Appraisal Scoop

Virginia Is For Lovers: All But AMCs

GUEST AUTHOR: Woody Fincham - Woody is a Deputy Assessor with the City of Suffolk Real Estate Department, Suffolk, VA.  Woody is a State Certified Appraiser in Virginia and SRA designated member of the Appraisal Institute.  Contact: [email protected]

With the recent press release from CoesterVMS, a growing Maryland based Appraisal Management Company, which has appeared all over the webs the last several days my email and telephone have been busy with other appraisers expressing contempt about it. 

“We’re serious about transforming the appraisal industry from ‘the way it’s always been’ to ‘the way it should be,’” said Coester. “Value is comprised of quality, customer care and price. This is taken from a press release published January 7, 2013 by CoesterVMS, a Maryland based appraisal management company.

Some Background

In the period prior to the Dodd/Frank bill, appraisers often worked directly with the lenders. There were many ethical, symbiotic relationships, but there were some very shady associations as well. Like most things that attract the attention of congress, a quickly thought out solution was put into place, and it was one that would ultimately benefit the lender with little consideration for the appraiser. Congress’ solution favored large business, and with it we entered into the AMC era of residential appraisal.

Lenders love appraisal management companies (AMCs); they work with one large company that manages a fleet of small business real estate appraisers. It makes sense logistically, as it streamlines the lender’s involvement with the appraiser. There were already several large AMCs, and I knew few appraisers that coveted a relationship with any of them. They were and are mostly all difficult to deal with from the appraiser’s perspective. 

On paper it looks like a system that works, in reality, well that’s another story. Dealing with appraisers is difficult, I am an appraiser and I freely admit it. We are difficult to deal with due to the nature of the work product. Each property that is appraised requires a property specific analysis: not every property in a given neighborhood can be appraised the same way. Lenders have always viewed the appraisal as a hoop to jump through and it just needs to be done. To them the appraisal report should be a commodity; a streamlined service that requires nothing but a “three comps and done” approach. They have not and continue to not value any thorough analysis. If it loosely meets the minimum standards, and I mean if it looks like an appraisal report then surely it is an appraisal report, they stamp it as just another part of the loan file and move on. Therein lies the problem, the client wanted and continue to want something that cannot be ethically done. They have almost zero interest in vetting the collateral; they just want to make the loan.

AMCs, and by extension, lenders prefer to deal with appraisers by treating them all like product providers rather than service providers. Appraisal reports are not commodities; they cannot be replicated en mass. While it may be possible to establish a minimum report fee that an appraiser can do a simple property for, as the complexity of the assignment ratchets up, so does the appraiser’s time which means the price should go up accordingly. By establishing a flat rate, this means that AMCs will continue to put pressure on fees when retaining appraisers. It means that the AMCs benefit from hiring the appraisers that charge the lowest fees.

Wait a minute! We are starting to talk about fees. One may ask “if the appraiser agrees to take a low fee, then what’s wrong with that?” 

That is a great question, and I am glad you asked it. Every appraiser has a pricing structure that works best for that appraiser. While it can be argued that setting a market price is each business owner’s prerogative, and I would agree with you, there is a threshold that just cannot be crossed without sacrificing something in the process. Even if the appraiser is working out of a bedroom in his or her apartment there are fixed expenses that must be accounted for. Typically, what the lower price appraisers do is make up for the fee with volume. They speed up the appraisal process, and in doing so delete or skip what should be done to develop a proper analysis of their data. This practice, combined with the ridiculous turn time requested by the AMC equals shoddily done work. For context, I mean a less than 72 hour turn time.  

The added chagrin to the AMC is any appraiser that takes the proper steps to think an analysis through. When dealing with properties that are not in a homogenous-market area, an example in my market are ocean front homes, time has to be taken to analyze the data in a meaningful way. Many AMCs send out blast emails soliciting for a set low fee and short turn time. Any appraiser that accepts the assignment on those conditions gets the assignment. 

This means that most appraisers doing steady work do not even take the time to see what they are trying to be engaged to do. In most cases this ignores the competency requirement in USPAP. In the cases where I am slow in work and will actually read the blast emails that I get, by the time I have looked up the property details and established whether or not I want to and can do the assignment, someone has already taken the order. This leads me to believe that they accept the orders without evening vetting their ability to perform the work in a competent manner.

AMCs as a whole focus on two items: turn time and fee. They will speak about quality, and preach that they exhibit the highest quality in the business. How is that possible? How can you expect short turn times, low fees and high quality? You really can’t, but AMCs act as a buffer to the lender. They are now the equivalent of the enforcer on a hockey team.

All that has happened in the new AMC-era is that they kicked the can down the road, rather than fix the problem. What we had before with questionable appraisers being selected by lenders trolling for high values, has now been replaced with AMCs that hire less than quality appraisers willing to underprice the completion by doing incompetent work. 

So What Does All This Have to Do with CoesterVMS?

Brian Coester (CEO of CoesterVMS) who was at one time an appraiser in Virginia should know better than anyone that every appraisal is a custom job. An appraiser cannot simply place a flat fee on every report that is done. Yet, that’s the model that he uses when his company “manages” appraisers.  

