Appraisal Scoop

AMC Appraiser Agreements & Indemnity - TSI Appraisal Services Appraiser Agreement Reviewed

        AMC Appraiser Agreements and Indemnity - By Peter Christensen

We are receiving many calls from our insured appraisers about AMC agreements. Many of our calls in the last fews days have concerned the TSI Appraisal Services Appraiser Agreement. This agreement is worth looking at because, though more extreme than others in its one-sided wording, it illustrates the typical legal problems for appraisers found in AMC agreements.

With regard to the TSI agreement, appraisers are particularly concerned about the indemnity section. Indemnity provisions are a recurring issue with AMC agreements. The bottom line is they are usually an AMC's attempt to shift potential liability by contract from the AMC to the appraiser. Because of the current mortgage crisis, this attempted shifting of liability is occurring more than ever.

Section 7 of the TSI agreement is entitled "General Indemnity." From our insurance and legal defense perspective, the main problems we see in this section (and in various other AMC agreements) are:

1. Indemnity Provision. The first paragraph of section 7 requires, in part, that the appraiser:

"indemnify, defend, save and hold harmless [TSI] from and against any and all liability, claims, damages, penalties, losses, fines, judgments . . . [and] any other costs, fees and expenses . . . in any way related to . . . [among other things] any appraisal report submitted to [TSI] by Appraiser pursuant to this Agreement."

Simply construed, this means the appraiser is promising to pay TSI for any cost or loss of any kind (including criminal or civil fines ordered against TSI) for anything related to an appraisal submitted by that appraiser. This is an unusually broad indemnity provision because TSI could conceivably take the position that the appraiser is required to indemnify TSI for losses caused by TSI itself in handling an appraisal or resulting from TSI's own negligence.

For example, if TSI conveyed erroneous instructions to the appraiser which resulted in a problem with the appraisal and the lender client demanded that TSI make up a resulting loss, TSI could conceivably demand that the appraiser pay TSI for TSI's own mistake. As another example, class action litigation is becoming more common against lenders and their subsidiary AMCs, TSI could, here again, argue that appraisers whose appraisals are the subject of such a lawsuit must indemnify TSI for defending the lawsuit because it relates to their appraisals. There may be questions about whether such an overbroad indemnity provision is enforceable under various states' laws, but that is a question that would only be resolved after an appraiser is embroiled in litigation by TSI.

2. Mortgage Repurchases. Another significant issue is raised in the second paragraph of section 7. In this part, the appraiser:

"agrees that if a mortgage lender is required to repurchase a mortgage loan for any reason in any way related to [among other things] . . . any appraisal report submitted by Appraiser pursuant to this Agreement, Appraiser shall pay [TSI] an amount equal to the repurchase price paid by such mortgage lender to repurchase such mortgage loan."

The appraiser is further required to

"pay the reasonable attorney’s fees of [TSI] incurred in enforcing Appraiser’s obligations hereunder, including, with [sic] limitation, the obligation of Appraiser to pay [TSI] an amount equal to the repurchase price of a mortgage loan as set forth above."

There are obvious problems with this provision. In particular, there could be many reasons why an originating mortgage lender might be contractually forced by a mortgage purchaser to repurchase a mortgage based on something in an appraisal that have nothing to do with any error by the appraiser.

For example, what if the appraisal disclosed that the subject property was being used commercially and the originating lender was required to repurchase the mortgage based on the disclosure of this fact in the appraisal? That's not an error by the appraiser. Yet, under the language in the agreement, TSI could conceivably argue that the appraiser is financially liable for the repurchase price.

