Appraisal Scoop

Liability.com Claim Alert: Three easy steps to reduce your liability

The following is from the January Liability.com Claim Alert: Three easy steps to reduce your liability - (January 2011)

Despite the large number of claims stemming from the mortgage crisis, the professional liability risk to appraisers remains manageable with prudent loss prevention. Most claims at this time – whether they are frivolous or have a justifiable basis – relate to appraisals completed during the real estate and mortgage bubble years of 2004-2007. An appraiser has little control now over whether a lender, borrower or other party will make a claim about work in the past.

Our single best piece of advice with respect to reducing your risk for prior work is to keep your reports and workfiles for longer than the minimum five years required by USPAP. We suggest keeping them for seven or eight, or even longer. USPAP has no relevance to any statute of limitations period and whether a plaintiff can sue you about an old appraisal. Given that we are seeing claims about appraisals dating back to 2004 and sometimes earlier, we think that keeping reports and workfiles, in paper or electronically, for seven or eight years provides a better margin of safety for appraisers.

Fortunately, there is much more that an appraiser can do to reduce the threat of liability from future work. You may have heard the following tips previously over the years, but they are more relevant now than ever. You’ll find more information and more tips in the loss prevention section of our website at liability.com and available at our new resource readimember.org.

Appraise Your Client and the Assignment. Appraisers report hundreds of claims to us every year. Time and again, appraisers start the story about a claim with something like "I had a bad feeling about this client" or "I had a suspicious feeling about the transaction." Here’s a recent example: an appraiser reviewed a sales contract in connection with a home purchase loan and accurately reported in her appraisal that the contract contained significant sales concessions. The concessions exceeded the limits in new lending guidelines. After the appraiser submitted her report, the lender’s agent very quickly came back to the appraiser with a "new" sales contract with the same date, signatures and markings, but leaving out any concessions, and wanted the appraiser to prepare a new report. The appraiser declined. In other situations, we’ve heard appraisers basically say that they knew their client was going to use the appraisal report in a misleading way, but that they figured they could cover themselves with a disclaimer or other cleverness in the report.

Your knowledge – or even nothing more than a gut feeling – about a dishonest situation is your radar in avoiding lawsuits or disciplinary investigations. Many of these situations do produce claims and your best loss prevention strategy is to turn down the assignment if any part of, or any party to, the transaction "smells fishy".

Check and Proofread Your Work. This is certainly obvious advice, but we have to say it because we receive too many claims that result from poor quality control. Indeed, we have had claims asserted against appraisers relating to plain old typographical errors. In one recent case, an appraiser delivered an appraisal report through a management company to a lender for its use in evaluating the sale of an REO property. In the report, the appraiser entered the wrong first digit in his opinion of value – i.e., the appraiser keyed in $150,000 when the value in the report should have been $250,000. While any reasonable reader of the report should have recognized the obvious error because the number was outside the range of adjusted comparables and could not be reconciled with other data in the report, we still had to defend a claim by the management company because the lender allegedly agreed to sell the REO at a low price based on the appraiser’s typographical error.

We also see too many lawsuits and disciplinary matters each year involving reports in which entire sections of data or information are copied over from another report and left unchanged. We see these problems from both residential and commercial appraisers. In residential reports, appraisers often carry over data and information that remains in the software template from a prior report in their system. In commercial narrative reports, we see appraisers borrowing sections written for other reports but then failing to update or revise the information to fit the new assignment. Claims about problems like this are even uglier when the data or information is copied from a report by a different appraiser.

These are usually embarrassing claims for the appraisers. Even if the affected data or information would have had no impact on the appraiser’s opinion of value, this kind of carelessness provides fodder for the lender or borrower’s attorney, and the appraiser is never anxious to have his or her deposition taken in a case like this or to take the stand in court. Accordingly, our simple advice is that a lot of liability risk can be avoided by taking the time to check and proofread your work.

Be Careful What You Promise. As the mortgage crisis has unfolded, businesses involved in lending, whether residential or commercial, have become more keenly aware of their potential liabilities. Overall litigation related to mortgage lending has increased more than tenfold (far more than appraisal related litigation). A visible result of all this litigation has been an increasing use of indemnification provisions in legal agreements, including appraiser engagement agreements and AMC independent contractor agreements.

