Suggestions for Real Appraisal Reform
As a risk management firm which has been serving real estate appraisers for over 20 years, we are in a relatively unique position in terms of offering suggestions how to improve the current residential real estate appraisal process. To offer some perspective, during our history we have had close to 20,000 appraisers as members of our risk management family and we have been actively involved in the resolution of close to 2000 claims brought against appraisers, both inside and outside of the courtroom. Furthermore, our management team has been around long enough to witness not only the most recent collapse of the real estate market, but also the all of the previous collapses dating back to the 1970’s.
Here are a few proposals to improve the integrity of the appraisal process while protecting appraisers from open-ended exposure to liability and an unfair, unlevel playing field:
- Proposal: Adopt a uniform national statute of limitations for filing claims against an appraiser for USPAP violations or other errors or omissions which requires claims to be filed within three (3) years of the date the appraisal was delivered to the original client.
Rationale: The lending community should able to determine whether the value in an appraisal is correct within 3 years of the date of the appraisal. After all, there are so many layers of review and AVMs being used by lenders, the appraisal gets more scrutiny than the credit score of and ability to pay the loan by the actual borrower.
- Proposal: Extend this statute to include complaints filed with a state licensing agency so both the courts and the state agencies are using the same rules.
Rationale: There is no reason a lender who cannot file a civil lawsuit over an old appraisal should still be able to file a licensing complaint over the same issues with a state agency.
- Proposal: Require the party filing a state licensing complaint to have standing so not just anyone with an axe to grind can initiate a complaint. Plus, the complainant should have to pay a filing fee of $50-$100 when a licensing complaint is filed. This would cut out a lot of the frivolous filings.
Rationale: There is no reason the servicer for the current owner of a loan made years ago by a different lender should be able to file a state licensing complaint against an appraiser. Also a disgruntled borrower whose loan was turned down should not be able to seek retribution by filing a licensing complaint against the appraiser who was hired by the lender and not the borrower.
- Proposal: Institute a requirement that any lender buying a loan more than 3 years old must obtain a new, current appraisal before buying the loan.
Rationale: Allowing a subsequent purchaser of a loan to rely on a dated appraisal is simply crazy. If you apply for a loan today and get turned down, you cannot use the same appraisal when you re-apply in six months so why should buyers of loans in the secondary market be able to rely on old appraisals?
None of these are really very radical ideas and, if implemented, should result in a more efficient, uniform, and understandable appraisal system for residential mortgage lending.
- Greed Takeover Coming Soon - July 18, 2016
- Why Would You Jeopardize Everything? - June 1, 2016
- Observations of a Review Appraiser - April 21, 2016
The proposed Statute of Limitations should be 2 years max.
If these thieves who make loans aren’t up to the task of adequately policing their files we shouldn’t empower them further by giving them extend time frames. Additionally, the two year window of time would better serve all concerns with regard to market conditions discernment.
I fully agree with your other two proposals.
Lets not start calling an errors and omissions INSURANCE company, a corporate “risk management” consultant, ok? While it is one of their functions (to their OWN investors), its not their primary field. Selling insurance is.
I’m glad they have “been involved” in 2,000 appraisal defenses since the 1970’s. I have personally performed many times that number of appraisals, since the mid 1980’s.
I have never had an E&O claim made against me. I perform USPAP compliant appraisals.
From an appraisal perspective, none of their suggestions are onerous. They ALL serve MY interests, but I’m not at all sure they solve the problems we just went through. Clearly they benefit insurance companies. But, what about consumers and tax payers?
I understand the motive behind complaint filing fees, but do we want to deprive citizens of due process simply by making it costly for them? We can achieve the same result without attaching fees to complaints, by separate statutes.
The NEXT time some non appraiser regulator decides to come up with appraisal guidelines, I’d strongly suggest they include private fee appraisers with experience in the field, rather than relying on the likes of Andrew Cuomo and his self serving HVCC solution, that has destroyed the appraisal industry.
Additionally, keep FNMA out of the appraisal micro managing business. We already have federal and state regulators. MISMO & UAD add NOTHING to the quality of appraisals. On the contrary, they seriously degrade the entire process.
Mike Ford
CA Gen. Cert. R.E. Appraiser
Former Sr. R.E. Appraiser, U.S. Treasury Dept.