Aside from that unfairness, why should the appraiser be required to pay TSI at all for a repurchased mortgage? TSI isn't the lender and has not sustained any loss. (Of course, TSI might well be guaranteeing repurchase demands to their lender clients and trying to pass that cost on to appraisers). Finally, a repurchased mortgage does not even necessarily result in a loss to the originating lender or a loss equating to the full repurchase price. Yet, under the provision here, the appraiser is required to pay TSI the full "repurchase price" paid by the originating lender. Like the first paragraph, there are serious questions as to whether this language would even be enforceable by TSI -- one of the main issues being that the provision could be construed as an unenforceable penalty. Once again, however, this is a question that would only be resolved in court after TSI has sued an appraiser.

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Pressure Comes In Many Forms - HVCC, Rotation Lists, Appraisal Regulation

An associate and I were reminiscing the other day about the good ole days when work was plentiful and we were afforded the luxury of turning down certain clients in favor of more desirable ones. The only thing missing from the nostalgic moment was a porch swing and a cold glass of sweet tea.

Times certainly have changed indeed as it seems like no one in the industry, including the leading trade organizations seem to know where we are headed. Blog posts read like bickering matches and opinions become further estranged from one another with less and less meaningful discussion. Appraisers obviously come from varied backgrounds and experience levels but unification increasingly appears unlikely.

Through the years, I have noticed that the common thread of industry talking points has always centered around the so called “pressure on appraisers”. This has uniformly been defined as a mortgage originator’s communicating a desired value to a selected appraiser in order to close a loan. The concept relies on the assumption that appraisers may have completed erroneous reports for fear of reprisal or loss of clients which would then lead to a loss of income. It may be a clear realty that this did occur but the deeper question is to what extent?

Recent months of retrospect have caused me to ask; was it really so prevalent that it actually falsely moved the nationwide real estate market upward which eventually lead to a foreclosure fed collapse?  If this is the case, then how many of us are confident we were doing our jobs correctly. If the majority of appraisers are clamoring about coercion to inflate values, then is it fair to assume they gave in to the pressure and then pointed their finger at everyone else?

I have contended in past articles that moral integrity aside; lender approval, keeping a license, avoiding lawsuits and maintaining a good reputation was more than enough to keep me on the straight and narrow in regards to how my firm and myself completed appraisals. After all, how can an appraisal company continue to exist, if they have been driven out by any number of checks in the system? Were these motivations not enough for most in our profession?

The expression “be careful what you wish for” has come to mind many times recently and our wish may be coming true. I fear that our years of beating the appraiser pressure drum have brought forth changes we were not prepared for. The HVCC, rotation lists and expansive lender control are only some of the recent behemoths of regulation that are touted by their originators as an answer to the problem of pressure on appraisers. The ironic thing about these proposed solutions is that they all have loopholes where abuse can and most likely will still occur.

Click here to continue readling . . . .

Appraisers Busy Again? Time to Fire and Hire Clients!

  Have you ever fired a client? It feels really good. This is a difficult concept to wrap your arms around; however when you are busy is the best time to secure new business. This is the most appropriate time to take on new clients and fire the bad ones. Think about it, when times are slow everyone is calling on clients, offering to take them to lunch and bringing in donuts. But when times are busy they can’t find an appraiser to take on any more assignments in a timely fashion.

Out with the Bad  - Surely you have some clients that are slow to pay, require additional sales or want frequent addendums. How about this: Do you have any better comps? Isn’t that the most asinine question a processor or underwriter could ask? Don’t get me wrong if I am asked “Do you have any additional sales to further support your opinion?” I don’t take as much offense but when asked for better sales I want to respond “yes I do, but we hold on to those until you call and ask for them” or as George K. Cox, MAI, SRA once said “Yes I do, the houses on either side of the subject and the one directly across the street just sold but you can’t have them, I’m keeping them.” This is the time to replace bad clients with good ones.

In with the Good  - One thing you can count on is change. Back in the mid 80’s the interest rates were 15%-18%. With current rates at an unbelievable low, in an effort to jump start the economy, we have entered another refinance wave and most appraisers are extremely busy again. Seek out clients that value your service and don’t treat appraisers as a commodity. There are still several good clients that want quality work and not just low fees and quick turn times.