Indemnification essentially means a promise to reimburse someone else for certain costs or expenses. Appraisers need to be careful about what they agree to in this regard because lenders, servicers and AMCs are now routinely demanding that appraisers promise more and more with respect to indemnification.

For example, a new independent contractor agreement used by a well-known AMC states, in part

Appraiser shall further indemnify, defend and hold [AMC] harmless from and against any and all claims, losses, liabilities, costs and expenses attributable to any allegation of intellectual property infringement arising out of this Agreement.

Under this provision, the appraiser is agreeing to indemnify the AMC for liabilities for things like patent and copyright infringement in relation to any appraisals delivered by the appraiser – whether the alleged infringement is the fault of the appraiser, the AMC or some third party, such as a software provider. Another AMC’s independent contractor agreement states, in part:

 

Appraiser shall indemnify, defend, save and hold harmless [AMC] from and against any and all liability, claims, damages, losses, fines, judgments, suits, decrees, costs and expenses . . . in any way related to . . . any appraisal report submitted to [AMC] by Appraiser.

This provision similarly would enable the AMC to argue that the appraiser must indemnify the AMC for liabilities or damages and even fines assessed against the AMC relating in any way to appraisals delivered to the AMC by the appraiser – even if the alleged problems are the result of the AMC’s own conduct.^[*1]

Indemnification provisions also appear in contracts for commercial appraisal work. Fortunately, commercial appraisers often have more leeway to negotiate different or more reasonable language. A reasonable indemnification provision – if one is going to be included in a contract at all – would ideally be two-sided, meaning that both parties have a mutual obligation to each other to indemnify the other party for liabilities arising from one side’s negligence or errors or omissions.

Residential appraisers, on the other hand, often have limited ability to negotiate with lenders and AMCs, and often their only choice is to say "no" to the business relationship if the risk being shifted to them outweighs the benefit of doing business with the lender or AMC.

There are insurance concerns too with indemnification provisions. As to this issue, appraisers should understand that indemnification provisions such as the two from AMC agreements exemplified above do not change an appraiser’s E&O insurance coverage or "void" the policy. The E&O policy will still provide the same degree of protection and coverage as if the indemnification agreement did not exist. However, under these types of indemnification provisions, appraisers are agreeing to pay losses, damages, attorneys' fees, etc. of the AMC even if the loss or damage results from the AMC’s own errors or wrongdoing. Further, the appraiser is agreeing to indemnify the AMC for types of damages that are beyond the realm of E&O coverage, such as damages for patent infringement. Thus, the appraiser is agreeing to pay potential costs and damages that are broader than can be covered by the appraiser’s insurance. An appraiser’s E&O policy can only cover mistakes or damage caused by the insured appraiser (not a third party such as the AMC) and cannot cover liabilities forced on the appraiser by contract.

When appraisers are concerned about the nature of liabilities they may be assuming under an indemnification provision, we encourage them to discuss the relevant language with us. More information is also available on this topic in our loss prevention resources at liability.com and readimember.org.

Source: from the January Liability.com Claim Alert: Three easy steps to reduce your liability - (January 2011)

The Single Biggest Liability Threat to Appraisers: the FDIC

The Single Biggest Liability Threat to Appraisers: the FDIC By Peter Christensen of the Appraiser Law Blog

The single biggest liability threat to both residential and commercial appraisers is the Federal Deposit Insurance Corporation. The FDIC held a conference last week in Chicago for law firms interested in representing the FDIC. What came out of that conference made me very anxious for appraisers, but it's much more than just a threat to individual appraisers. What the FDIC is doing hampers the ability of the appraisal profession to deliver accurate valuations going forward.

The reason is: if you're an appraiser doing work for a lender (which may or may not be one of the 700+ troubled banks on the FDIC's watch list), you know your risk of being sued by the FDIC for overvaluation in hindsight is eliminated by "coming in low" on the appraisal. That means more loans don't get made.

