)
Does this sound familiar? If so, I hope it’s because you watch a lot of shows like Law & Oder on television and not for any other reason. If this doesn’t sound familiar, it is one part of the Miranda warning police must give to criminal suspects before questioning them. How does that apply to you? Well, it can have equally negative consequences in a civil case (insurance claim) also.
To see if you need to read any further, take this short quiz. If you answer “yes” to any one of these questions, you’d better read it all.
- Do you have your own LinkedIn page?
- Do you post any comments in a LinkedIn group related to your profession?
- Do you have a Facebook page or have you “liked” any pages related to your profession?
- Do you post any comments on Facebook related to your profession?
- Do you have a Twitter account?
- Do you ever tweet about your profession?
- Do you ever exchange emails about your profession with any friends? (more…)
On December 2, 2013, three law firms in Florida, Washington and Colorado teamed together to file a class action complaint on behalf of real estate agents and others allegedly owed unpaid fees for broker price opinions ordered by BrokerPriceOpinion.com. The complaint also names three-related companies First Valuation, LLC, First Valuation Services, LLC, and First Valuation Technology, LLC as defendants on the basis that they are “alter egos” of BrokerPriceOpinion.com and do not have true corporate separateness in their operation. The lawsuit was filed in federal court in Colorado, where the defendants are based.
The named plaintiff in the lawsuit is Kathy Wornicki, a Florida real estate agent, who alleges that she is owed $880 for 29 (more…)
First, it is gratifying to know you are actually reading what we write and release. We know this is true because a little over a year ago, we received very few questions about subpoenas and today, after writing a little warning piece on the now infamous FDIC subpoenas being issued to appraisers by a private law firm, we get lots of questions. In fact, we get so many we decided to put together a short follow-up piece on different kinds of subpoenas and how to handle them. These are presented in ascending order of concern with the final one being the most dangerous. All are court orders and none of them can simply be ignored…unless you also want to learn about motions to compel and sanctions.
1. Fact witness subpoenas (aka subpoena ad testificandum):
This subpoena is issued to request you to appear as a fact witness at either a deposition or a trial. As long as you are only being asked to deliver testimony about factual issues, there is no reason to get your (more…)
Last Thursday, November 14, Navigators Insurance Company sued two more appraisers to enforce “regulatory claims” exclusions in the E&O policies they purchased. These appraisers are in Nevada. Like the appraiser sued by Navigators in Florida on November 6, the Nevada appraisers are being sued by the FDIC for professional negligence in cases filed about a year ago. The objective of Navigators’ lawsuits is to seek court confirmation of Navigators’ legal position that there is no coverage under Navigators’ policy for damages awarded against the appraisers to the FDIC, which is demanding about $500,000 from each appraiser, or any coverage for attorneys’ fees and costs to defend the cases beyond $100,000. The FDIC’s lawsuits against the Nevada appraisers are both scheduled to be ready for trial in December; as a result, the appraisers now each have two lawsuits they must defend: the FDIC’s case and Navigators’ case regarding the insurance coverage. One of the latest lawsuits can be found at this link on www.appraiserlaw.com. Accompanying the lawsuit as an exhibit is the appraiser’s E&O policy from the Navigators program with the exclusion.
Navigators’ lawsuits to deny the appraisers coverage again relate to (more…)
“I was just asked by an AMC to get a background check. Do I have to comply?”
As risk management advisors for Appraisers and Inspectors, this is one of the questions we hear over and over again.
Let’s face it — appraisal fees are lower than ever before. Essentially, AMCs are asking you to do the same amount of work for less pay. In some cases, they’re even asking you to do more work. Does it make sense then that you have to get a background check in order to work for a specific AMC?
Unfortunately, the increased costs associated with getting a background check are not the only problem Appraisers face. Other concerns include identity theft, hassle, and fees that are simply unfair.
- Identity Theft - Think about the information included in your background check — your name, address, date of birth, social security number — precisely the information needed for identity theft. The AMC, banks, loan officers and others will have access to this information. If that doesn’t scare you, (more…)
On September 5, 2013, in a professional negligence case against two Colorado appraisers by the FDIC, a federal court ruled on an issue concerning USPAP confidentiality. It was a simple issue, but it’s one of the very few court decisions relating to USPAP’s poorly written confidentiality rule (this previous post here explains why the rule is poorly written). This is the rule:
An appraiser must not disclose: (1) confidential information; or (2) assignment results to anyone other than: the client; persons specifically authorized by the client; state appraiser regulatory agencies; third parties as may be authorized by due process of law; or a duly authorized professional peer review committee …
The question for the court was: in response to a discovery demand in the case, did one of the defendant appraisers have to handover appraisals of the same property that were for different clients and unrelated to the loan at issue despite the confidentiality rule in USPAP? The court’s answer was (more…)
I recently read a summary of an interview of James Gorman, CEO of Morgan Stanley. When Gorman was asked about the chances of another financial crisis like the one we had 5 years ago occurring, he replied that “the probability of it happening again in our lifetime is as close to zero as I could imagine”. To this statement, my reply is quite simply “bull—-!”
