Appraisal Scoop

Appraisers with Revoked Licenses Still Profit in Real Estate Industry

A Center for Public Integrity investigation of the appraisal industry in California and Florida, two of the states hardest hit by foreclosures, found that since 2005, one in six appraisers whose licenses were revoked or surrendered kept their real estate sales or broker’s licenses. The violations that led to these appraisers losing their licenses ranged from simple incompetence to fraud committed for personal financial interest. Yet they slipped through the cracks of a loosely maintained system of state oversight, which allowed them to continue working in the real estate industry negotiating sales to home buyers, who likely know little about their pasts.

Industry insiders believe the number of these former appraisers still in real estate is in the hundreds nationwide, but an accurate figure is elusive given the patchwork of agency oversight. “There’s a lot more that you are never going to find,” said Pamela Crowley, who runs the website Mortgage Fraud Watch List. “Those of us who have been active in trying to police our own have come to the conclusion that our policing agencies don’t want that.”

In several cases, banned appraisers also remained in the appraisal industry, taking high-level positions in appraisal management companies, the increasingly prevalent and often unregulated third-party companies that link lenders with independent appraisers.

California and Florida authorities concede they dropped the ball: in most cases, they say, a violation serious enough to lead to an appraisal license revocation should also result in a lost realtor’s license. Yet the dual-licensing bureaucracies did not always exchange violation information. And when they do, the process of taking a license is not automatic — violations against each license must be investigated independently.

Click here to read Joe Eaton's FULL article!

Assuring Accurate Appraisals, Part II: What's A Consumer To Do?

According to Broderick Perkin's first article article Assuring Accurate Appraisals Part I:

"During the height of the housing boom, appraisers were pressured to up the value of homes. Now, during the housing downturn, appraisers are being pressured to lower the value of homes."

In the follow-up article, Assuring Accurate Appraisals, Part II: What's A Consumer To Do? , Perkins says:

"Appraisers are typically hired by the lender to protect its stake in a home buying transaction. That means the appraiser is beholden to his or her employee -- the lender -- not necessarily the buyer nor the seller.

However, both the seller and the buyer can play a role in the appraisal process through a process of due diligence known as looking over the lender's shoulder."

 

Click Here for the full Realty Times article by Broderick Perkins

Next Week: What's a consumer to do? How consumers can play a leading role in the appraisal process.

Stopping In the Middle Of An Appraisal Assignment . . . Unethical?

As Appraisers, the disgust for the behavior within our own industry is reaching all time highs. You can see it in related blogs, forums and the news. Everyone is in an uproar over those who commit act's of selfish greed or practice every day production of unethical  incompetence. If you look deeply enough, I think that most would agree that a majority of the Appraisal industry problems stem from Ethics.

Foremost, we have an obligation to USPAP. Things can be quite simple sometimes when viewed from a different perspective, so as an example here is something to think about. (The following situations are only stated as fiction).

Situation 1:  If I accepted an assignment, but halfway through (in the process of discovery) I run into an appraisal problem that makes me incompetent to finish and I decide that I need to call the client to issue a refund (full or partial) and turn down the assignment. Ethical?

Situation 2:  If I accepted an assignment, but halfway through I realize that the Appraisal is not going to meet the bench-mark for the value that is needed for the refinance. I call the Mortgage Broker and cancel the appraisal because I do not want to waist the borrowers money. I then issue a partial refund to the borrower, because after all I did "partially" complete the assignment. If this were to happen, who did I just consider? USPAP or the borrowers money?

If you think about the two scenarios, there is a distinct difference in reasons why I canceled the assignments. One was canceled because I was obligated by USPAP to cancel the assignment, or to inform the client (and of course with permission, I could get competent with extra help) and continue.

In the second scenario, the appraisal was canceled with the consideration of the ethical consequences of waisting the borrowers money (knowing that the loan would NOT be attained), but the borrower is not USPAP or the client.

USPAP clearly states that the amount of pay should not be based on the outcome of the Appraisal. But, isn't that just what happened in situation 2?

Appraiser's fool themselves by thinking they are being ethical by saving borrowers money and that they are good people by doing so. In fact, the client's and the borrower's in these situations might think so too. But are they really being "good", ethical people by breaking their oath to the state that licensed them to appraise (not to mention an oath that's required by signature, before licenses are even issued) that they would in fact abide by USPAP?

It is my hope that Appraiser's will read this and start to realize that being ethical is abiding by USPAP first, not second. Because, in the end; breaking an oath is not being ethical, no matter how different something is phrased over the phone or what things are added to an addendum.