The FDIC has taken over more than 200 banks since the beginning of the mortgage crisis. When the FDIC takes over a failed bank, it usually sells off the banking assets to an existing lender but retains all of the potential legal claims against the failed lender's directors, officers, mortgage brokers, accountants, lawyers, appraisers, AMCs, etc. The FDIC is now in the business of suing these parties, blaming them for its failed banks' bad lending practices.

To show the wide scope of the claims that may be pursued by the FDIC, I have attached an excerpt from the FDIC's agreement to sell the assets of failed Downey Savings to U.S. Bank in 2008. In this agreement, which is very typical, the FDIC specifically retained the right to sue any person "whose action or inaction may be related to any loss . . . incurred by the Failed Bank." This means appraisers -- and many others -- to the FDIC.

At the conference for law firms interested in FDIC work, the FDIC made it very clear that pursuing professional liability claims is a major part of their intended course of action in the next two years. The FDIC is hiring hundreds of law firms do this work and plans to award contracts totaling more than $2 billion in 2010 for its various recovery efforts (not just professional liability). The FDIC's in-house lawyers stated that their efforts are going to resemble what the RTC did in the early 90's following the savings and loan crisis. Suing professionals and blaming them for failed banks' losses is such a significant part of the FDIC's plan that the division within the corporation has a special acronym: they refer to it as "PLG" for Professional Liability Group. At least from the conference, it was very clear that the FDIC has no conscience as to the impact that its "blame game" will have on the targeted individuals or, moreover, on the affected professions. If it makes individual appraisers feel any better, however, when it comes to appraisal issues, it is not just appraisers who have targets on their backs -- AMCs are on the radar screen too.

What can appraisers do? In my lawyer, non-appraiser opinion, it comes down again to appraisers supporting professional associations such as the Appraisal Institute and NAIFA to apply organized political pressure. It's not just "bad apple" appraisers who are being affected by the FDIC's actions -- good appraisers are being entangled too and, if unrestrained, the FDIC will have a negative impact on the profession as a whole.

Regulators and lawmakers need to understand why it's bad public policy for a quasi-government agency like the FDIC to be deputizing private law firms and launching unrestrained attacks on individual appraisers. Appraisers are professionals who render opinions of value -- they are not guarantors of collateral value or mortgage insurers for loans extended by the FDIC's failed banks at the peak of the bubble.

The threat of draconian, high volume litigation by the FDIC hampers the present ability of appraisers to give accurate valuations. In the current state of the real estate markets, the only way an appraiser can guarantee that he or she will avoid a later FDIC claim about over-valuation is to "come in low" on value.

Source: Appraisal Legal Defense and Insurance Blog by Peter Christensen and Robert Wiley - Legal issues and insurance matters affecting residential and commercial real estate appraisers

Law.com - Down Market Drives Up Lawsuits Against Appraisers

As it did the last time the real estate market tanked, the downturn has triggered an uptick in lawsuits against appraisers.

But what's a little different this time is that many of the lawsuits are generated by borrowers rather than lenders, lawyers who represent appraisers say.

"They're really coming out of the woodwork," said Peter Catalanotti, an associate at Manning & Marder, Kass, Ellrod, Ramirez in San Francisco. "We're seeing borrowers suing, saying, 'We never would have bought that house if we'd known it wasn't worth that.'"

Borrower lawsuits account for about 75 percent of the uptick in lawsuits against appraisers, said Peter Christensen, general counsel for Santa Barbara, Calif.-based LIA Administrators and Insurance Services, an insurance administrator specializing in coverage for real estate appraisers.

Still, overall the amount of litigation against appraisers is relatively small potatoes, Christensen added -- annually about 1,200 lawsuits for professional liability before the mortgage crisis, and now around 2,000, representing about $100 million a year in damages nationwide. "It's a very small world," said Christensen, who is also the author of a blog about legal defense of real estate appraisers.

Catalanotti said he's handled about 10 lawsuits against appraisers since the outset of the mortgage crisis.

