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Q2 2017 Washington Report

April 17, 2017

The Appraisal Institute’s Washington Report and State News quarterly e-newsletter summarizes AI’s recent federal and state legislative, regulatory and related activities in representing the interests of Designated Members, Candidates for Designation, Practicing Affiliates and Affiliates.  

ON THE HILL                                                                                

Appraisal Institute representatives met with multiple stakeholder organizations this spring to discuss ways to modernize the U.S. appraisal regulatory structure and efforts to lobby Capitol Hill. The meetings helped clarify AI’s position on several issues that allegedly have been misrepresented or misinterpreted. 
 
The Appraisal Institute clarified that it was not proposing to eliminate state licensing processes as some have contended, but instead saw state licensing agencies as central to a more efficient nationwide licensing platform. AI said it believes that the appraisal regulatory structure could move to a nationwide licensing platform in which states would participate and utilize for licensing administration processes. 
 
AI also clarified that it did not propose eliminating the federal role in appraisal, but instead making its role one of a backup authority or a last resort. AI believes that state appraiser regulatory agencies would carry out licensing processes as they have for the past two decades and that these efficiencies will help reduce the layering effect that foists costs and obligations on practitioners. 
 
Additionally, AI highlighted the benefits of one-stop-shopping for appraisal licenses and renewals. Currently, institutionally employed appraisers (which account for roughly 8 percent of licensed appraisers) must navigate a labyrinth of license application processes that now include background checks in some states — even for temporary practice permits. A nationwide licensing platform would dramatically reduce the regulatory burden for basic license application and renewals for both appraiser practitioners and institutions employing appraisers. 
 
The House Committee on Financial Services included appraisal in the committee’s oversight plan and a subcommittee hearing was held this past November. The committee may address appraisal issues later this year. 
 
 
Appraisal Institute Vice President Stephen S. Wagner, MAI, SRA, AI-GRS, testified at an April 4 Congressional subcommittee hearing on Capitol Hill, urging Congress to protect the independence of real estate appraisers in the federal program that provides housing loans to military veterans. 
 
AI specifically addressed a central ordering feature of the U.S. Department of Veterans Affairs’ Appraiser Fee Panel during its testimony before the Subcommittee on Economic Opportunity of the House Committee on Veterans’ Affairs. The hearing was called to address the topic “Assessing VA Approved Appraisers and How to Improve the Program for the 21st Century.”
 
“The Appraisal Institute supports the basic framework of the VA Fee Panel in contrast to what is currently found in the Federal Housing Administration or the private sector,” Wagner told the subcommittee. “By comparison, the structure of the Fee Panel facilitates a greater degree of appraisal independence and represents a much more positive environment for real estate appraisers.”
 
Veterans Affairs maintains a Fee Panel of approved real estate appraisers who work on behalf of the agency in providing collateral risk assessment in support of the VA Home Loan program. The Fee Panel is directly managed by the VA and consists of a pool of several thousand appraisers who accept VA appraisal assignments on a rotating basis.
 
Wagner, a former member of the Fee Panel, praised the Veterans Affairs appraisal staff as “some of the most accessible and responsive within the federal government relating to real estate appraisal issues.”
 
While opposing wholesale changes to overhaul the Fee Panel, the Appraisal Institute offered recommendations to improve the consistency of the VA loan program and to maintain its competitiveness with the private sector:
 
Maintain an independent Fee Panel of VA appraisers; 
Develop a “stand-by” list of approved VA appraisers; 
Enhance appraiser recruitment efforts; 
Encourage lenders to provide better property information at the time of the appraisal assignment; and 
Address appraiser concerns about unpaid appraisal fees. 
 
One issue that was repeatedly mentioned during the hearing is the use of “desktop appraisals” to help the VA with its backlog. AI cautioned against the use of desktop appraisals because they are performed without a physical inspection of the property and instead rely on tax records and information from the MLS. AI also stated that AVMs are not the best way to protect veterans — or taxpayers — during their home purchase. 
 
Read the Appraisal Institute’s written testimony to the subcommittee.
 
 
The Appraisal Institute reported April 17 that the House Financial Services Committee and Senate Banking Committee hope to consider changes this fall to housing finance giants Fannie Mae and Freddie Mac. The action likely will occur after the committees address flood insurance reauthorization and financial regulatory reform, which are expected to be big topics this summer. The debate over the future of the government-sponsored enterprises is expected to be long and contentious.
 