Author: Aaron O. Thomas, Certified Residential Appraiser. Aaron is owner of San Diego Appraisers, a real estate appraisal service provider specializing in residential properties located in the greater San Diego County area. San Diego Appraisers service mortgage brokers, CPAs, lawyers, businesses and homeowners.

Allegedly Inflated Appraisal Made Prior to Construction of New Home Cannot Support a Fraudulent Misrepresentation Claim: Court Endorses "Cost Approach" - TN

I think that appraisers will find this case very interesting from a variety of perspectives!    The case went all the way to the Court of Appeals in Nashville, TN and was ultimately decided in favor of the appraiser, but not without some interesting twists and turns along the way.

JOSEPH AND KIMBERLI DAVIS v. PATRICK J. MCGUIGAN, ET AL. (Tenn.Ct.App. September 11, 2008).

One of the key elements in the case was a citation Byrd v. Hall, 847 S.W.2d 208, 215 n.5 (Tenn. 1993).

To sustain a cause of action for fraudulent misrepresentation, the Homeowners must show:

1. the Appraiser made a representation of an existing or past fact;
2. the representation was false when made;
3. the representation was in regard to a material fact;
4. the false representation was made either knowingly or without belief in its truth or recklessly;
5. the Homeowners reasonably relied on the misrepresented material fact; and
6. Homeowners suffered damage as a result of the misrepresentation

Download Davis_v_McGuigan_091108.pdf

"The Appraiser contends that the appraisal is an estimation or opinion, and is not a representation of an existing or past fact. Therefore, the Appraiser argues, an essential element of the Homeowners’ claim for intentional misrepresentation is conclusively negated and summary judgment was proper on this claim. Homeowners argue that the appraisal value was not the opinion of the Appraiser, but rather an opinion he gave which the Appraiser did not have or knew to be false. Although Homeowners’ argument applies to the fourth element for fraudulent misrepresentation, their contention does not change the requirement of the first element - that the defendant make a representation of an existing or past fact. In Tennessee, appraisals are not considered facts, but rather estimates or opinions." Id.

"Further, we note that when the Appraiser conducted the Appraisal, he was appraising a home that had not yet been constructed. The Appraiser used the “cost approach” analysis, and referred to, among other resources, the specifications and building plans provided by the Homeowners. At that point, the Appraiser only had plans for the future Home on which to base his appraisal; he could not verify that the materials planned for in the Home were actually used in the construction or examine the workmanship of the construction. In Tennessee, conjecture or representations concerning future events are not actionable even though they may later prove to be false." Id. (citations omitted).

To read the FULL case . . . click here: Download Davis_v_McGuigan_091108.pdf

Tip of the hat to the Tennessee Construction Law blog for finding and reporting this judgement.

Identify Theft: Untangling The Web

By now, many of you have already read the The Columbian story by staff writer Stephanie Rice titled: Caught in ID Theft's 'Horrible Web' 

Rice's story starts out like this . . .

"In typical identity theft cases, the thief goes after a bank account or a line of credit. In Kathy Carpenter's case, the thief was even more bold. A woman took Carpenter's professional identity as a real estate appraiser, using Carpenter's name and license number. She even appraised commercial and million-dollar properties that Carpenter, a residential appraiser, isn't licensed to do. Jean Faye Dodge, former manager of a La Center appraisal company, is now in prison. But Carpenter's troubles aren't over."

Appraisal Scoop caught up with real estate appraiser Kathy Carpenter and asked her to tell appraisers a little more about her story.  I told her that I had been a victim of "minor" identity theft myself and had some idea of the frustrations she's encountered throughout this ordeal.  We hope her tale will alert appraisers, appraisal boards, appraisal organizations and federal agencies on the devastating consequences appraisers face from identity theft.

Kathy tells her story . . .

In these times where appraiser's jobs are difficult enough, mine not only got tough, but for all practical purposes went away.  In addition it forced me to spend "billable hours" sifting through the remains of this well woven web.

The problem was, I knew this person. I had contracted with her company for a few years after the major AVM she represented left town and she continued her appraisal network to funnel work to me and some other appraisers in the area.

The other problem, it was a "virtual" crime of sorts. No one physically took something, or came onto my property, yet the repercussions were farther reaching. There was no compromise of my software, or my computer. It was a simple copy, edit paste (and a bad job of it at that with a barely legible, fuzzy facsimile of my name). It was all too easy.