 Click here for the rest of the article - Law.com - Down Market Drives Up Lawsuits Against Appraisers

Reducing the Risk of Borrower Claims Against Residential Appraisers

Reducing the Risk of Borrower Claims

By Peter Christensen of the Appraiser Law Blog

 

Borrowers are currently the most common source of claims against residential appraisers. Regardless of the fact that they are not the intended users identified in almost all reports, borrowers are filing a majority of the lawsuits and demand letters we see against residential appraisers. This article discusses common borrower claims and suggests new approaches that appraisers might consider on how to decrease the risk. (No party contemplating filing a lawsuit against an appraiser should view the discussion of claims here as an indication that pursuing a claim will be fruitful. Anyone considering suing an appraiser should read this first: "Should I Sue the Appraiser?")

 

• Alleged Overvaluation
• Alleged Undervaluation
• Square Footage
• Sewer versus Septic
• Problems with the condition of the structure
• Undisclosed damage;
• Erroneous flood zone determinations
• Property line/boundary issues and unidentified easements
• Nearby nuisances such as retention ponds or factories.

Alleged Overvaluation

The single most common claim asserted by borrowers is that the appraiser overstated the value of the subject property. These claims come mostly from borrowers who purchased or refinanced properties near the peak of the bubble and are now in financial distress. Quite simply, more mortgage defaults mean more claims by distressed borrowers hoping for a financial payoff.

Most overvaluation claims by borrowers fit a common pattern: borrowers typically allege that they borrowed or paid too much because the appraiser overstated the property’s value and often also accuse the appraiser of conspiring with the lender to make sure the loan would close. There is always more to the story with these claims, however. The appraiser’s defense counsel typically discovers that the lender overlooked its underwriting guidelines or the borrower’s inability to pay or that the borrower lied to get the loan. And, in many cases, the borrower never even looked at or considered the appraisal until his or her lawyer started coming up with parties to sue and therefore did not legally “rely” on the appraisal.

Alleged Undervaluation

On the flip side, a noticeable new trend in the last year has involved complaints by borrowers that appraisers have undervalued properties. This trend unfortunately means that appraisers are being attacked from all sides. Claims alleging undervaluation are usually made soon after the delivery of a report and are often intended by the borrower to intimidate appraisers to change valuations or to strike back at appraisers who have reported lower than desired values.

A typical scenario involves a homeowner seeking to refinance a loan on a property purchased at the peak of the real estate bubble. The appraiser will accurately report a current value that in many cases is 20% to 30% less than what the homeowner paid. When the loan officer informs the homeowner that the loan cannot be made and provides the appraisal to the homeowner as required by the HVCC, the homeowner or his or her attorney sends a demand letter to the appraiser threatening to sue the appraiser or report the appraiser to the state unless the appraiser raises the value or somehow “retracts” the report. Often, there is a threat that if the homeowner does not obtain the loan he wants, he will sue the appraiser for the interest that the homeowner theoretically would have saved if the homeowner had received his or her desired loan. In our opinion, most of these claims are frivolous, and we view them as an indicator that appraisers are doing their job and providing accurate information to their lender clients.

Square Footage

The third most common borrower claim we see involves square footage. These claims usually involve appraisals performed for purchase loans. The borrower typically alleges that the appraiser overstated the square footage of the subject property and thereby caused the borrower to pay too much for a home. The borrower will usually demand an amount for the “missing” square feet (e.g., $200 per square foot times 300 square feet). Alternatively, a borrower will claim that he or she would never have purchased the home at all if he or she had known it was 300 square feet smaller and then demand payment from the appraiser for the entire purchase cost. In square footage claims, the appraiser has sometimes not even made an error in the report – the homeowner may be relying on inaccurate information from another appraisal, the owner’s personal measurement or public records. Other times, the appraiser did err and the error results from measuring incorrectly, relying on plans or public records without identifying that reliance, or counting areas that should not be included in gross living area.