It should be noted that Coester allowed his license in Virginia to lapse after he was party to a report that he assisted in inspecting and preparing that was found to be poorly prepared by the state board in Virginia. His father was the one sanctioned as he was the supervising appraiser. The supervising appraising, his father, was sanctioned by the board and fined. Virginia does not sanction assistants. Alex Uminski, SRA, a well-respected Richmond area appraiser, was asked by Fannie Mae to do a review of the property appraisal report that was ultimately the issue for the complaint. Once, Uminski had finished the review and discovered that the report was inflated and that the Coesters were not from the local market area, he turned them in to the State Board. It should be noted that the property subsequently sold for much less than it was appraised for, after the inflated property value supported loan defaulted. Uminski added that the low sale price was after the foreclosure transactions and a rehab, for an arms-length sale.

The Coesters traveled from the Gaithersburg, MD area to Richmond, VA to appraise the property. This is a distance of approximately two hours without traffic. Sometime thereafter he decided it was a better deal to run an AMC. This should be a concern for anyone engaging this company to manage appraisers. If professional ethics have been worked around as an actual appraiser, how then does this same person start “managing” appraisers? 

Feedback from Peers

Shawn Kennedy, an appraiser in the Hampton Roads area of Virginia, was engaged to do a report for Coester in the fall of 2012. He completed the report, or was very close to finishing it when CoesterVMS called to cancel the report. Kennedy made them aware that since he had finished the report he would be charging for it. Kennedy has yet to see one dime of the fee for the work. 

Pat Turner, SRPA, another well-known Richmond area appraiser and former state board member shared some things with me as well. Apparently Turner was doing business with a long time mortgage client that Coester came in as an AMC client to handle the appraisal roster for the company. Turner was getting a steady fee of $450, but accepted a decrease to $400 to continue receiving work. A while later, Coester started asking Turner to complete reports for $350. Turner refused, and found out later that his company was blacklisted due to the refusal to decrease the fee further.   

Turner followed with a phone call to Mr. Coester asking why his company had been blacklisted. Coester said that was not the case. Turner, who had downloaded and printed the information from Coester’s website portal, informed Coester that he had a copy of it in his hand. This led Turner to state to me that this is apparently how shoddily CoesterVMS is run.

So let’s return to the quote at the beginning of this article: “We’re serious about transforming the appraisal industry from ‘the way it’s always been’ to ‘the way it should be,’” said Coester. “Value is comprised of quality, customer care and price. “

 Many appraisers are seeing how the AMC model is changing a needed profession, but not for the good of the public or for the good of the lender. Virginia certainly doesn’t need this kind of haphazard burden placed on the professionals that value their real estate. I am sure some colleagues from other states would agree. 

Disclosure I have to give disclosure here; I am on Coester’s fee-panel. How many assignments have I done? None. Zero. Zilch. They solicited me to join, so I did. I figured, why not, it never hurts to be on a list. I get the occasional blast email to accept an order, always below $275. With that being said, I have no agenda here other than to expose the readers to a fuller understanding of the inherent problems with the AMC model and working directly with a company that so many of my local peers seem to constantly have chagrin with.

 

GUEST AUTHOR: Woody Fincham - Woody is a Deputy Assessor with the City of Suffolk Real Estate Department, Suffolk, VA.  Woody is a State Certified Appraiser in Virginia and SRA designated member of the Appraisal Institute.  Contact: [email protected] 

Consumer Financial Protection Bureau Issues Rule to Protect Consumers from Irresponsible Mortgage Lending

Rule Requires Lenders Ensure Borrowers Have the Ability to Repay Their Mortgage

WASHINGTON, D.C. – Today the Consumer Financial Protection Bureau (CFPB) adopted a new rule that will protect consumers from irresponsible mortgage lending by requiring lenders to ensure prospective buyers have the ability to repay their mortgage. The rule also protects borrowers from risky lending practices such as “no doc” and “interest only” features that contributed to many homeowners ending up in delinquency and foreclosure after the 2008 housing collapse.

“When consumers sit down at the closing table, they shouldn’t be set up to fail with mortgages they can’t afford,” said CFPB Director Richard Cordray. “Our Ability-to-Repay rule protects borrowers from the kinds of risky lending practices that resulted in so many families losing their homes. This common-sense rule ensures responsible borrowers get responsible loans.”

Leading up to the mortgage crisis, certain lenders originated mortgages to consumers without considering their ability to repay the loans. The gradual deterioration in underwriting standards led to dramatic increases in mortgage delinquencies and rates of foreclosures. What followed was the collapse of the housing market in 2008 and the subsequent financial crisis. The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act created broad-based changes to how creditors make loans and included new ability-to-repay requirements, which the CFPB is charged with implementing.

