ASB Issues Additional Guidance on Disclosure of Prior Assignments

The Appraisal Standards Board (ASB) of The Appraisal Foundation recently issued additional guidance on the 2010 USPAP ETHICS RULE requirement that an appraiser must disclose services provided on the subject property within the prior three years.

USPAP Q&A numbers 2010-01 through 2010-05 were issued in January 2010, and provide additional guidance and advice regarding the new disclosure requirements.

Before accepting an assignment, an appraiser must disclose to the client any services provided by the appraiser on the subject property within the prior three years.  If the appraiser completes this new assignment, an additional disclosure must appear in the report certification.

In this most recent guidance, the ASB states that an appraiser must state the type of service provided when making such disclosures.  It would not be sufficient to state, “I provided a service on the subject property within the past three years”; instead, a statement such as “I appraised this property within the prior three years” would be more appropriate.

This Q&A also clarifies that an appraiser must disclose all services provided within the prior three-year disclosure period.  If an appraiser had appraised the property twice and acted as a listing broker in offering the property for sale within the prior three years, all three services must be disclosed to the client before the assignment is accepted, and also in the report certification.

The ASB also states that in a situation where an appraiser works for one client only (e.g., a staff appraiser for a lender), the appraiser must still make the required disclosures of prior services, even though the risk of misleading the client in this situation is minimal.  Additionally, this Q&A clarifies that USPAP does not require an appraiser to make a disclosure that he or she provided no services regarding the subject property within the prior three years.

The USPAP Q&A may be found on The Appraisal Foundation’s website at: https://netforum.avectra.com/eWeb/DynamicPage.aspx?Site=taf&WebCode=USPAPQA

CONGRESSIONAL OVERSIGHT PANEL WARNS OF HUGE WAVE OF MORTGAGE LOSSES IN COMMERCIAL REAL ESTATE

The Congressional Oversight Panel, the entity responsible for reviewing the Treasury Department’s $700 billion bailout program, expressed deep concerns on February 11th over huge commercial real estate (CRE) losses that could occur over the next several years.   The panel reported in their Executive Summary that:

“Over the next few years, a wave of CRE loan failures could threaten America‘s already-weakened financial system. (We) are deeply concerned that commercial loan losses could jeopardize the stability of many banks, particularly the nation‘s mid-size and smaller banks, and that as the damage spreads beyond individual banks that it will contribute to prolonged weakness throughout the economy.

CRE loans are taken out by developers to purchase, build, and maintain properties such as shopping centers, offices, hotels, and apartments. These loans have terms of three to ten years, but the monthly payments are not scheduled to repay the loan in that period. At the end of the initial term, the entire remaining balance of the loan comes due, and the borrower must take out a new loan to finance its continued ownership of the property. Banks and other commercial property lenders bear two primary risks: (1) a borrower may not be able to pay interest and principal during the loan’s term, and (2) a borrower may not be able to get refinancing when the loan term ends. In either case, the loan will default and the property will face foreclosure.

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MY TAKE: An Appraiser’s Response

(Note from Dan Bradley, McKissock Chief Appraisal Officer: I received several responses to my editorial comments regarding the HVCC, Freddie Mac, AVMs and appraisal quality in the Winter 2009 issue of the McKISSOCK Quarterly. One of the best and most thoughtful responses came from Lou Shepherd, a certified residential appraiser in Orlando, Florida.  He makes the following observations.)

I agree with your opinion on the recent HVCC statement made by Freddie Mac.

The system is broken. The residential appraisal office business model is no longer viable. Over a short period, the service concept has been distilled down to a product. The marginalization of the appraiser’s role is due to efforts of AMCs in commoditizing appraisals. The nomenclature has been changed to reflect something less than an appraisal. The language has changed. The term “valuation product” is a systemic antidote. In the residential mortgage arena appraisers no longer provide a service. They provide a product, which can be delivered utilizing a least common price denominator. The most egregious of these “products” is the Broker Price Opinion.

Most of us are aware of physicians complaining about the impact HMOs are having on the practice of medicine. There is a direct parallel between the Insurance Company/HMO/physician relationship and the Lender/AMC/Appraiser relationship. HMOs and AMCs share similar commoditizing goals of professional services to their benefit. There are no safeguards for the physician or appraiser. There are no benefits to the patient or borrower.

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Recent Appraisal Rules Open Door for Shady Middlemen

By Susan Taylor Martin, Times Senior Correspondent

This article recently appeared in the St. Petersburg Times, and is reprinted here with their kind permission.

Last year, Global Appraisal Solutions of Clearwater hired appraiser John Viscusi to do property evaluations in the New York metro area. But Viscusi says the company failed to pay him for 20 appraisals. And when he tried to contact the owner, Larry Holzer, he got no response.

Then Viscusi made an unsettling discovery. An Internet search for Global immediately linked him to another company, Appraisal Mediation Solutions. Its phone number: The same as Larry Holzer’s. Its address: a UPS store in Clearwater close to Holzer’s condo.  “I’m down about $6,000,’’ Viscusi says. He wonders if he will ever get his money because Global no longer appears to be in business even though Holzer still is.

Critics of recent changes in the way home appraisals are handled say Viscusi’s situation illustrates a major problem with companies like Holzer’s: They are totally unregulated in Florida and most other states.