Sewer versus Septic

Year in and year out, claims about appraisers misidentifying whether a home is on a septic system or public sewer continue to roll in. A common scenario here occurs when several years after purchasing a home, a homeowner encounters a waste blockage and is informed that his or her septic system must be repaired or replaced. The homeowner is shocked by the cost and notices that the appraisal identified the home as being on a public sewer. Now, the homeowner makes a claim against the appraiser for the cost of the septic system repair or seeks the cost of connecting to a public sewer, if available. Of course, the homeowners who make these claims never appreciate the fact that they never had to pay monthly sewer fees.

Other Borrower Claims

The other claims that borrowers bring against residential appraisers taper off from here into a creative shopping list. The more frequent of the claims on this list include:

1. Problems with the condition of the structure like leaking roofs, electrical problems or undisclosed damage;
2. Erroneous flood zone determinations;
3. Property line/boundary issues and unidentified easements; and
4. Nearby nuisances such as retention ponds or factories.

A Suggested Claims Prevention Strategy

It should go without saying that the first rule in reducing the risk of claims from any source is to do good appraisal work and to disclose and analyze the effect of any specific conditions or anomalies affecting a property. The best disclosure and analysis uses real world language tailored to the specific issue with the property, not canned phrases from a macro key entry.

Leaving aside that general advice, the common thread woven into nearly all borrower claims is that the borrower is almost always not the appraiser's client or intended user. This fact can serve both as a tool for appraisers to decrease their risk of becoming the subject of a borrower claim and as a viable defense when such claims are pursued. The appraiser should not do or say anything either verbally or in the report suggesting that the appraiser expects the borrower to use or rely on the report or that the borrower may use or rely on it.

 

Click  below to continue reading . . .

 

What Should the Good Appraiser Do When the FBI or Any Law Enforcement Officer Calls?

The FBI is on the Phone for You
By Peter Christensen

The FBI released a report earlier this year entitled 2008 Mortgage Fraud Report "Year in Review". It indicated the obvious: that reports of mortgage fraud and investigations of it by the FBI increased significantly in 2008. The FBI further indicated:

"With the anticipated continued upsurge in mortgage fraud cases, the FBI has created the National Mortgage Fraud Team (NMFT); fostered new and existing liaison partnerships within the mortgage industry and law enforcement; and developed new and innovative methods to detect and combat mortgage fraud.

In December 2008, the FBI established the NMFT to assist field offices in addressing the financial crisis, from the mortgage fraud problem and loan origination scams to the secondary markets and securitization. The NMFT provides tools to identify the most egregious mortgage fraud perpetrators, prioritizes investigative efforts, and provides information to evaluate resource needs."

One result of the FBI's intensified effort seems to be that appraisers have been getting more calls than usual from FBI special agents wanting to ask questions about particular reports. The agents almost never indicate specifically what they are investigating (other than "fraud"), who initiated the investigation, or who is the direct subject of the investigation. Often, the agents try to be friendly and say something like: "I'm looking at your report here and I'm just wondering if you can tell me a bit about how you arrived at your value" or "I have a review of your appraisal that has a much lower value, can you help me understand why?" Sometimes, the agents suggest that giving them some information will help them close up the file and not have to bother the appraiser again. The agents will then often also ask the appraiser to come down for an interview or tell the appraiser they'd like to come by and have a look at the file.

I have no doubt that there are some appraisers spread across the country who actually may have crossed the line and may have some culpability for engaging in intentional fraud. My post here is not for those appraisers. The typical situation I see, however, is much more innocent.

The appraiser receiving the agent's call is more typically scratching his head trying to figure out why the FBI would be interested in the subject report. It usually seems like the report under scrutiny is no different than any other assignment, except maybe there's been a subsequent foreclosure on the property. And, I do think that in most of these cases when an FBI agent is inquiring about an appraiser's report, there is likely nothing wrong with the report itself. In fact, I've recently seen inquiries from the FBI and other state and federal investigative agencies that seemed to be based on nothing more than a lender having a foreclosed mortgage and a low-ball retrospective appraisal in the file.

What should the good appraiser do when the FBI or any law enforcement officer calls?