Here are the reasons why another financial crisis can happen in the next few years.
1. Government and personal debt remain at unsustainable levels.
2. The US budget is still not balanced.
3. Due to 1 & 2, interest rates must go up. (more…)
Current AMC Bond Requirements
Are AMC Bonds Working?
Many appraisers don’t know about or don’t understand the new FDIC and “regulatory agency” exclusions found in many appraiser E&O policies. Why is it relevant to know if your policy has an FDIC or regulatory agency exclusion of some sort? The main reason is because the FDIC sues appraisers for professional negligence — such lawsuits are discussed in prior posts: here and here.
How do you determine if a policy being offered to you contains an FDIC exclusion? First, no policy sold by LIA in its appraiser E&O program contains any FDIC or similar regulatory agency exclusion. If you are not purchasing E&O insurance in LIA’s program, what you need to look for are the common exclusions shown below. When they apply to a policy, these exclusions are usually added as endorsements, typically at the end of an appraiser’s policy.
Navigators Insurance Company
The following exclusion is applied as an endorsement to (more…)
We often receive calls from appraisers who have been blacklisted by a lender they do no direct appraisal work for. Typically, the story is the same. They are being dropped from an AMC panel that has given them a lot of business because the AMC found out one of the bigger secondary market loan buyers/lenders has blacklisted the appraiser. This is a lender they do not work for and/or haven’t done any work for in years. The blacklisting is based on some alleged issue with an appraisal done for another client and usually involves a review of the old appraisal by staff from the lender issuing the blacklist notice. Because the AMC fears a new appraisal done today for any lender might someday end up being sold to the lender that issued the blacklist, the AMC just drops the appraiser to avoid the potential problem.
Many times the alleged appraisal (more…)
Why You Should Keep Your Workfile for 7 to 8 Years
In 2013, many lawsuits against both residential and commercial appraisers continue to relate to appraisals performed years ago at the peak of the real estate price bubble, 2005 to mid-2008. These lawsuits are filed by borrowers, lenders, investors or the FDIC and typically allege that an appraiser’s inflated value resulted in the plaintiff borrowing, paying or loaning too much money. The plaintiff blames its loss on the appraiser and sues for damages.
When reporting a claim like this to our office, one of the most common questions a defendant appraiser will ask us is about the applicable statute of limitations. The question is usually something like: “I did the appraisal in 2005, more than five years ago. I threw out the workfile because USPAP only requires me to keep files for five years. Won’t the lawsuit be dismissed based on the statute of limitations?” The answer to that question is almost always “probably not.”
The purpose of this Claim Alert is to clear up misconceptions that appraisers read and hear regarding statutes of limitations and to advise appraisers about the importance of retaining workfiles well beyond USPAP’s bare minimum recordkeeping requirement. A good workfile is the appraiser’s defense tool kit when a claim comes in. Without that workfile in hand, the appraiser’s defense counsel will usually be hampered in his or her ability to defend a claim. Our advice on this issue is simple: keep your workfile for seven to eight years (unless a longer period is required under USPAP’s special requirement for assignments where the appraiser has provided testimony). The discussion that follows should help you understand why. (more…)
According to the Appraisal Institute’s recently published 2013 Real Estate Appraisal Outlook, U.S. appraisers anticipate that litigation valuation/forensic appraisals will be one of the top five areas of growth in the next one to two years in both commercial and residential appraisal. Indeed, approximately 33% of surveyed commercial appraisers anticipate more demand from law firms and lawyers in the near future, with 24% of those surveyed expecting an increase in valuation consultation and studies in support of litigation. The appraisers’ prediction may be spot on the money as at least one U.S. municipality has begun to implement a plan to seize hundreds of underwater mortgages through its power of eminent domain, potentially paving the way for a steady demand of litigation-related appraisals.
At the end of July 2013, Richmond, California became the first city in the country to proceed with a plan to write down the value of underwater mortgages, transferring most of the value (more…)