 
The House Financial Services Committee currently is reviewing a plan to reauthorize the National Flood Insurance Program, which will sunset Sept. 30 if no action is taken, the Appraisal Institute reported. 
 
Congress enacted the NFIP in 1968 primarily in response to the lack of available private insurance and as a low-cost alternative to continued increases in federal disaster assistance for floods. As part of the reauthorization process, Congress is considering potential program changes and improvements to strike a balance between improved financial solvency and reduced taxpayer exposure.
 
IN THE AGENCIES                                                                       
 
An increase to the appraisal threshold level for commercial real estate loans was recommended by the Office of the Comptroller of the Currency, the National Credit Union Administration, the Federal Deposit Insurance Corporation and the Board of Governors of the Federal Reserve System in their March 20 report to Congress on the Economic Growth and Regulatory Paperwork Reduction Act of 1996.
 
A review of and report on EGRPRA is required by law every 10 years. This round began in 2014 with initial comment requests, and continued into 2016 with several rounds of outreach meetings. The findings were presented in a Joint Report to Congress.
 
The agencies reported that they intend to propose an increase in the appraisal threshold level for commercial real estate loans from $250,000 to $400,000. The threshold level for residential real estate was unchanged. The agencies said they will continue to evaluate the (owner occupied) business loan threshold level. 
 
AI lobbied hard to retain current appraisal threshold levels. Justin Slack, MAI, SRA, AI-GRS, AI-RRS, chair of the AI Government Relations Committee, authored an April 5 blog post outlining AI’s position on this topic. 
 
 
The IRS reassured the Appraisal Institute that they have no intention to “unduly subject appraisers to extra trouble or expense” after appraisers raised concerns following the IRS’ release of Notice 2017-10, which relates to syndicated conservation easements.
 
Appraisers expressed concern to AI that the notice would require them to disclose certain appraisals going back to 2010 to meet disclosure requirements. The IRS responded to AI’s query by stating that if the appraiser does a “proper appraisal” there is no reason for concern. 
 
IRS Notice 2017-10 identifies certain syndicated conservation easement transactions as listed transactions. Investors who have entered into such transactions since 2010 or who enter into such transactions prospectively must comply with certain disclosure requirements, and appraisers acting as advisors must comply with certain disclosure obligations under the notice.
 
Specifically, the notice requires investors entering into syndicated conservation easement deals on or after Jan. 1, 2010, to file a tax shelter disclosure statement. The promoters, including appraisers and other material advisors, must file Form 8918 for the same period. This form must be filed by May 1, and failure to do so carries significant penalties.
 
AI said that the IRS mainly is looking for improper comparables and methodology and obviously inflated appraisals.
 
AI had expressed concern to the IRS that it may not be clear to appraisers that an entity is/was a syndicated arrangement, or have knowledge of how the property was marketed, which is complicated by the fact that the policy applies six years retroactively. To address this concern, practicing appraisers likely would benefit from obtaining a sworn disclosure statement from clients as to whether a proposed assignment meets the criteria for a listed transaction. 
 
 
The U.S. Department of Housing and Urban Development’s Office of Inspector General issued a Fraud Alert on Feb. 22 after uncovering a series of appraiser identity theft cases.
 
The schemes varied but resulted from someone using a state certification number of a Federal Housing Administration roster appraiser, HUD’s alert said, noting that the FHA roster appraiser was unaware of the misuse until it came to light, usually by accident. HUD said that most of the schemes happened when an FHA roster appraiser provided his or her personal identification number for the desktop appraisal software to a colleague or supervisor.
 
“We applaud the HUD Office of Inspector General for raising awareness about appraisal related identity theft,” Appraisal Institute President Jim Amorin, MAI, SRA, AI-GRS, said. “Given the range of interests in appraisal results, and the advent of electronic documentation and signatures, identity theft presents a significant risk to lenders and consumers, and it’s an issue that the Appraisal Institute has provided education and guidance to the industry for many years.”
 
The Fraud Alert said that over the last couple of years, HUD has received more than a dozen reports of identity theft by colleagues or supervisors. Examples were cited in Washington, Illinois and California.
 
Read HUD’s two-page Fraud Alert, which includes do’s and don’ts for appraisers.
 