Ability to Repay

In the years leading up to the financial crisis, lenders too often offered mortgages to consumers who could not afford them. Under the Ability-to-Repay rule announced today, all new mortgages must comply with basic requirements that protect consumers from taking on loans they don’t have the financial means to pay back. Among the features of the new rule:

• Financial information has to be supplied and verified: Lenders must look at a consumer’s financial information. A lender generally must document: a borrower’s employment status; income and assets; current debt obligations; credit history; monthly payments on the mortgage; monthly payments on any other mortgages on the same property; and monthly payments for mortgage-related obligations. This means that lenders can no longer offer no-doc, low-doc loans, where lenders made quick sales by not requiring documentation, then offloaded these risky mortgages by selling them to investors.
• A borrower has to have sufficient assets or income to pay back the loan: Lenders must evaluate and conclude that the borrower can repay the loan. For example, lenders may look at the consumer’s debt-to-income ratio – their total monthly debt divided by their total monthly gross income. Knowing how much money a consumer earns and is expected to earn, and knowing how much they already owe, helps a lender determine how much more debt a consumer can take on.
• Teaser rates can no longer mask the true cost of a mortgage: Lenders can’t base their evaluation of a consumer’s ability to repay on teaser rates. Lenders will have to determine the consumer’s ability to repay both the principal and the interest over the long term − not just during an introductory period when the rate may be lower.

Qualified Mortgages

Lenders will be presumed to have complied with the Ability-to-Repay rule if they issue “Qualified Mortgages.” These loans must meet certain requirements which prohibit or limit the risky features that harmed consumers in the recent mortgage crisis. If a lender complies with the clear criteria of a Qualified Mortgage, consumers will have greater assurance that they can pay back the loan. Among the features of a Qualified Mortgage:

• No excess upfront points and fees: A Qualified Mortgage limits points and fees including those used to compensate loan originators, such as loan officers and brokers. When lenders tack on excessive points and fees to the origination costs, consumers end up paying a lot more than planned.
• No toxic loan features: A Qualified Mortgage cannot have risky loan features, such as terms that exceed 30 years, interest-only payments, or negative-amortization payments where the principal amount increases. In the lead up to the crisis, too many consumers took on risky loans that they didn’t understand. They didn’t realize their debt or payments could increase, or that they weren’t building any equity in the home.
• Cap on how much income can go toward debt: Qualified Mortgages generally will be provided to people who have debt-to-income ratios less than or equal to 43 percent. This requirement helps ensure consumers are only getting what they can likely afford. Before the crisis, many consumers took on mortgages that raised their debt levels so high that it was nearly impossible for them to repay the mortgage considering all their financial obligations. For a temporary, transitional period, loans that do not have a 43 percent debt-to-income ratio but meet government affordability or other standards − such as that they are eligible for purchase by the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac) − will be considered Qualified Mortgages.

There are two kinds of Qualified Mortgages that have different protective features for a consumer and different legal consequences for the lender. The first, Qualified Mortgages with a rebuttable presumption, are higher-priced loans. These loans are generally given to consumers with insufficient or weak credit history. Legally, lenders that offer these loans are presumed to have determined that the borrower had an ability to repay the loan. Consumers can challenge that presumption, though, by proving that they did not, in fact, have sufficient income to pay the mortgage and their other living expenses. 

The second, Qualified Mortgages that have a safe harbor status, are generally lower-priced loans. They are generally prime loans that are given to consumers who are considered to be less risky. They will also offer lenders the greatest legal certainty that they are complying with the new Ability-to-Repay rule. Consumers can legally challenge their lender if they believe the loan does not meet the definition of a Qualified Mortgage.

The Ability-to-Repay rule does not affect the rights of a consumer to challenge a lender for violating any other federal consumer protection laws.

Today, the CFPB is also releasing proposed amendments to its Ability-to-Repay rule. These amendments would, among other things, exempt certain nonprofit creditors that work with low- and moderate-income consumers. The proposed amendments would also make exceptions for certain homeownership stabilization programs − such as those that offer loans made in connection with the Making Home Affordable program − which help consumers avoid foreclosure. The proposed amendments would also provide Qualified Mortgage status for certain loans made and held in portfolio by small creditors, such as community banks and credit unions. Finally, today’s proposed amendments invite comment on how to calculate loan origination compensation under the points and fees provision of Qualified Mortgages.

The proposed amendments, if adopted, would be finalized this spring and go into effect at the same time as the Ability-to-Repay rule in January 2014. The CFPB is dedicated to working with industry and consumers for a smooth transition to the new rule. To help creditors with compliance, the CFPB will, among other things, be publishing plain-language translations of the regulation for lenders in booklet and video form, issuing implementation guides, and, in coordination with other agencies, releasing materials that help lenders understand supervisory expectations. As the effective date approaches, the CFPB will give consumers information about their new rights under these rules.

The rule and proposed amendments will be available on Thursday at: http://www.consumerfinance.gov/regulations

A factsheet further explaining the new rule is at: http://files.consumerfinance.gov/f/201301_cfpb_ability-to-repay-factsheet.pdf

A summary of the final Ability-to-Repay rule is at: http://files.consumerfinance.gov/f/201301_cfpb_ability-to-repay-summary.pdf

SOURCE: CFPB Website

PR: CoesterVMS Implements Appraisal Industry’s First Flat-Fee Structure

Groundbreaking new fee model helps lenders better ensure RESPA compliance

January 7, 2013 – Rockville, MD – CoesterVMS, a nationwide appraisal management company, has implemented the appraisal industry’s first-ever flat fee model for residential appraisals. Under the flat fee model, which took effect on January 1, 2013, all conventional appraisals are priced at $450 while FHA appraisals are $475.