Also consider diversifying, as this refinance wave will not last indefinitely. What type of work is interest rate safe? With more than ½ of marriages ending in the big D appraisers in this type of litigation support should remain busy. Relocation work, department of transportation, foreclosure, estates, is other areas to explore. Regardless of the interest rates people will continue to get divorced, roads will be constructed or widen, employees will be relocated, foreclosures will probably continue to soar and people will die.

Ride the refi wave and have a good one, but consider expanding your business while times are busy.

AUTHOR: Bryan S. Reynolds is a Certified General Real Property Appraiser and an AQB Certified USPAP Instructor. Mr. Reynolds serves as an adjunct faculty member of The Columbia Institute, and is an approved appraisal instructor in 30 states.

Reynolds is the owner of Reynolds Appraisal Service in Owensboro, KY, providing various residential and commercial valuation services, consulting and litigation support services throughout the area. He can be contacted at (270) 929-3088 or by email at bryan@reynoldsappraisalservice.com.

AppraisalPort Announcement - Deferral of New AppraisalPort User Agreement

Notice: The new AppraisalPort® User Agreement scheduled to be effective September 13, 2008 has been deferred to accommodate further industry comments. The current AppraisalPort Subscription Agreement shall remain in effect until further notice.    Click here for the link to the AppraisalPort site.

AppraisalPort® User Agreement becomes effective 9/13/2008. E&O providers offer some insight on the "Hold Harmless" issue!

We all have read the recent announcement that FNC/AppraisalPort® emailed to appraisers regarding the upcoming changes to their Users Agreement.  Specifically the change to the Hold Harmless Agreement that they are requiring all of AppraisalPort® users to sign, effective 9/13/2008. (See Appraisal Scoop)

It reminds me of Angelo Mozillo's posts last year in which he stated that Countrywide was going to take over the world and it was in great condition, don't worry about Countrywide. It was all spin, spin, spin. While he was "spinning" he was selling hundreds of millions of dollars of Countrywide stock he owned.

So now we're supposed to believe that there are no problems with AppraisalPort's Agreement. I have been in close contact with my E&O carrier, and my own attorneys, and there are significant issues about which we have to be aware.

Included below is the text of the response I received from my E&O carrier that presents ALL parts of this issues - even the ones AppraisalPort does not want us to be aware of.

The response from my E&O Company is as follows:

"FNC is trying to put your mind at ease by telling you their agreement does not affect your E & O. But they are obfuscating the issue. Of course it does not affect your E & O, because your E & O is governed by the terms of your policy. The problem, which FNC does not address is that your E & O does not cover you for promises made to third parties."

"You can promise your next door neighbor that if you get sued you will buy him a new car, but that does not obligate your insurance carrier to pay for that car . You will be on the hook for it."

"FNC is asking you to pay for their defense costs and any award which may be made against them, anytime they are the recipient of a claim over anything which involves your appraisal. So they are correct when they say their agreement does not affect your E & O, but it certainly would affect YOUR bank account in the event you have to pay to defend them against a lawsuit, because your E & O won't pay it. One wonders why they are trying to hoodwink you into believing otherwise."

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Expert Advice or Expert Spinning? FNC responds to buzz about their new "User Agreement"

Today the appraisal industry was given the latest edition of the Appraisal Port Newsletter. It is dealing with Neil Olson’s opinion of FNC’s new user agreement. It is six questions and Mr. Olson’s answer to those questions.   Download appraisalport_qa_memo.pdf

Corporations, as is usually the case, try to spin everything that they do in a positive light. That makes sense in many cases. I am not a lawyer, nor would I ever attempt to pretend to be one, but using common sense all of us small business owners/appraisers have to make up our minds as to how we feel about the user agreement.

I have included Mr. Olson’s questions and answers (screen shots) with my own musings following each. I will leave it up to you, the reader/appraiser to make up your own mind regarding FNC’s Newsletter.