 
The Office of Management and Budget on April 12 sent a letter to federal agencies ordering them to significantly reduce their costs and increase efficiency. The letter follows a March 13 executive order from the Trump Administration that proposes reorganizing governmental functions and eliminating unnecessary agencies, agency components and agency programs.
 
The definition of agency under the executive order (Section 551(1) of title 5, United States Code) includes all executive branch agencies, including independent regulatory agencies, but specifically excludes Congress and the judicial branch, as well as court martials, military commissions and military authorities in time of war or in the field. 
 
The order may result in the selling of assets, laying off employees (or additional workforce consistent with the administration agenda) and cancellation of programs deemed unnecessary. 
 
 
The Appraisal Institute on April 17 responded to confusion over reliance language contained in some lender agreements by cautioning appraisers against adding intended user language to their reports. Doing so could make it impossible for them to comply with the Uniform Standards of Professional Appraisal Practice.
 
Appraisers had expressed concern to AI about reliance language and sought guidance on adding language to their reports for clients who may be unclear about the concept of intended use and intended user, AI said. 
 
To assist all parties involved in understanding the issue, an intended user is one who the appraiser intends will use the report — the appraiser’s “audience” when writing the report. Once an appraiser identifies a party as an intended user, the appraiser is now obligated (under Standards Rule 2-1(b) of USPAP, in the case of a real property appraisal, as well as the Scope of Work Rule disclosure obligations) to ensure the report is understandable to the intended user(s) the appraiser has named. 
 
If intended users are identified in a vague fashion or in a way that the appraiser cannot determine if the identified intended users can understand the report, the appraiser therefore cannot be sure he or she is complying with Standards Rule 2-1(b). A party does not have to be named as an intended user to get a copy of the appraisal or to rely on the appraisal.
 
The identification of intended users is not the same as granting permission to use or rely on the appraisal. Appraisers are cautioned against including language in their reports that suggests intended users can be added after the assignment is complete; e.g., language that states no other parties can receive or rely on the appraisal without the appraiser’s permission. Even if the appraiser knows a party will get a copy of the appraisal report, that party does not have to be named as an intended user. Errors or omissions insurance carriers may be concerned about intended user language that is too vague and obligates the appraiser to unspecified parties.

The Appraisal Institute reported April 17 that 37 bills affecting the valuation profession are pending in 23 states. The proposed legislation includes:
 
Arizona
SB 1197 makes various changes to the state’s appraiser licensing law and appraisal management company oversight and registration law. 
 
California
SB 70 allows a state-licensed or state-certified appraiser to deviate from the Uniform Standards of Professional Appraisal Practice in certain circumstances. 
 
Connecticut
SB 780 allows real estate brokers and salespersons to estimate for a fee or other valuable consideration a probable property sale price or lease price. 
 
HB 5432 would require AMCs to compensate appraisers within 14 days.
 
Florida
SB 716/HB 927 makes changes to the state’s AMC law and would allow appraisers to perform evaluations in compliance with the Interagency Appraisal and Evaluation Guidelines and allow the Florida Real Estate Appraiser Board to consider the adoption of standards of valuation practice other than USPAP for use in non-federally related transactions. 
 
Hawaii
HB 50/SB 390 enacts a comprehensive AMC oversight and registration law. 
 
Illinois
HB 722 prohibits AMCs from passing along to appraisers any costs, fees or other expenses. 
 
HB 723 requires the fee paid to an appraiser be shown separately from the fee paid to an AMC in any residential real estate closing document that lists real estate appraisal fees.
 
SB 1817 repeals the Appraisal Management Company Registration Act, thus eliminating a requirement to disclose to a borrower or loan applicant the total compensation paid to the appraiser or appraisal firm for an appraisal obtained through an AMC and used for the purposes of a loan.
 
SB 1377/HB 2396 increases to six the number of members appointed to the Real Estate Appraisal Administration and Disciplinary Board who have been actively engaged and currently licensed as a state-certified general real estate appraiser for a period of no less than five years. It also would eliminate two members holding valid licenses as both real estate brokers and real estate appraisers.
 
Indiana
SB 76 requires AMCs to compensate appraisers within 30 days of their submitting an appraisal to an AMC.
 
Kansas
SB 2414 allows appraisers to utilize the Appraisal Institute’s Standards of Valuation Practice and Valuers’ Code of Professional Ethics when performing an appraisal for any purpose other than a real estate-related financial transaction, and would allow appraisers to perform evaluations. 
 