Customarily, appraisal management companies utilize a tiered fee structure, whereby prices are determined based on the property type or the state in which the property is located. CoesterVMS is the first appraisal management company to implement a 100% flat fee structure, regardless of the type or location of a property. In addition to providing the convenience of a consistent, reliable pricing structure, the company’s flat fee model enables lenders to better comply with guidelines under the Real Estate Settlement Procedures Act (RESPA) concerning how loan costs are disclosed to borrowers.

“RESPA guidelines mandate new disclosures to be sent to borrowers when the difference between quoted fees and actual fees is 10 percent or more,” said Brian Coester, CEO of CoesterVMS. “With tiered appraisal fee structures, there tends to be a lot of add-on fees, which can easily put the lender at risk of a RESPA violation. On the other hand, there’s nothing safer than a fixed fee.”

CoesterVMS implemented its flat fee structure after several months of successful testing. Previously, clients would be required to submit a certain number of orders to qualify for the flat fee. As of January 1, the flat fee became available to all CoesterVMS clients regardless of order volume. The change does not affect current CoesterVMS clients with negotiated contractual arrangements.

All CoesterVMS appraisals are subject to the industry’s most sophisticated quality control processes. These processes include cData, CoesterVMS’ proprietary searchable appraisal database; an appraisal scorecard that provides findings of CoesterVMS’ qualitative analysis; and an automated valuation model (AVM).

“We’re serious about transforming the appraisal industry from ‘the way it’s always been’ to ‘the way it should be,’” said Coester. “Value is comprised of quality, customer care and price. We already provide the best quality control, the most advanced appraisal management technology and praise-inducing customer service. Now, with our flat-fee model, we provide very best pricing, bar none.”

About CoesterVMS

CoesterVMS is a nationwide appraisal management company that specializes in providing comprehensive management of appraisal operations for mortgage lenders.  Headquartered in Rockville, Maryland, CoesterVMS was founded in 1970 as a local appraisal company and has since grown to a formidable nationwide force in the appraisal management segment. For more information please visit CoesterVMS online at www.CoesterVMS.com.

PR: Solidifi and Kirchmeyer complete deal positioning Solidifi as 3rd largest independent provider of residential real estate appraisals

BUFFALO, N.Y., Jan. 7, 2013 /PRNewswire/ -- Solidifi and Kirchmeyer, two leading independent real estate appraisal management companies, have joined forces in a deal that will see Solidifi become the third largest independent provider of residential real estate appraisals in the country. The company is a trusted, well-capitalized alternative to traditional appraisal management companies servicing more than 50% of the nation's top lenders.

"Following a $22 million financing in 2012, Solidifi is in growth mode and Kirchmeyer is an important part of our overall growth strategy. It is the ideal fit for Solidifi," says Jason Smith , Solidifi's President and CEO.

An industry thought leader, Solidifi is helping evolve the appraisal management business through its technology and analytics platform. In effect, it is using technology to build efficiency throughout the appraisal process, increase quality, drive costs out and improve the client experience. Solidifi's technology identifies the right appraiser for each assignment who will deliver high-quality comprehensive appraisals to the lender.

"Solidifi's technology and broad appraiser network will complement our own network and I and my team are excited to continue to service our current and future customers with these extended capabilities," says James Kirchmeyer , CEO of Kirchmeyer & Associates.

It's a winning value proposition all around: the appraisers are top of their field and are highly compensated for their efforts. The lender receives the right information the first time with no additional costs because the system is streamlined and designed to drive performance. The lender also benefits from Solidifi's and Kirchmeyer's 100% focus on being the best provider of real estate appraisals in the market. Both companies exclusively provide real estate valuations. This approach has allowed the companies to direct all their management and technology resources to outperforming competitors and exceeding their customers' expectations.

"I have worked with both firms and know firsthand that Solidifi and Kirchmeyer value high-quality appraisers," says Kevin Wang from AccuFast Appraisal Services. "The platform and model works. It helps make me successful as an appraiser and ensures the lenders get what they need when they need it."

Solidifi and Kirchmeyer are a cultural match. Both firms value quality, strong appraiser partnerships and exceptional customer service. Existing and new clients will benefit from a stronger, larger team of mortgage industry specialists known for outstanding relationships with lenders and appraisers.

"With our shared philosophy of assigning every order to the most competent appraiser to ensure delivery of a top quality report, the combined companies will continue to raise the bar in terms of service, quality and professionalism," says Andrew Bough , Solidifi's Chief Valuations Officer. Solidifi's elite network of appraisers in every county nationwide will complement the Kirchmeyer panel.

Solidifi has invested more than $25 million to date in its industry-leading technology platform which will further enhance appraisal performance for Kirchmeyer customers. The Solidifi cloud-based technology provides customers with a flexible and scalable appraisal management solution with the highest standards in data security and reliability including redundant servers in SAE16 certified data centers in Dallas, TX and Washington, DC.