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The Solid Wall of Continuing Education

This article was originally published in the February 2010 edition of the Illinois Appraisal Board’s newsletter, and is reprinted here by permission.  Although the article was written specifically for Illinois, its message could be applied in any state.   This article debunks the myth that it is permissible for an appraiser to renew his or her license, and then take the required continuing education at a later date.

Under the ASC’s Policy Statement 10, each jurisdiction must audit compliance with regard to appraiser CE.  This needs to be done within 60 days of the end of the renewal.

Illinois’ renewal ended on September 30, 2009.

Again…the renewal ENDED on that date.  Those who decided to “back-fill” their CE responsibility by taking classes AFTER September 30th only succeeded in getting a jump on the 2011 renewal.

When Licensing sends out deficiency letters; it is not a gentle reminder to go take something later.  It’s over.  You missed it.  If you didn’t finish all 28 hours (including a 7-hour USPAP Update)… then you have a problem.

September 30th is a solid wall that you cannot scale, evade, go around, or tunnel under.  As of this writing, there were nearly 50 appraisers who, for one reason or another… fell short.

If the cases that have been forwarded to prosecution end up with the Board’s prescribed discipline; IDFPR will end up collecting somewhere north of $173,000 in fines, not to mention the multiple week suspensions that will be handed out.

A few missed as little as 2 hours.  Some ignored all 28 hours.  Some appraisers figured CE acted like rollover minutes from a cell phone provider.  If they took more than 28 hours for the 2007 renewal; then we should apply the extra to the 2009 renewal.   Nice try.

Some took the same class twice in the same renewal period.   Nice try.

Some think that any class taken anywhere for any reason qualifies.   Nice try.

Some complained that they couldn’t finish all of their CE in the last week.  Illinois gives you 104 weeks to finish.  It’s not our fault if you decide to cram it all inside the 104th week.

The stories and excuses ranged from the sublime to the ridiculous.  Some responses were defiant, funny, crazy, misguided…etc.   While I would love to note the particularly crazy ones here, unfortunately they’re on their way to prosecution.  Having read so many…I have to admit, some were on par with Joliet Jake’s pleading to his jilted girlfriend in the movie, The Blues Brothers:

“Honest… I ran out of gas.  I, I had a flat tire.  I didn’t have enough money for cab fare.  My tux didn’t come back from the cleaners.  An old friend came in from out of town.  Someone stole my car.  There was an earthquake.  A terrible flood.  Locusts.

IT WASN’T MY FAULT!”

McKISSOCK and ACHESON APPRAISAL form Strategic Partnership

McKissock, LP and Acheson Appraisal Classes have formed a strategic partnership in order to provide appraisers with an even better educational experience.  As part of the partnership, McKissock and Acheson will begin jointly offering live education seminars for appraisers in California, Oregon, Washington, Hawaii and Arizona.  Additionally, Acheson will expand its online capabilities by exclusively offering McKissock’s online content.  Both companies believe the combination of McKissock’s best-in-class online solution and the outstanding live seminars offered by both businesses will result in an unparalleled educational experience for appraisers.

Both McKissock and Acheson have been providing education to appraisers for more than 15 years.  Acheson Appraisal Classes was founded by Ross and Marie Acheson in 1994 when they began offering live seminars in California.  Over the years they expanded the business to offer appraisal courses in 41 states,providing thousands of appraisers with an excellent educational experience.  Ross is also a distinguished member of the real estate community, serving as past President of the Anaheim Board of Realtors, CAR and NAR Director, and is also in charge of all HUD/FHA reviews for the FHA 203(k) Rehabilitation Loan Program for the Western Region of HUD.

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Two FHA Mortgagee Letters Become Effective

On February 15, 2010, the long-delayed requirements of FHA Mortgagee Letters 2009-28 and 2009-51 went into effect.  These letters, issued in September and December, respectively, were originally scheduled to be effective on January 1, 2010, but were delayed until February in order to allow FHA and lenders additional time to modify their systems to accommodate these new requirements.

ML 2009-28, titled “Appraiser Independence”, establishes requirements similar to the Home Valuation Code of Conduct (HVCC), including a prohibition on mortgage  brokers and commission-based lender staff selecting appraisers and ordering appraisals.  It prohibits FHA lenders and AMCs from asking appraisers to provide “comp checks” or preliminary estimates of value, and also prohibits lenders and AMCs from providing an  appraiser with an anticipated, encouraged, or desired value, or a proposed loan amount (except that a copy of a purchase contract must be provided). One of the more interesting aspects to this mortgagee letter is that FHA-approved lenders must ensure that FHA appraisers are not prohibited by the lender, AMC, or other third party  from recording the fee that the appraiser was paid for the appraisal in the appraisal report.  In other words, FHA does not require that the appraiser put the amount of the fee in the report, but the lender may not prohibit the appraiser from putting the amount of the appraisal fee in the report, if he or she wishes to.

ML 2009-51 is titled “Adoption of the Appraisal Update and/or Completion Report”, and will require the use of the Fannie Mae 1004D form, replacing HUD form 92051.  The 1004D can be used for either updating a previously completed FHA appraisal, or for repair and compliance inspections.  Part A of the 1004D form is to be used for updating a previous appraisal, in order to extend the validity period of an existing appraisal.  Part B of the form is to be used for reporting the completion of a repair or the satisfaction of requirements and conditions noted in the original appraisal report.

More detailed information can be found in the Mortgagee Letters, which are available online here.