Not all things that happen in life are good. Same in business. Problems arise. As in life, how we respond in business to those problems defines us and our business more than the successes. This week it's time to talk about the other side.
One of our staff appraiser's state license was revoked on November 9, 2006. We were not aware of the revocation. The now illegal appraiser did not inform us of that fact. The matter was brought to our attention by one of our Clients who monitor license notifications at the Appraisal Foundation website. We called our state regulatory agency in January and confirmed the information. The illegal appraiser was removed from our staff the day the confirmation was made, all security clearances were immediately canceled, and the locks on our offices were changed.
The revocation was for an incident which occurred prior to his joining our firm, and the revocation issued as a result of his not providing the work file information requested by the TALCB. The illegal appraiser, hired in May of 2006, informed us after his employment of the complaint and showed us a letter from the TALCB exonerating him of the charges. The TALCB letter was evidently forged. All of this was discovered in the first week of January of this year, including another forged document the fellow attempted to use to clear his name. The TALCB staff attorney informed us that TALCB had not issued either letter.
The reports the illegal appraiser did for Acorn were being fully reviewed by our senior appraisers from day one and those reviews continued to the last day of his employment. Our general impression of his work was favorable, and we found him to be conservative in his value conclusions. That experience certainly added to our surprise at what had happened.
From November 9, 2006 until the first week of January 2007 the illegal appraiser was performing appraisals for Acorn as an unlicensed appraiser! Appraisals which were sent to our coveted Clients with his signature. Scores of appraisals were involved.
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We immediately called our team together and explained what had occurred. Acorn that morning shifted into a crisis mode. From that moment on we had two top priorities;
- maintain our work flow without interruption, and
- assess the extent of the problem so we could report to our Clients that assessment.
All reports that were involved were immediately identified and isolated. The electronic files were moved to a special folder. The paper files were also moved into a special area. Senior Bright Horse was assigned the responsibility of communicating daily, hourly if necessary, with the staff attorney for the TALCB, keeping him informed of developments. All calls and emails directed to the illegal appraiser that arrived at our office were immediately forwarded to myself.
The team of senior appraisers divided the isolated reports among themselves and took them home that weekend (two days after the problem was discovered) to conduct a thorough technical review of each report. Every piece of information used in each report was checked for accuracy. A massive undertaking.
Each of our team has a home work station and access to our server and all software. We also employ Instant Messaging in our daily communications. That weekend was a magnificent display of technology, communication, and the strength of our team. As each began their assigned reviews, they came on line and communicated how their project was going, what problems they found, made the others aware of things to look for in their analysis. I was sitting at my work station removed from the main office, and observing the activity, the interplay, the progress. Despite the seriousness of the problem, I was warmed by the team's approach and performance that weekend. Acorn was in good hands. Our Clients were in good hands.
The technical review that weekend confirmed our general impressions. All data was supported, all value conclusions reasonable. We concluded that the market values reported in those assignments were accurate. We believe illegal appraiser performed those appraisals properly as he knew they were subject to our review before delivery.
One file was identified as a problem. Inappropriate comparables. Improper application of appraisal theory. We felt the value was pumped up by about 20 percent. Turns out that the illegal appraiser developed this report and bypassed our review process and our control process and sent it out directly to the Client. All the earmarks of fraud. That file was isolated and handled quickly and directly with the lender.
That next Monday the files were delivered back to our Admin Manager and placed under her personal control. She created an electronic file for each Client of the files affected. I composed a letter to be sent to each Client, explaining what had happened, the extent to which they were affected, and what we proposed to do to correct the situation.
Acorn sought the advice of a real estate attorney regarding the steps we should take to limit the damage that had been done. Our first concern was our Clients. The effects on Acorn were important, but the second priority. The attorney advised us that notification to all affected clients was in his opinion the proper thing to do, with a statement from us that we support the value conclusion in each of those reports. I sent a copy of the letter I had composed to him for his review.
Senior Bright Horse called the TALCB Staff Attorney that Monday, detailed our findings, and asked his opinion of what steps we should take. We sent a copy of the letter we intended to deliver to our clients for his review and comment.
I contacted two of my Internet friends, both experienced graybeards, both with experience as USPAP Instructors, one with current responsibilities with The Appraisal Foundation and the Texas Regulatory Agency. I asked their advice. Both gave invaluable suggestions and offered moral support. A copy of the Client letter was sent to each of them for comment.
Our Administrative Manager prepared the list of reports affected by Client, along with the Client contact name, email address, and telephone number. The notification letter was sent to each Client with an attachment detailing the reports involved. A read receipt was requested with each email. Senior Bright Horse and I divided up the effected client list and awaited word that the read receipts were received.