The renewal of my license every two years in OR/WA seemed to be a joke when I made a call to the Appraiser's boards in each state and they basically said "too bad". Since Jean Faye Dodge wasn't a licensed appraiser, they had no jurisdiction to sanction her or her actions. Yet, they also offered no advice to me, the "law abiding citizen" involved in this the scam.

Even my E&O insurance could give me no guidance. Unless it was an infraction that I had committed; then everyone would have been all over me! So I was forced to schlep off to each and every county (that I knew of) where the fraudulent appraisals were performed.

Time after time, I had to re-tell the story. Sometimes to deputies who had bigger fish to fry, and once to one that used to be a mortgage broker and really understood the plight I was now up against, acknowledging my frustration. I was directed to the FBI, but quickly realized I was a small fish in a large sea. They weren't opening new cases for investigation unless they tallied in the millions, not the thousands or hundreds of thousands.

Click here to continue reading . . .

Six-Month Associated Press Investigation - Real-estate appraiser regulation is a failure!

It's finally here.  The story that Pamela Crowley has been talking about for months was released by the AP this morning.  This, the first in a series written by Pulitzer-Prize winning author Mitch Weiss for the Associated Press says:

" . . .a six-month Associated Press investigation found that the system is crippled by both the bumbling of its policemen and their inability to effectively punish those caught committing fraud."

The appraiser's thread on the Appraisers Forum.com back in January said: "I spent two hours with the Associated Press writer today. His name is Mitch Weiss (awarded the 2004 Pulitzer Prize winner for Investigative Reporting).  He is doing a national story on appraisers, appraising, pressure, mortgage fraud, appraisal boards and I suppose related topics."

According to the article, "The AP conducted dozens of interviews and reviewed thousands of state and federal documents . . " in preparing this series. 

For the most part, I don't think that appraisers will find anything particularly shocking or new in this article, but insiders tell me that future articles in this AP "Impact Story" series will be BOMBSHELLS!

Click here for the complete article

Related Stories:

• Inflated appraisal nearly cost family its home
• Tenn. official disputes appraisal records
• Federal News Radio
• Lawmakers pledge push for appraisal reform

The Ethical Aspect of Real Estate Appraisal

This article is contributed by Sarah Scrafford, who regularly writes on the topic of luxury homes for sale in Florida.

It’s a question of ethics again, as we ask what happens when those who are supposed to set the standards are tempted or coerced to break or bend the letter of the law for their own purposes. Real estate appraisers must be totally unbiased when evaluating properties that come under their scanner, but that’s not the case with the recent slump in the realty sector. The sub prime crisis is taking its toll not just on homeowners, lenders and investors, but also for real estate appraisers who are increasingly coming under pressure to bend to the will of lenders, mortgage brokers and sellers.

Appraisers are being asked to submit reports with predetermined values that are much higher than the actual market rates, with the promise of having more business sent their way. Mortgage brokers and lenders are using this tactic to ensure that prospective buyers go though on their loan agreements. The higher the loan, the more the interest paid, and thereby lies the lenders’ interest in the whole shady dealing. The mortgage broker takes a percentage of the loan amount as his share of the pie, and that’s reason enough to ensure that the loan amount is higher than it should be.

The issue of ethics in real estate appraisal will have serious repercussions on the market if not addressed with the importance it deserves because:

• Independent appraisers who are desperate for business in these lean times are dependent on the clients that lenders refer them to. If they are true to themselves and their clients and provide judgments on the true value of the property, they soon find that they are mysteriously running out of further clients, thanks to the notoriously close-knit community of mortgage brokers and lenders.
• The unchecked continuity of this kind of over-valuation will lead to an artificial inflation of real estate prices.
• The situation is being made worse by the current downward market and the sub prime crisis that has seen a sharp decline in the sale and refinance of homes in the US.
• With the rule stating that appraisers are required to know the contract price beforehand, it’s not uncommon for brokers to send the figure they want to more than one appraiser with the implication that the one who complied would get the contract, or to choose the highest appraisal and refuse to pay the others.

Click here to continue reading . . .

Are YOU licensed to appraise that property?

As someone that does a lot of reviews, I see some interesting appraisals come across my desk. Some give me pause to wonder. And some just give me pause.

One issue that has come up more and more of late, is appraisers not being licensed to appraise the property in question.  Specifically, I’m speaking to the license limitations of a “Licensed” or “Residential” appraiser.

Here in California, we have 4 licensing levels. Other states have similar licensing, however, the designations may differ.