Moving forward the combined entity will operate under the Solidifi name.

About Solidifi
Solidifi is a leading next generation provider of appraisal management solutions to the North American financial services industry. The organization offers a flexible technology platform for procuring collateral valuations from an elite network of high quality appraisers who openly compete for business based on quality, speed and price. Solidifi's parent company Real Matters is ranked 21st on Deloitte's Technology Fast 500. Solidifi is located in Buffalo, NY. Additional information about Solidifi is available at www.solidifi.com.

About Kirchmeyer & Associates
Since 1994, Kirchmeyer & Associates has a steadfast heritage of helping lenders nationwide manage appraisal compliance regulations. As a national appraisal and valuation company with licensed appraisers from coast to coast, Kirchmeyer & Associates provides lenders with fast turnaround times on reports focusing on quality and accuracy resulting in reduced risk and lender savings.

SOURCE  Solidifi

 RELATED LINKS
http://www.solidifi.com

PR Newswire (http://s.tt/1y3Ag)

Seven Cases the Defendant Appraisers Won Based on Expiration of the Statute of Limitations - Appraiser Law Blog

GUEST POST: Peter Christensen is an attorney who advises professionals and businesses about legal and regulatory issues concerning valuation and insurance.  He serves as general counsel to LIA Administrators & Insurance Services.  He can be reached at [email protected].

I am biased in favor of defendant appraisers.  I always root for the  defense, even if it's one appraiser suing another appraiser (as in one case below).  Defense is our business.  Here, are seven cases where the  defendant appraisers won based on a statute of limitations defense.   That means even if there was something wrong with the appraisal at  issue, the defense counsel still won the case.  So, you have to give the  credit to the defense counsel.  That's not to say there really was a  problem with the appraisal in each case below -- it just didn't matter  if there was.

READI members can find more cases like these, including cases where the appraisers lost, here on www.readimember.org.

Here are the seven cases:

Arkansas

Varner v. Peterson Farms, 371 F.3d 1011 (2004). Applying Arkansas law, a federal appeals court upheld dismissal of  fraud, unjust enrichment and conspiracy claims against an appraiser, and explained that the "statute of limitations begins to run-in the absence of concealment of the wrong-when the negligence occurs, not when the  negligence is discovered."

California

Bartha v. Deutsch, Cal. Ct. of Appeal, Unpub. Dec., No. F058669 (2010). In an action by an appraiser against a review appraiser for defamation, the California appellate court ruled in an unpublished decision that  the 1-year defamation limitations period applied, not the 2-year  limitations period for negligence. The appellate court upheld the trial  court’s dismissal of the defamation claim against the review appraiser.

Indiana

Farmers & Merchants Bank v. Putnam, Indiana Court of Appeals (2009). Applying Indiana law, a U.S. District Court dismissed negligence claims by lender against appraiser based on 2-year limitations period for  negligence. The court found the bank had or should have discovered the  alleged appraisal negligence more than 2 years before filing the lawsuit against the appraiser because it had earlier alleged in a suit against  the borrower that the borrower lied to the bank about the value of the  property. The court ruled that the bank’s fraud claim, however, would  not be dismissed based on the longer 6-year period applicable to fraud  claims under Indiana law.

Ohio

Flagstar Bank v. Airline Union's Mortgage Co., 128 Ohio St.3d 529 (2011). Ohio does not follow a "discovery rule" for negligence claims against appraisers.  Accordingly, the Ohio Supreme Court upheld dismissal of Flagstar’s negligence claims against appraisers because Ohio's 4-year limitations period begins at  time appraiser performs appraisal.  In the primary claim at issue in the case, Flagstar sued a  residential appraiser about three appraisals performed in 2001 and 2002  for three different loans which defaulted in 2003 and 2005. Flagstar  blamed the appraiser for its financial losses on the loans but did not  file a lawsuit until 2008 – seven years after the first appraisal. On  appeal, Flagstar tried to argue to the Ohio Supreme Court that the  statute of limitations should not begin to run until it discovers the  full extent of the alleged damage it has allegedly incurred as the  result of negligence in an appraisal. The Ohio Supreme Court ruled in  favor of the appraiser. It confirmed that the period in Ohio begins to  run when the appraisal is delivered, and it affirmed the dismissal of  Flagstar’s claim because Flagstar filed its lawsuit years after that  period had expired with respect to each claim.

Michigan

Capital Bankcorp Ltd. v. Landheer Appraisal Service, et al., Michigan Court of Appeals, No. 291966 (2010) (unpublished decision). A Michigan appellate court upheld dismissal of lender's claim against  appraiser based on statute of limitations because lender should have  discovered appraisal faults with reasonable diligence.  The court concluded that the statute of limitations began running from the time that the lender should have discovered the faults if it had acted diligently.  In particular, the lender alleged in its complaint that the appraisal was defective because the appraiser was only licensed, not certified, and that the appraisal was inflated.  The court concluded that these alleged issues would have been discovered by the lender if it had acted with reasonable diligence.  Among other things supporting that conclusion was the fact that the lender possessed an earlier  appraisal with different information than contained in the appraisal by  the appraiser it sued.

New York

LSF6 Mercury REO Investments v. Midrome, Inc., et al., New York Supreme Court, New York County (2012). New York does not follow a "discovery rule" for negligence claims against appraisers and has a 3-year limitations period under New York CPLR 214  (6). Thus, the trial court dismissed two consolidated cases filed by a private equity fund LSF6 Mercury REO Investments against appraisers and appraisal firms because the appraisals were performed more than 3 years before LSF6 filed its legal actions.  (For more information about LSF6 and its voluminous litigation against appraisers, see this article Who Has Been Suing the Most Appraisers?  Two Names You Know.  Two Names You've Probably Never Heard.)

Early v. Rossback, 262 A.D.2d 601 (1999). In this older case, a New York appellate court upheld dismissal of an alleged malpractice claim  against appraiser filed more than 3 years after appraisal and held that the 3-year limitations period under New York CPLR 214  (6) applies to appraiser malpractice claims whether those claims are  alleged in tort as a negligence claim or as a breach of contract.  Again, New York does not follow a "discovery rule" for negligence claims against appraisers.

Click here for the full article: Seven Cases the Defendant Appraisers Won Based on Expiration of the Statute of Limitations

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Appraisers can learn more about ways to reduce their liability risk at www.readimember.org -- a free resource created by LIA Administrators & Insurance Services.

AUTHOR: Peter Christensen is an attorney who advises professionals and businesses about legal and regulatory issues concerning valuation and insurance.  He serves as general counsel to LIA Administrators & Insurance Services.  He can be reached at [email protected].

 

"Hard Stops" - Uniform Collateral Data Portal (UCDP) User Guide for Fannie Mae Messaging

GUEST AUTHOR: Dave Towne, Certified Real Estate Appraiser - Towne Appraisals.  16422 Britt Rd., Mount Vernon, WA  Phone: 360.708.1196   eMail: [email protected] Web: http://www.TowneAppraisals.com

Appraisers……..This will seem a bit ‘dry’but it’s something you need to know.

The UAD form reporting process we all are thrilled with has other components.  Part of this initiative mandated by the conservator to the GSE’s is an electronic review portal called the Uniform Collateral Data Portal (UCDP).  The UCDP will become more stringent and restrictive as of Jan. 23, 2013.

The UCDP is designed as a second-level defense to be sure appraisal reports have proper and mathematically acceptable info.  This info is apparently based on certain GSE reporting requirements in their Seller Guides, and also per info in the UAD Appendix D we need to comply with.  Each report will be run through the UCDP electronic review process at the GSE level, and to some degree will
probably be implemented by AMC’s and Lenders.

You can read more about this process in the attached PDF Download UCDP - User-Guide-Fannie-Mae-messaging

The Appendix pages, starting on page 21, show what will cause your report to be ‘hard stopped’ or to have a ‘warning’ issued.  Once a ‘warning’ is generated, the report will be automatically ‘hard stopped.’  Meaning: lending process will halt until corrected.  If the appraiser has not described within the report information that will allow a convincible override by the Lender, it will probably result in a QA notice back to the appraiser for additional info or correction.

What is interesting and unclear to me is wording used to flag the ‘warning’ messages, such as:

“HOA fee relative to appraised value appears excessive.”

“Subject property’s year built is outside the expected range.”

“Subject property’s prior sale amount is not in the expected range relative to appraised
value.”

“Finished basement area for comparable property #<comparable number> is significantly
different from the subject property.”

 

But what this really means is ‘math’ will be used to evaluate differences between subject and all comps. Your report will be computer read, with a generated report before an actual human reviewer sees it.  This is all made possible by MISMO XML!  But how the ‘excessive,’ ‘expected’ and ‘significant’
differences will be determined is not defined – at least in this document.

The first level defense to properly documented reports is your report software on-board UAD reviewer which should be run prior to report delivery to the client.  Another suggestion: review (and perhaps print to keep) pages 21 through 30 of the PDF.  Get familiar with how the UCDP electronic review will be conducted, and then structure your reports accordingly.

The take-away:  be sure all your comps are 100% matches to the subject!  Your reports
will then zoom through the system, never to be ‘hard stopped.’

GUEST AUTHOR: Dave Towne, Certified Real Estate Appraiser - Towne Appraisals.  16422 Britt Rd., Mount Vernon, WA  Phone: 360.708.1196   eMail: [email protected] Web: http://www.TowneAppraisals.com

 

Dave Towne Offers Appraisers. . . "Some thoughts to pass along"

GUEST AUTHOR: Dave Towne, Certified Real Estate Appraiser - Towne Appraisals.  16422 Britt Rd., Mount Vernon, WA  Phone: 360.708.1196   eMail: [email protected] Web: http://www.TowneAppraisals.com

 

Some thoughts to pass along:

Attorneys –

Attorneys will attempt to get you to do work for free.  They can be subtle about the way they ask for info.  I learned via the school of hard knocks this year to be extremely cautious in the future.  I strongly recommend whenever an attorney contacts you about an appraisal assignment [that is not a legitimate
engagement] or request for info (which normally requires research time), that you start with a retainer (payment in advance) prior to doing any work.  They charge their clients for similar work – you should also.

 AMC assignments –

When I was graciously accepted as a trainee by my mentor, we were paid “X” for each assignment, and
more if the property was complex.  Once AMC’s began to proliferate, we were paid ‘less than X’ for doing the same work … the AMC’s were stealing part of our customary fee to pay their overhead.

 But since the Dodd-Frank law was passed, most of the better AMC’s now pay customary fees to
appraisers.  My income per assignments is now back to “X” and in some cases ‘more than X’.  But I ABSOLUTELY REFUSE to accept assignments for less than X.’  Those clients who don’t want to pay “X” can find someone else.  That means ‘you’ who are afraid to charge more, but could earn more
if you would only ask for a higher fee.

 I know appraisers in my area who are getting ‘better than X’ … in other words, paid more now than they were just a few years ago.  This is because they stand firm on their fee.

The point of this is to evaluate your business practice.  Then go to the foundry to get some brass.  You can and should demand to be paid a fair fee today that is at least equal to or above what you were paid a few years ago before the stealing began.

 Review assignments –

Many desk and field review assignments are being placed these days.  Foreclosures on loans made in
2006+ have caused the GSE’s, FDIC and banks to re-evaluate the appraisals that were initially used to justify the mortgage loan.

Review assignments are not difficult, but they are more time consuming.  Thus, your fee for doing a
review should be AT LEAST what your “X” figure is.

Doing 1.5 – 2x+ the work for .5 to .75 (or less) of a customary fee, and to take on the additional
liability, is ridiculous.

Too many appraisers have agreed in the past to severely low-ball the review fee, and that has rippled
through the industry.  Frankly, if you are unwilling to charge – at a minimum - what your customary “X” fee is, then let someone else do the assignment.  Only when all appraisers wake up to this will be when the review fees will move higher at the time of the initial request.

And from first-hand experience the FDIC and GSE reviews have increased reporting requirements.  So be sure to carefully read the engagement instructions before agreeing to a fee in advance.  These assignments often require extra data documents to be included within the report.

Associate with other appraisers –

Resolve this coming year – as early as possible – to get outa your bathrobe, bunny slippers and basement and actually interact with other appraisers.  They really are nice people!  Join your state appraiser association, join a national association, and try to meet with your local appraisers casually over breakfast, lunch or dinner during the year.  (I can help you learn ‘how to do that if necessary.’) 
Don’t discuss who the individual clients are, but do discuss challenging assignments and the type of work your peers do.  Your peers are your source for referrals – both in and out.  So don’t be afraid! 
Associating with your peers is really a positive experience.  Really!

 

Hope your 2013 is as productive in terms of income (or more so!) than ’12 has been for most
of us.

 

GUEST AUTHOR: Dave Towne, Certified Real Estate Appraiser - Towne Appraisals.  16422 Britt Rd., Mount Vernon, WA  Phone: 360.708.1196   eMail: [email protected] Web: http://www.TowneAppraisals.com

Real Estate Purchase Contract Scams - Tricking Appraisers To "Hit The Target"

GUEST AUTHOR: Vernon Martin, the founding principal of American Property Research, performs paid research, due diligence and valuations regarding commercial real estate
throughout the world. He has 28 years of commercial appraisal experience and has
worked in 20 countries, 39 U.S. states, and four Canadian provinces. He was  previously the chief commercial appraiser at 3 national (U.S.) lending institutions, formerly taught Real Estate Valuation at California State University, Los Angeles and has authored many professional journal articles and two books.

The appraisal textbooks don’t mention these, so I will.  Real estate purchase contracts are often
constructed to mislead lenders and appraisers.  Various ruses are used to inflate stated purchase prices above market  value, with the hope of tricking an appraiser into valuing a property at above market value and tricking a lender into offering a loan at an imprudent loan-to-value ratio.  

What the buyer and seller are counting on is a phenomenon known as “anchor bias”, the tendency of appraisers to offer an appraised value identical to the purchase price. Various academic studies have indicated that this happens about 96 to 97% of the time, although some appraisers seem to have been getting wiser lately.  Some ruses that I have recently seen include the following:

1. The “soft second” mortgage loan – forgivable seller financing used to inflate the contract purchase price.  

My last appraisal assignment presented such a possibility. It was an $8 million purchase contract which was contingent upon $4 million in first mortgage financing, supplemented by seller financing of $4 million. The buyer would have no equity in the property, a situation that presents a high risk for loan default.

I suspected that the seller financing was a “soft second”, a seller concession disguised as a fake loan. My suspicion was well supported by a contract purchase price which was $1.6 million above the listing price for a property that had been marketed for almost 3 years. I found the listing on the Internet.  

Normally, the term “soft second” in the real estate industry refers to a legitimate second mortgage loan made at a below-market rate, perhaps subsidized by a government agency or a nonprofit entity. In some cases, though, the seller financing is not meant to be paid back. It is a price concession in disguise, meant to inflate a contract purchase price.