We then called each contact, referred to the letter, offered to answer any questions they had, and asked if they could forward our letter to the Quality Control area and requested the name and phone number of that person so we could also contact them directly. We took notes of each of those calls and retained the notes and discussions as they developed.
Remarkably, every Client was understanding and supportive. They were unanimous in their appreciation of the steps we had taken, the notification to them, and the offers we made to resolve the situation.
The Texas Appraisal Licensing Board has been very helpful in sharing information about the illegal appraiser and they turned the case over to the State Attorney General for criminal investigation. The Attorney General assigned a Sargent of the Texas Department of Public Safety to gather evidence to prepare a case against the illegal appraiser for the appraisals he completed after his license was revoked. Senior Bright Horse continued to communicate daily with the TALCB and then with the Sargent assigned to the case.
Subsequent information that we received suggested that the illegal appraiser had stolen the identity of one of our appraisers and used that identity to issue a bogus appraisal report under that person's name after the illegal appraiser was removed from our employ. We turned that information over to the investigator and the TALCB immediately and will do so with any similar incidences we receive notice of in the future. The identity theft will not likely be used in cases of our existing clients as it would be detected early on.
Within six weeks after the problem surfaced, the illegal appraiser was arrested, interrogated by the Sargent, broke down crying and admitted his guilt. He spent the night in the holding tank with other arrested folks. That was done to frighten the illegal appraiser and to prevent his continuing to commit fraud. We all hope that message was received. The criminal case against him is still being built. Sadly, this illegal appraiser has a wife and two young children. I cannot understand why he chose this path.
The damage to our company is real, though not as bad as it could have been. A couple of the Clients had placed us on a hold status while they conducted their own detail review. We fully supported their action. Once the review was completed, we were back on line. However, we lost business during that interim time.
Our notification letter stated that while we confirmed and supported the value conclusions of the reports affected, but we offered to conduct another appraisal with the same effective date as the original, completed and signed by one of our senior appraisers. That report would contain a paragraph explaining the circumstances and be used to replace the unlicensed report in their files. We offered to do at no charge to the Client. A few Clients took advantage of that offer and those assignments were completed and the reports were delivered.
We have changed our operations to prevent such a criminal in our midst in the future. Our background checks for prospective employees are tighter and more thorough. (Those would not likely have caught this case.) We've changed the passwords for all staff members, and changed the private passwords for each appraiser's access to his signature. Those passwords will be changed more frequently in the future. Procedures were put in place to prevent bypassing our review and report delivery procedures.
Notifications of license problems are sent by the TALCB directly to the affected appraiser at their home address. The agency does not maintain links of appraisers to the firms they work with, so no notification can be sent to the firm. The Appraisal Foundation, Appraisal Standards Committee, has a web site which can be used to subscribe to automatic notification of any license issues for our state. I've subscribed to that notification service and have instructed Outlook to drop those messages into a high priority email folder for my review.
That web site link is http://www.asc.gov/content/category1/email/index.aspx?id=14
Any future notice from an appraiser about license issues will be immediately confirmed with the State. We accepted this fellow's information and the forged letters purportedly resolving the issue as genuine. No more. In the future we go directly to the TALCB for confirmation.
- I have been impressed with the TALCB and the Criminal Investigator's attention to this matter, the support they provided to Acorn, and the speed with which they arrested the illegal appraiser. I am amazed at our personal view into the challenges the regulators and the criminal investigators face in pursuing such cases, and their professionalism and diligence in doing the right thing and strict adherence to the law. God Bless them both!
- I'm impressed with our Clients. No knee jerk reactions there. Professional in their approach to problem assessment and protection of their fiduciary responsibilities.
- I'm impressed with our team. They demonstrated that the training they have received, both in appraisal and in the way to conduct business, has been received and taken to heart. Clearly we are better and stronger for the experience, but determined never to repeat the experience.
I thanked my two Internet friends and advisors. Their support and suggestions were invaluable. Our attorney is our attorney for life (a do the right thing advisor)! Exactly my philosophy. Do the right thing and let the chips fall where they may.
Full disclosure has been my objective from the first moment. Disclosure to our Clients, to the regulators, to all concerned or interested parties. Those interested parties include the readers here. It's another teaching opportunity, albeit at my personal expense.
The author is the owner of Acorn Appraisal Associates, a 20 year old firm offering a wide range of quality appraisal services to the Financial and Business Communities in the greater Houston SMSA