FNC is clear that they don’t want an open court room battle. They would rather take their chances with a third party expert, than let a judge or possibly a sympathetic jury decide a case. Arbitration does allow for faster decisions, something that is very important to a company that wants to go public, and won’t with a pending class action lawsuit underway.

It is suspicious that a company is only willing to undergo any proceedings within a geographic location that is proximate to its sphere of influence. Additionally, this waives the appraiser’s right to a trial by jury.

This is a typical pro-corporation agreement that does its best to reduce the rights of an industry that is traditionally small business centric. Placing a dispute in front of an “expert arbitrator” places the appraiser at the mercy of someone that is traditionally pro-corporation, in most instances.

Click here to continue reading . . .

VA Appraiser's eMail Collects Past Due Invoice

The following is an email sent by Don Lee, IFA, an appraiser in Belleville, IL, to his client, an east coast lender. The mortgage broker was local and the Invoice was 3 months past due.

I have filed a complaint with the Veterans Administration and have forwarded on, this email to them. In the next several days I will be contacting my Attorney and my Collection Agency regarding an outstanding Invoice. I'm in amazement regarding Mr. (mortgage broker) and your organizations Business Attitude regarding payments to the Appraiser. Tell me what other companies in America pay their Vendor services only when and if the company gets paid?

Please be reminded that the Lender is required to collect the Appraisal Fee at the time of application, Line 37, form 26-1805-1 and forwarded on the Appraiser on receipt of "Certificate of Reasonable Value". ( I have just started inserting this language on all VA Invoices)

I'll be contacting the Illinois Department of Professional Regulation and file a complaint on (Your Mortgage Company) and (your mortgage broker), where you are both licensed to do business in the State of Illinois. I will advise them of your business practice of only paying Appraisers, if and when you get paid.

bcc: Southwestern Illinois Appraiser Users Group

Don received an email within hours from the mortgage company, saying "the check will be in the mail tomorrow" and has now received the check.

Don asks; "Why are some VA Lenders so lax that they require us to remind them to collect fee at time of application, when we make calls for payment?  I live next to Scott Air force Base, so 60% of my business is VA. "

Don M. Lee, IFA

Lee Appraisals

Belleville, IL 62223

Ph.          618 397-1082      

Fax 618 397-1092

RUNT RANTS - Mr. Big and a la mode deserve applause!

AUTHOR: Ken Verrett is the owner of Acorn Appraisal Associates, a 22 year old firm offering a wide range of quality appraisal services to the Financial and Business Communities in the greater Houston SMSA

I was a little surprised and disappointed at the lack of appraiser response to the David Biggers, CEO of a la mode, announcement that a la mode intended to create an order assignment feature on their web site at a very low fee for the service.  The announcement was featured here.  A La Mode Announces new feature

Mr. Biggers announced something BIG.  Something that could save appraisers thousands of dollars a year.  Something that could change the landscape for appraiser marketing if they choose to use it. Yet there were only five comments to that announcement here on Appraisal Scoop!

Maybe appraisers didn’t take the time to read what Mr. Big announced?  Maybe appraisers didn’t think through the implications?  Maybe…they don’t care?

Let's Look At The Situation

Let me see if I can illustrate the proposal in a different way….stick with me here…I’ll be short and succinct for a change.  Consider the following three models.

• Green is what the Fee Appraiser receives from his local clients currently. 
• Yellow is what the Fee Appraiser receives from the typical AMC currently. 
• Blue is what Mr. Biggers proposes to offer as an alternative to the yellow.

What Those Three Senarios Mean

If the Cuomo Agreements were to survive as currently written (a debatable assumption, but still we should consider it as a possibility) local lenders will be forced to find an intermediary to order appraisals for their loan applications. The most likely intermediary is an AMC. That’s the business they are in…to order appraisals for lenders.