An appraiser cannot be sure the second mortgage is real or fake, so he must look for clues, the most obvious of which is that the purchase price is not supported by comparable sales or the purchase price is above the asking price. The lack of equity contributed by the buyer should also make lenders and appraisers think twice.     One would think that some government agency or appraiser association would issue an “all points bulletin” on this deception, but this scam continues to this day.

2. Unsigned purchase agreements in draft form.

 

I have seen a proliferation of this trick in the last 2 years, and am currently witnessing it happen on a
transaction in Puerto Rico.  The buyer just says that the purchase contract has not yet been finalized and submits his own version, usually in MSWord, with a different price.  Very simple, but these deceivers are counting on appraisers or lenders who will believe anything.  

 

Normally, an application for a purchase mortgage loan comes with an already-signed purchase agreement with contingencies for financing. Why and how could there be a closing without a definitive purchase agreement? An agreement that is not written is commonly known as not worth the paper it is written on. There is no reason for an appraiser to accept an unsigned, draft purchase agreement as a reliable indication of value.

 

3. The double escrow
 
This is when there are two purchase contracts for the same property.  The first purchase contract is the legitimate one, and once closed, the buyer can then sell at a higher price to an entity he controls in a different purchase contract that he will submit to lenders and appraisers.  The latter transaction, however, is a sham "pocket-to-pocket" transaction.

 
4. Secret partnerships and "transaction facilitators"
 
In one instance I met with the owners/sellers of swampland intended for development of a marina residential community. The buyer and sellers were old friends. I was presented with three conflicting purchase contracts, and whenever the story keeps on changing, that is a good sign of deception. After four hours I asked Mr. Seller where he would  be moving to. He seemed surprised and responded, "I'm staying here, of course.  I've got a lot of work to do!" which made it clear that he was part of the development team. I looked at his wife, whose facial expression said "How can my husband be so stupid?"

I discovered  one company in Arizona that advertised "transaction facilitation" services. Step 1 is that the buyer forms a joint venture partnership with the transaction facilitator in buying the property in the guise of an LLC or Limited Partnership. Step 2 is the shell company (the LLC or LP) sells to the buyer
again at a higher price in a sham transaction designed to trick a lender and maximize financing.
 
Another type of "transaction facilitation" is those services which "rent" cash down payment money overnight to buyers while the purchase price is inflated to cover the amount of the phony down payment.  Law enforcement has been shutting down such operations in the United States.

Other purchase contract deceptions 

 

It is risky, any way, for an appraiser to automatically assume that a contract purchase price is identical to market value.  I have seen fake purchase contracts and purchase contracts which disguise the fact that the buyer and seller are one and the same. I have seen purchase prices inflated by real estate
syndicators who are compensated as a percentage of the transaction price.

 

Many appraisers are so convinced that the purchase price is real that they make the mistake of making
unconventional adjustments to sales data to support the stated purchase price. They may choose much newer properties or much smaller properties as comparable sales and fail to make adjustments for age or size.
 
Questions to ask
 
The first thing I do in analyzing the purchase transaction is to peruse the Internet to try to find the property listed for sale. LoopNet and realtor.com are good sources, but sometimes if you just google the address of the property, you can find a more obscure listing. When I find the property listed at a price below the contract purchase price, and the property has already spent a substantial time on the market, that is cause for suspicion.

The next question I ask the buyer and the seller, separately if possible, is "who were the listing broker and the buyer's broker on this transaction?" The reason why I ask is that I see so many purchase loan applications which are not represented by a broker, begging the question of how the buyer and seller found each other in a market with so many properties listed for sale. 

If there was no broker, there was most likely no listing or advertising, meaning the buyer already knew the seller, increasing the odds that the purchase transaction is not arm's length or even a
"pocket-to-pocket" transaction with the owner buying the property from himself with my client's financing. Past experience has shown me that this is a way to make the lender the unintentional buyer of a hard-to-sell property.

One tell-tale sign of a fraudulent purchase is when the buyer complains that the value is too low. In legitimate purchases, the buyer often uses a low appraisal to negotiate a better price, and they sometimes even thank me, but when a buyer starts making phony excuses as to why the appraised
value should be higher, it is a signal to me that the buyer is either already affiliated with the seller or else the buyer and seller have negotiated a separate purchase agreement and the contract I was given was
phony.

Recent adverse publicity for the appraisal profession
 
The National Association of Realtors (U.S.) has recently unleashed their well-funded publicity machine to criticize appraisers for failing to "hit" purchase prices. They publicize sob stories of realtors whose purchase deals fell apart.  "I had a bona fide purchase contract and the incompetent appraiser appraised it too low!" Such things could be said about me, too, but nothing is being said about the epidemic of deceptive purchase contracts nowadays.
 
To appraisers who think they must "hit" the purchase price:

If it was really true that the market value of a property is always the same as the purchase price, there would be no need for appraisals, would there be?

 

AUTHOR: Vernon Martin, the founding principal of American Property Research, performs paid research, due diligence and valuations regarding commercial real estate throughout the world. He has 28 years of commercial appraisal experience and has worked in 20 countries, 39 U.S. states, and four Canadian provinces. He was previously the chief commercial appraiser at 3 national (U.S.) lending institutions.  Full profile: click here