• AT-Trainee Appraiser - Can appraise any property the supervising appraiser is licensed to appraise.
• AL-Residential Appraiser - Can appraise any “NON-COMPLEX” 1-4 family property with a transaction value up to $1,000,000
• AR-Certified Residential - Can appraise any 1-4 family property without regard to transaction value
• AG-Certified General - Can appraise all real estate without regard to transaction value or complexity.

The sticking point that I see is the “NON-COMPLEX” issue.  Many AL or Residential Appraisers here in CA appraise complex properties as a part of their regular business. I talked to a few about this issue and the consensus is that they feel they are capable of appraising “complex” properties with a transaction value under $1,000,000 and that the definition of “complex” is so vague, that they feel they can justifiably do it. They may be right. Federal Reserve Regulations, from which USPAP was born and which state define a “Complex” appraisal as “…one in which the property to be appraised, the form of ownership, or market conditions are atypical.”

Can you say “Vague”?  I called my state office of real estate appraisers and spoke to an investigator about this issue.   While I didn’t ask them to go on record or put it in writing, I was told the CA OREA considers examples of “complex” to be anything that has

• Functional Obsolescence
• External Obsolescence
• Acreage
• Views

That takes a whole lot of properties out of the pool of homes a residential appraiser, or AL level appraiser, here in CA, can appraise.

I recently did a field review of an appraisal on a home that was a lakefront property, on a few acres of steeply sloping property, in an area where there are very few similar sales and the few that there are, were up to 26 miles away, by road.

OK, now that is definitely complex by anyone’s standard. Even the appraiser admitted it was very complex when I called her. The problem I had with the appraisal is that she is an AL or residential appraisal, as is her supervisor, that signed on the URAR.

When I asked her why she completed an admittedly complex appraisal that is outside the scope of her license, she had a few reasons.

Click Here To Continue Reading . . . .

RELS Altering Appraisal Reports?

I'm a member of the Alabama Independent Fee Appraisers email forum which is a discussion group for Members of The National Association of Independent Fee Appraisers and others.  It was there that I read a surprising report this morning by Dennis Greene, a USDA Rural Development Appraisal Reviewer.  Download RELS_Valuation.png

Dennis alleges that RELS has begun a practice of altering appraisal reports.

The following is from the AlabamaIFA Forum:

As most of you know I am a review appraiser with USDA Rural Development. In the past few weeks I have noticed a change in some appraisals I am getting to review. These appraisal have old material in them and some blank pages added.

After talking with an appraiser yesterday I found out that RELS Valuation is changing some of your appraisals before they get to me to review. I believe that they are changing most appraisals without your knowledge. They are adding additional comment pages and moving some additional comments. They are adding additional comp pages and additional comp picture pages. Some of the data moved does not match up with what is in the appraisal report.

Worst of all they are adding the old 1004B Limiting Conditions page and putting the appraisers signature on it.

At this point I do not know how or when it can be stopped but I will be working on getting to the right people at RELS Valuation and Wells Fargo to get this stopped.

Your help in this matter will be greatly appreciated.

I would suggest you monitor your appraisals for final content.

Dennis R. Greene

Office: dennis.greene@al.usda.gov 

Runt Rants - AMC "Additional Comp" Request - Pressure or Good Business?

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.  Read all Runt Rants on Appraisal Scoop.

I had an interesting discussion with an appraiser in last week regarding AMCs. I thought we'd all benefit from his situation his view of the market, and his business decisions. Robert D. Mims IV owns 30-A Appraisal group, Inc. in Florida. He sent me the following email.

Ken -

I've read your articles and actually submitted to you an email last year from a broker that was pretty nasty. I subsequently passed it along to New York District Attorney. I was mentored by an MAI, I do commercial with an MAI, and take my SRA designation class in September.

Below is an email I received from an XXX rep when I asked for an additional $50 to consider two additional sales - after gridding 3 sales, 1 pending, and 2 actives for a total of 6 comps.

What alarms me is not that XXX is willing to pay additional $$$ for the additional scope of work, but that she said SSS will pretty much request additional consideration of sales whenever the purchase price is not met. So regardless of the quality, the number of comparables, Certification #7, etc. there will be an automatic request to consider additional sales to try and meet the purchase price?

Before I respond to XXX, I want your take. Am I overreacting here by interpreting this email as pressure to influence value? And a subtle threat that if I don't they'll will simply assign the work to other appraisers?

Here's XXX's response to the fee increase request I sent. What say you?

Click here for the REST of the story . . .