Kentucky
HB 443 reorganizes the state’s appraiser licensing and certification agency.
 
Massachusetts
SB 104 enacts mandatory appraiser licensing.
 
HB 577 enacts a comprehensive AMC registration and oversight program.
 
HB 1975 defines the terms “client,” “intended use” and “intended user” and indemnifies appraisers from liability to any person other than the client or the intended user of the appraisal. 
 
HB 2000 reduces the time during which appraisers are subject to disciplinary action by the Board of Registration of Real Estate Appraisers to five years from the date of the certified appraisal report or two years from the date of final disposition of any judicial proceeding. 
 
Minnesota
HF 593/SF 366 clarifies that allegations that do not result in disciplinary action against an appraiser are not made public, and that a background check is only required for an initial appraiser application. It also provides for the sequestering of information related to disciplinary actions more than five years old and imposes a six-year statute of limitation on civil actions against real estate appraisers. 
 
North Carolina
HB 431/SB 576 clarifies that state-licensed and state-certified appraisers may perform evaluations. 
 
SB 571 requires that appraisers are paid reasonable and customary fees, which are based on third-party information.
 
SB 573 requires the payment of reasonable and customary fees to appraisers in accordance with federal law. 
 
Nebraska
LB 17 updates the state’s AMC law to bring it into compliance with federal minimum requirements and the state’s supervisor and trainee requirements so they’re consistent with the Appraiser Qualifications Board. 
 
New Hampshire
SB 53 updates the state’s existing AMC law to bring it into compliance with federal minimum requirements.
 
New Jersey
AB 1973 enacts a comprehensive AMC oversight and registration program.
 
Oklahoma
SB 533/HB 1505 requires appraisers to include an invoice in the appraisal report.
 
SB 571 establishes a “Special Appraiser” licensing category. 
 
Oregon
HB 2189 establishes an appraiser-specific statute of limitations.
 
HB 2501 requires the state appraiser board to establish an appraisal fee schedule.
 
HJM 3 calls upon the U.S. Congress to support proposed changes to the AQB minimum appraiser qualification criteria.
 
Pennsylvania
HB 863 establishes the parameters around which a real estate broker or salesperson may perform a broker price opinion or comparative market analysis. 
 
Rhode Island
SB 543/HB 5620 establishes a comprehensive AMC oversight and registration program in accordance with federal minimum requirements. 
 
SB 96 clarifies that real estate brokers and salespersons may only prepare price opinions for the purposes of listing, purchase or sale. 
 
South Carolina
S279 enacts a comprehensive AMC oversight and registration program in compliance with federal requirements.
 
Tennessee
SB 279/HB 376 enacts a statute of limitations applicable to civil claims against real estate appraisers. 
 
HB 300/SB 1188 makes various changes to the state’s existing AMC oversight and registration law to bring it into compliance with federal minimum requirements. 
 
Texas
SB 1516/HB 3261 makes various changes to the state’s existing AMC oversight and registration law. 
 
Vermont
HB 506 repeals both the requirement for criminal background checks for appraisers and the state’s existing AMC oversight and registration program, vesting that authority instead to the Vermont Real Estate Appraiser Board. 
 
 
Arkansas Gov. Asa Hutchinson signed into law this spring two bills related to the valuation profession. One changes how members of the Arkansas Appraiser Licensing and Certification Board are appointed while the other updates the state’s appraisal management company law so it complies with minimum federal requirements. 
 
HB 1730, which was signed March 21, eliminates the requirement that all five individuals on the board be “members in good standing of one of The Appraisal Foundation member organizations.” Instead, individuals are required to be “members in good standing of a state chapter of a nationally recognized real estate appraisal organization that requires an individual to have qualified appraisal experience, education and testing to become a designated member and to adhere to standards of professional practice to maintain the designation, or the Association of Consulting Foresters of America, Inc., Arkansas Chapter.”
 
The law also prohibits AMCs from requiring an appraiser to pay or reimburse it for the Appraisal Management Company National Registry fee.  
 
SB 670, which was signed April 4, gives the governor full discretion to appoint the two at-large board members and the three additional board members, which include a banking representative, a consumer representative and a senior citizen representative. Previously, professional appraiser organizations could submit to the governor a list of recommended candidates.
 
 
The Colorado Division of Real Estate on Jan. 31 issued an “Appraiser Licensee Advisory” regarding the use of unlicensed appraisers — Colorado does not have a trainee appraiser credential — when preparing appraisals for loans that are intended to be sold to Fannie Mae.
 