If the Cuomo Agreements survive, there will be pressure in the next few months for your local clients to begin moving business away from you directly and instead through an intermediary.  (The drop dead deadline in early fall….that’s to allow for the pipeline…it takes around sixty to ninety days to process a loan in many instances, so an application taken in October will likely go to the lender after Jan 1^st at which time an intermediary will be required.)

Business that you currently get under the green scenario will begin moving to the yellow scenario.  You will be doing the same appraisal, you will be doing your same quality control, you will be proving the same service that you do now…but your fee will be $105 less….30 percent less!

Got that?! The same service, the same quality, the same appraisal, but your fee will have dropped from $350 to $245. Multiply that by the number of local lender assignments you receive monthly.

If that calculation gets your attention, you should re-read Mr. Biggers announcement.

Click here to continue reading . . .

Runt Rants - Back to Business

My, my, my!  What a wonderful place Appraisal Scoop has become!  So many excellent columns: highlighted by Patrick Egger's great "Outside The Boxes" additions.  I’ve read every one of Pat’s words and learned so much to apply to my business!   And the active commenting that has developed, centered on “they who cannot be named”, but now branching out to create an interesting dialog on so many issues!  A rich tapestry has been spun here, all to Brian Davis’ ever lasting credit.  I knew he could do it: never had a doubt.

My posts have been limited of late.  I think now is a good time to return.  I think I can contribute.  We’ll see.  You be the judge as always.  My original Runt Rant was an introduction….of me, my background, my biases, my limitations.  It also stated my objectives for the space I’m taking up here.  I’m a business owner first and foremost.  That is also my limitation.  I try to give perspective of managing a business, and only that.  Luckily, managing a business, especially an appraisal business, allows so many excursions into back avenues and dusty trails, into ideas and ideals, into managing change.  And managing change is my strong suit; by nature and by experience. 

Today we'll talk about some aspects of management of change.  As always, it gets a little personal, I don’t like that, but my experience is really all I have to share.  I’ll suffer the discomfort if it helps others. I have Leukemia.  Specifically Chronic Lymphocytic Leukemia, aka CLL.  Diagnosed eight years ago.  As cancers go, it’s a good one to have. 

Click here to continue reading . . .

Runt Rants - Sub Prime and Alt-A, and You and I

Did the down market ruin a good year? Was the drop in volume so precipitous that there's no way you'll recover your objectives for the year? Well, you are not alone......

Come join the crowd around the bar. It's not a pity party, and you are only allowed one Rob Roy. No drowning your troubles in booze. We are here to learn and to prosper!  We wrote about the Sub Prime problems in a series beginning here. If you missed it, read it. A neat three part series.

Now let's update things.

I knew the Sub Prime problem was coming thanks to Joan Trice, owner of AppraisalBuzz.com, organizer of the annual Valuation 200X conferences. Valuation 2007 is coming up in a couple of weeks in Las Vegas.

A true Oracle is Joan! She learned of  the problem from her good buddies circle, mostly Chief Appraisers of large national and international lenders. Many of them will be at Valuation 2007.

They were worried in the Fall of 2006. Those friends of Joan's came to the conclusion that the Subprime and Alt A portfolios were the equivalent of junk bonds of the 1980's...gee, I knew that too... they had been routinely packaged as Mortgage Backed Securities and sold with ratings much higher than they should have been, resulting in huge profits along the daisy chain.

The daisy chain being from the mortgage broker who sold the borrower on a bad deal, all the way up to the investment companies who were the ultimate purchasers...investment companies who agreed to manage large capital accounts for individuals, estates, various corporations with lots of money to invest...much of it overseas.

Yeah, I knew the stuff was junk.

But I'm not smart like Joan and her friends. I thought it would be a tempest in a tea pot.  After all, Sub Prime and Alt A angst backed securities were just a fraction of the market, and only a fraction of those would wind up in default. In the over all scheme of things the market should be able to absorb it's losses and move on.  That's what I thought, that's what I argued with Joan.

I was wrong . . .click here to continue reading: