HUD Blacklisting: Guilty Until Proven Innocent
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HUD has been quietly blacklisting appraisers for years without due process
Being on HUD’s FHA Appraiser Panel and performing FHA appraisals is an essential source of work for many appraisers. However, according to a recent legal brief filed by the National Association of Appraisers (NAA), HUD has been quietly blacklisting appraisers for years without due process.
At the center of the case against HUD (U.S. Department of Housing and Urban Development) is Ken Taggart, an appraiser in Penn., who was removed from HUD’s roster in January 2010. Taggart says that his mortgage servicer, GMAC Mortgage, LLC, mistakenly forclosed on his FHA-insured mortgage. Since then, Taggart says HUD blacklisted him without due process to appeal the decision, effectively cutting off FHA work and threatening his livelihood.
Taggart is currently suing HUD and vowing to fight until he is restored to the FHA roster. In addition to clearing his name, he hopes HUD will change its policies to ensure that other appraisers receive due process.
Foreclosure and CAIVRS
Taggart had an FHA-insured mortgage serviced through GMAC Mortgage, LLC. He alleges that GMAC erroneously foreclosed on his property. Taggart says GMAC incorrectly calculated the escrow portion of his payment and also required insurance on the property when he was already carrying insurance. “Ultimately, they tried to raise my payment by $1,200. I disputed their demands under the Real Estate Settlement Procedures Act (RESPA) laws and submitted the correct payments to them. They refused to accept my payments and instead of working with me, they simply filed foreclosure on the property,” says Taggart.
In August 2009, GMAC filed for foreclosure and reported to HUD that Taggart was in default even though he was attempting to make payments, according to Taggart. Then, in January 2010, HUD removed Taggart from its roster with no notice because, according to HUD’s current policies, being in default or having claims submitted against an FHA-insured mortgage disqualifies an appraiser from performing FHA appraisals or being on the FHA Appraisal Roster.
Here’s why: one of the requirements for being on the FHA Appraisal Roster is that the appraiser not be listed in HUD’s Credit Alert Verification Reporting System (CAIVRS). CAIVRS is a shared database of federal debtors who are “in default or have had claims paid on direct or guaranteed federal loans.” In simple terms, if an appraiser experiences financial hardship and defaults on an FHA loan, that appraiser is not eligible to perform any FHA appraisals.
Taggart says the CAIVRS list also needs to be looked at. “HUD’s assertion is that people who are delinquent on their mortgage are not trustworthy to perform FHA appraisals. But what about the guy who is in default on a conventional mortgage? A lot of appraisers out there were forced into default after the real estate crash. HUD will tell you most foreclosures are due to social issues like divorce, illness, or loss of work. Most foreclosures are not because the owner is irresponsible,” says Taggart. “I’ve done close to 15,000 appraisals with no complaints but now they’re telling me because of an alleged default on an FHA loan that I am ineligible.”
In an update on this story, Taggart now says that GMAC has recently withdrawn the foreclosure case against him.
HUD’s Hearing- Dubious Due Process
During his legal battles with HUD, another interesting fact came to light: the agency was not following its own guidelines by failing to offer appraisers a rebuttal process. HUD admits that between 2001, when the guidelines were enacted and 2012, when Taggart blew the whistle, HUD was failing to notify appraisers of their removal from the FHA panel. It was only after Taggart began fighting his removal from the panel that HUD began following its own guidelines, which state that an appraiser contesting his or her panel removal is entitled to an “Informal Conference,” where the appeal is heard by a HUD administrator who then decides the appraiser’s fate.
After he sued HUD for removing him without due process, HUD reinstated him briefly to allow him an informal hearing to defend his position. “I was the first appraiser who ever received an informal conference. They didn’t even know what their own procedures were because they had never held one before,” says Taggart.
In 2012, HUD held an informal conference where Taggart presented his case in front of a HUD designee. “At the conference, they have a HUD designee act as the judge, jury, and executioner,” reports Taggart.
At the heart of Taggart’s legal case, however, is that this “informal conference” does not rise to the level of due process. “My lawsuit contests that the informal conference is a violation of an appraiser’s due process rights because an appraiser should at least be given a formal hearing where they can call witnesses, subpoena evidence, and have a process of discovery and cross-examination, as well as having an independent judge,” says Taggart. “Due process requires an impartial party to decide a case and HUD is not an impartial party.”
HUD argues that Taggart received due process, emphasizing the importance of them having an efficient procedure for removing appraisers who do not meet HUD’s eligibility requirements or who perform poorly. The Honorable J. William Ditter, Jr., presiding over Taggart’s original case in the Eastern District of Pennsylvania, wrote: “While some form of hearing is typically required prior to final deprivation of a property interest, the fundamental requirement of due process is the opportunity to be heard at a meaningful time and in a meaningful manner.” Ditter concluded that informal procedures have been found sufficient to comport with due process under many circumstances and found that HUD’s procedures met the requirements of due process. Taggart is now appealing that decision in the Third Circuit Court of Appeals.
National Association of Appraisers
The National Association of Appraisers (NAA) recently filed a legal brief in support of Taggart’s right to due process in the court where his case is now pending. The brief was written by Ted Whitmer, MAI, attorney and expert in the Uniform Standards of Professional Appraisal Practice (USPAP), who writes that “HUD often files complaints against appraisers and…under their current policies, can arbitrarily deny an appraiser the right to make a living.”
Whitmer argues that HUD’s procedures, including the Informal Conference, are in violation of the 5th and 14th Constitutional Amendments, which guarantee fair treatment and due process of all individuals in legal processes. Since filing the legal brief, Whitmer says that he has been contacted by three different appraisers who have also been removed from the FHA roster, some say, without even being notified. “For many of these appraisers, a big percentage of their income comes from FHA work. The NAA’s position is that appraisers are being denied due process. We think HUD’s policies are not well defined and they don’t afford the appraiser the right to answer their critics. It’s about giving appraisers the right to be heard, to understand the charges against them and to have the right to defend themselves,” says Whitmer.
“One appraiser who called me said he was taken off the FHA roster for over-appraising a property, but they used an automated valuation model (AVM) to dispute his value, so I really don’t think appraisers are being treated fairly,” Whitmer said.
Appraiser License as “Property”
Central to Taggart’s legal argument for his right of due process is that his position on the FHA Roster constitutes a professional license and that a professional license is property. “In legal terms, a professional license is considered property. I have asserted in court that being on the FHA roster constitutes a professional license and neither HUD nor the District Court has disputed the position that the FHA Roster constitutes property interests. Therefore, the removal of that property interest legally requires at least a hearing prior to the loss of your license/ FHA Roster privileges. An informal conference falls very short of these standards,” Taggart argues.
Taggart is seeking reinstatement to the FHA roster, as well as damages from HUD. He also hopes that through his case, HUD will change their policy and give appraisers their constitutional right of due process before removing them from the FHA roster. “Appraisers should take a close look at this case because appraisers have been getting removed from the Roster for years without any due process. HUD has been failing to give appraisers an informal conference which is their right under HUD’s own guidelines. These laws are discriminatory and they likely aren’t aware of it,” argues Taggart.
As his legal battle with HUD continues, Taggart is hoping that as word spreads about HUD’s policies, other appraisal organizations will take notice. “I encourage appraisers to email their appraisal organizations or whatever organization they are a part of and ask them to examine this case and its issues because there are a lot of things going on with HUD that need to be addressed. Individual appraisers don’t have the resources to fight the federal government so we need to work together on this. I had to start this case on my own and it’s really been an uphill battle,” says Taggart.
For appraisers who have been removed from the FHA roster and are wondering what they can do, Taggart recommends that they demand a due process hearing. “It is important for appraisers to know that HUD hasn’t followed its own rules for the last 12 years, so any appraiser who was removed from the list during this time should ask for a hearing. HUD says they are now notifying appraisers and giving them an informal conference, but I doubt they’ve gone back and offered an informal hearing to all those appraisers who were removed over the years. Appraisers should demand that HUD hear their case,” says Taggart. “HUD is violating appraisers’ right of due process and destroying their livelihoods in the process. We are supposed to be innocent until proven guilty not the other way around.”
Fighting HUD to get back onto their panel is about like fighting to climb back onto a rodeo bull that’s fractured both of your balls for the last 20 seconds. They did the guy a HUGE favor by throwing him out; he simply cannot recognize the opportunity they provided at this moment in time. The anger that appraisers have towards AMCs, HUD, their “profession” acts as a pair of heavy duty blinders. “Tunities” are everyone but as long as you harbor that anger you will never see them. I encourage appraisers to post a note on your bathroom mirror with quote to read each day. This will become your mantra: “F HUD, F AMCs, F the appraisal profession. I alone am in charge of my own destiny and from this day forward chose to create my new destiny by walking away from this dead end career and leaving it to those who wish to work for chump change”. Identify a new opportunity each day and write it down in a notebook. Similarly, set a target date for making your exit and record your progress in the notebook each day.
Chumps are the ones sticking to the business guys. Champs are the ones who are making the conscious decision to walk away from it towards businesses that are highly profitable and far less stressful. You can run for the nearest oasis or you can drag this dead horse across twelve more deserts in hopes of finding Shangri-La.
This is the same garbage OREP has been repeating and reusing for sometime now. Seems to copy most of FREA’s original ideas, the difference FREA is actually fighting the blacklisting and is trying to start a class action lawsuit. OREP get some original content, if you are going to copy at least take a page from FREA’s book and try to make a change for once instead of just talking! Maybe even team up with them? Why not? The more people standing together, the better.