The advisory states, “Colorado’s appraiser license law does not prohibit an unlicensed person from performing a property inspection or from performing a significant amount of the appraisal. Additionally, Colorado’s appraiser license law does not prohibit an unlicensed person from signing on the left side of the FNMA forms if they have met the FNMA criteria identifying them as the appraiser.” The advisory outlines different scenarios and each party’s responsibilities. 
 
View a copy of the Colorado advisory.
 
 
The Florida Real Estate Appraiser Board on March 22 published proposed rules regarding the supervision and training of registered appraiser trainees.
 
FREAB proposed eliminating the requirement that a supervisory appraiser must be state-certified for a minimum of four years before being eligible to become a supervisory appraiser. Instead, FREAB is proposing that a supervisory appraiser must currently be state-certified and must be in good standing and not subject to disciplinary action in any jurisdiction for the past three years. 
 
View a copy of the proposed supervisors and trainees rule changes
 
 
Representatives of the Appraisal Institute’s Kansas City Chapter appeared Jan. 13 before the Kansas Real Estate Appraisal Board, where they testified on having the state’s appraisers perform evaluations and utilizing standards of valuation practice other than the Uniform Standards of Professional Appraisal Practice. 
 
Legislation, HB 2414, was introduced in the Kansas legislature on March 24 to addresses those two issues.
 
 
The Michigan Supreme Court ruled Feb. 1 that it would hear oral arguments in the case of Menard, Inc. vs. City of Escanaba. One of the issues to be decided by the court is whether the Michigan Tax Tribunal may use a “value in use” approach. 
 
The case involves ad valorem property tax assessments by a “big-box” retailer. Originally, the Michigan Tax Tribunal found in favor of the property owner. The state’s intermediate Court of Appeals, however, reversed that decision and found that the “Tribunal committed an error of law requiring reversal when it rejected the cost-less-depreciation approach and adopted a sales comparison approach that failed to fully account for the effect on the market of the deed restrictions in those comparables.” 
 
The Court of Appeals directed that “On remand, the tribunal shall take additional evidence with regard to the market effect of the deed restrictions” and stated, “If the data is insufficient to reliably adjust the value of the comparable properties if sold for the subject property’s HBU, then the comparables should not be used.”
 
Menards appealed this decision to the U.S. Supreme Court. Amicus Curiae briefs regarding Menards’ “Application for Leave to Appeal” were filed by the Michigan Manufacturers Association, the Michigan Retailers Association and the Michigan Municipal League, as well as state real estate professionals and municipalities. 
 
Find information on the “dark store” case
 
 
The Mississippi Supreme Court’s Rules Committee on the Legal Profession requested input Jan. 6 from the bench, the bar and the public on the Mississippi Bar Association’s “Petition to Amend Certain Rules of the Mississippi Rules of Appellate Procedure and the Mississippi Rules of Professional Conduct in order to Define the Practice of Law in Mississippi and Exceptions thereto and to Prohibit the Unauthorized Practice of Law in Mississippi.”
 
A letter was submitted on behalf of the state’s real estate appraisers specifically requesting that it be known that they do not engage in the practice of law when performing the following activities as part of the practice of appraisal: 1) sales contract analysis; 2) analyzing and reporting legal descriptions; 3) interpreting and citing court cases, rulings, and opinions of courts in support of appraisal theory or practice, and 4) other activities required of a real estate appraiser discharging his or her duties as required by state or federal law and regulations.
 
 
Virginia Gov. Terry McAuliffe in March signed into law two bills that affect how appraisers can perform evaluations and how appraisal management companies pay appraisers. 
 
SB 1535/HB 1556, which was signed into law March 3, clarifies that Virginia licensed and certified appraisers are permitted to perform evaluations in accordance with Interagency Appraisal and Evaluation Guidelines. When performing an evaluation, appraisers are only required to “comply with any standards imposed by the state or federal financial institution’s or lender’s regulatory agencies for evaluations prepared by nonstate-certified or nonstate-licensed appraisers.” 
 
SB 1573, which was signed into law March 20, requires AMCs operating in the state to pay appraisers within 30 days of the “initial delivery by the appraiser of the completed appraisal report.” Exceptions include breach of contract, non-compliance with the conditions of engagement or violations of the Uniform Standards of Professional Appraisal Practice.
 
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