• First, of course, you need to be friendly and polite. The last thing you want to do is give the impression that you're hiding something by being short or difficult.
• Second, try to determine if the appraisal report that the agent or officer has in front of him really is your work. We've seen cases were law enforcement launched investigations without any idea that the report in their hands obtained from the lender had been altered or forged. Thus, without discussing the results in your report, try to ask the agent or officer to tell you information from the report in front of him.
• Third, if the agent or officer wants to talk about the specifics of the report, you need to realize that your USPAP ethics duty of confidentiality to your client prevents you from doing so, unless you've received a subpoena (or court order) or have been authorized by your client. (If the investigator is with your state licensing or enforcement agency, the duty of confidentiality, however, does not prevent you from discussing or providing the report.) Thus, you'll need to politely advise the agent or officer that you have that duty to your client and that you cannot violate it by talking about the assignment or results.
• The same thing goes for complying with a request (as opposed to a subpoena) for your work file. Use this as an opportunity to politely and professionally break off the discussion and then consult with an attorney.

Even when a law enforcement investigation is not covered by insurance, your E&O provider should be able to provide a reference to a knowledgeable and economical attorney with whom you can discuss the situation.

Source: Appraisal Legal Defense and Insurance Blog by Peter Christensen and Robert Wiley - Legal issues and insurance matters affecting residential and commercial real estate appraisers

Lloyd's of London filed a lawsuit against appraiser for misleading the company on his application for E&O coverage

According to the story by Courtenay Edelhart, Californian staff writer, Insurer suing Bakersfield appraiser. 

"Lloyd's of London filed a lawsuit against Newton, owner of San Joaquin Appraisals Inc., on June 16 alleging he misled the company on his application for errors and omissions coverage. The lawsuit seeks permission to rescind the policy, which it said was granted under false pretenses."

"Jerome N. Lerch, attorney for Lloyd's of London, did not return calls Tuesday seeking comment."

"There's more than an insurance policy at stake. If Lloyd's loses, it could be on the hook for millions of dollars because a defunct subprime lender is suing Newton and others over several appraisals done for Crisp, Cole & Associates, a now closed real estate company the FBI is investigating for mortgage fraud."

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.

Click here to continue reading . . .

Unfair State Board Complaints by a National Lender

Source: Appraisal Legal Defense and Insurance Blog by Peter Christensen and Robert Wiley - Legal issues and insurance matters affecting residential and commercial real estate appraisers

 

We've observed a new pattern by a certain national lender. "Risk Management" at this lender has been submitting numerous complaints to state boards based only on single review appraisals which merely indicate "potential violations" of USPAP. I think the lender wants to show that it's "getting tough" on appraisers.

In general, I don't think the tactic of filing numerous board complaints based on "potential violations" of USPAP indicated by a single review is the right way for this or any lender to show good appraisal management practices. For one thing, the practice may backfire on the lender: appraisers subjected to the tactic may claim that it is being used to intimidate appraisers -- just as the blacklisting practices of other lenders have fueled lawsuits against those lenders by both appraisers and borrowers.

I think the better practice for lenders to deal with alleged appraisal performance problems is for a knowledgeable in-house appraiser to obtain and fairly consider the appraiser's view without any threatened action; if there are real issues, then the in-house appraiser should counsel the appraiser and give the appraiser specific usable advice as to how performance should be improved. Only where fraud or genuine incompetence is apparent should the lender file a state complaint.

"Sending anonymous, vague letters threatening appraisers with blacklisting and using form letters to file numerous board complaints about "potential violations" are not the answer."

The most troubling aspect of this particular lender's practice, however, is reflected in the lender's statement in the form letter that: "We are unable to provide any additional information for your investigation."

That's false. In several cases of which I am aware, the lender possessed written explanations from the accused appraisers which fairly defended the subject appraisal reports against dubious review appraisals. But the lender withheld this information from the state boards.

This is an unfair tactic, especially in those states that don't inform appraisers of the nature of the complaint against them and keep the identity of the complaining party anonymous. A lender like this shouldn't file a complaint, while withholding relevant information from the state and claiming "we are unable to provide further information."

Indeed, I've seen an instance where a related lender filed a board complaint in the same manner even after being informed by the accused appraiser that the subject appraisal was a forgery.

Source: Appraisal Legal Defense and Insurance Blog by Peter Christensen and Robert Wiley - Legal issues and insurance matters affecting residential and commercial real estate appraisers

Minimizing Risk on the Fannie Mae Form 1004MC Market Conditions Addendum

Minimizing Risk on the Fannie Mae Form 1004MC Market Conditions Addendum By Peter Christensen

Effective today [4/1/2009], Fannie Mae is requiring the completion of its new Form 1004MC Market Conditions Addendum in connection with all one to four-unit appraisals. Many appraisers have stated serious concerns with respect to the conflicting directions given by Fannie Mae regarding the addendum and the additional strain of the research and analysis -- all in an AMC-dominated environment paying lower fees to appraisers.

In our position of defending legal claims against appraisers, we are most worried about the potential legal risk to appraisers.

To minimize such risk, we are suggesting that our insured appraisers first be careful to address any specific concerns they have concerning the market analysis in the bottom explanation section of the addendum. It is always the best practice to accurately communicate specific concerns about data reliability or other matters in the relevant part of the subject report.

Beyond that basic prudence, we are suggesting that appraisers consider adding the following language or similar language they deem appropriate in the same explanation section:

Appraiser’s "Inventory Analysis," "Median Sale & List Price, DOM" and other observations in this addendum are based on the data source identified above, which appraiser generally believes to be an acceptable source of market data. However, the appraiser cannot verify all of the information in that data source and cannot guarantee the accuracy of such data or conclusions based thereon. The appraiser also cannot guarantee future market conditions affecting the subject property.

Because of the recent implementation of this form, we do not know whether lenders will push back or react negatively to including this language in appraisal reports.

We look forward to feedback from appraisers on this issue.

Source: Appraisal Legal Defense and Insurance Blog by Peter Christensen and Robert Wiley - Legal issues and insurance matters affecting residential and commercial real estate appraisers

Getting the monkey off OUR backs . . . Appraisal Portal "Hold Harmless" Clause

Appraisers continue to express concern to us about potential indemnity obligations under the AppraisalPort user agreement. Short of seeing the indemnity provision taken out, appraisers have asked if we (LIA) can suggest any language for use in their reports relating to this issue.  (reprinted with permission)

We have developed the language below. Appraisers may consider including this language in reports they deliver via AppraisalPort if they are concerned about the technology and potential liability under the user agreement. This approach is far from ideal, but it is designed to decrease the likelihood of claims by lender/clients for which AppraisalPort might claim indemnity from the appraiser.

The reason this approach is not ideal is that AppraisalPort/FNC would likely contend it does not constitute a change of the user agreement. The primary intent, however, is to reduce the likelihood of a claim and its possible success.

The lender/client has directed that the appraiser transmit the content of this report via AppraisalPort. Pursuant to its user agreement, FNC/AppraisalPort has disclaimed any warranty that AppraisalPort will be error free, has advised that information reported to and by AppraisalPort may be subject to transmission errors, and has indicated that use of AppraisalPort is at the user's sole risk. Accordingly, the lender/client should make its own determination as to the accuracy and reliability of AppraisalPort for its use. The appraiser makes no representations and specifically disclaims any warranty regarding the accuracy or portrayal of content transmitted via AppraisalPort or its reliability. The appraiser uses such technology at the specific direction and sole risk of the lender/client. At its request, the lender/client may obtain a true copy of the original report directly from the appraiser via email (PDF), mail or other means.

As we have said before, to this date, we have not received a claim against one of our appraisers relating to use of AppraisalPort or received any report of AppraisalPort demanding indemnity from an appraiser. The indemnity provision in the user agreement has existed for several years. Thus, the risk to appraisers appears to be very low.

Nevertheless, it is FNC that is in the best position to gauge the risk, and it has included the broad indemnity language in the user agreement. It is also worth pointing out that the indemnity provision in the user agreement applies to all users of AppraisalPort, not just appraisers -- thus, AppraisalPort/FNC could conceivably demand indemnity from a lender or AMC using the service.

Cick here for the source article

Source: Appraiser Legal Defense and Insurance Blog