More than 100 Appraisal Institute professionals went to Capitol Hill May 20 to urge Congress to act on two issues that could significantly impact the valuation profession.
Attendees of AI’s annual Leadership Development and Advisory Council conference, held May 19-21 in Washington, lobbied lawmakers and their staffs on issues related to appraisal data privacy in housing finance reform bills and on legislation that would once again allow qualified real estate appraisers to perform going concern appraisals of special purpose properties for the U.S. Small Business Administration.
In the past year, lawmakers have introduced two major bills that address housing finance reform. In the Senate, S. 1217, the Housing Finance Reform and Taxpayer Protection Act, known as “Johnson-Crapo,” and in the House, H.R. 2767, the Protecting American Taxpayers and Homeowners Act or “PATH Act.”
Although Johnson-Crapo remains a long shot to pass in the 113th Congress, it contains a provision that is of particular concern to the Appraisal Institute because it could undermine the integrity of the appraisal process and impose new liabilities on financial institutions. The provisions would authorize the creation of a database to collect mortgage loan information, including appraisals, and would allow that information to be available to the public. AI is concerned about how the information might be used by those who interact with appraisers or by those who have a vested interest in the appraisal process.
AI professionals also expressed their support for legislation under development by Reps. Blaine Leutkemeyer, R-Mo., and Kurt Schrader, D-Ore., that would reaffirm the acceptance of competent real estate appraisers to prepare going concern appraisals of special purpose properties for SBA 7(a) loans. AI’s Washington Office continues to work with those congressmen — as well as the SBA and industry organizations — on this important issue, and is happy to happy to report good progress. Additional information and developments will be included in future editions of Appraiser News Online and the Washington Report.
The Appraisal Institute reported July 9 that H.R. 2807, which is bipartisan legislation that would permanently extend higher caps for qualified conservation contributions — including easements — worth up to 50 percent of taxable income for some landowners and up to 100 percent of the taxable income for farmers and ranchers, is expected to be on the House floor in the next several weeks.
The caps were set in 2006 but they expired at the end of 2013, along with dozens of other temporary credits known as tax extenders.
H.R. 2807 would extend an allowance for landowners to carry forward for up to 15 years any tax deductions for qualified conservation donations that exceed the caps.
IN THE AGENCIES
AI Supports Proposed AMC Minimum Requirements
The Appraisal Institute and the American Society of Farm Managers and Rural Appraisers on June 9 submitted joint written comments to the federal bank regulatory agencies expressing their support for proposed minimum requirements for appraisal management companies.
The rulemaking was required by the Dodd Frank Wall Street Reform and Consumer Protection Act of 2010. Once the rules are finalized, states will have up to 36 months to enact laws that are consistent with the federal minimum requirements regarding the registration and oversight of AMCs.
In expressing their support, the organizations said they believe the rules are an accurate interpretation of what Congress intended and are consistent with rules that already have been enacted in 38 states and would be easy for the other 17 appraiser licensing jurisdictions to implement.
The organizations expressly singled out for support the rules excluding AMCs that only engage in commercial transactions and those with employee appraisers, as well as a proposal to limit the application of the rules to entities with larger panels of independent contractor appraisers.
Courts, IRS Release Decisions Related to Real Estate Valuation
The United States Court of Appeals for the Fifth Circuit on June 11 issued its latest decision in the case of Whitehouse vs. Commissioner of Internal Revenue concerning a historic conservation easement. The case was back before the USCA on an appeal by Whitehouse of the U.S. Tax Court’s second determination of the value of a historic conservation easement in New Orleans, and the Tax Court’s enforcement of a 40 percent gross overstatement penalty. The USCA previously had remanded the case back to the Tax Court for redetermination of the value of the easement and the application of the penalty. In this decision, the USCA affirmed the new determination of Tax Court as to the value of the conservation easement, but granted Whitehouse’s request for a “good faith” exemption from the overvaluation penalty.
The United States Court of Appeals for the Second Circuit on June 18 rendered its latest opinion in the façade easement donation case of Scheidelman vs. Commissioner of Internal Revenue. In its opinion, the USCA affirmed a U.S. Tax Court decision that an easement donated by a property owner had no value for charitable contribution purposes.
This was the second time that the Scheidelman case was before the USCA on an appeal of a Tax Court decision. Previously, the USCA had overturned a U.S. Tax Court decision that the appraisal of the façade easement was not a qualified appraisal as is required by IRS regulations concerning charitable contributions of façade easements. The USCA sent the case back to the Tax Court for a determination of the value of the easement. The Tax Court then decided that even though the appraisal was a qualified appraisal, the façade easement had no value as a charitable contribution. The Tax Court’s determination of no value was affirmed by the USCA.
In the case of Seventeen Seventy Sherman St., LLC v. Commissioner
, the U.S. Tax Court on June 19 ruled that a Colorado company wasn't entitled to more than $7 million it claimed as a noncash charitable contribution deduction because it failed to properly report the consideration it received in a quid pro quo exchange for two conservation easements.
Judge L. Paige Marvel stated in her decision, “We conclude that Seventeen Seventy committed to grant the easements in the quid pro quo exchange with the expectation that CPDA's recommendation would substantially increase the likelihood that the Planning Board would approve the view plane variance. We further conclude that CPDA's recommendation had substantial value because of the likelihood that the Planning Board would follow CPDA's recommendation. Accordingly, CPDA's recommendation must be valued as part of Seventeen Seventy's quid pro quo exchange. The failure to include that value as part of Seventeen Seventy's consideration prevented the court from determining the overall value of the consideration Seventeen Seventy received.”
The court declined to impose a gross-valuation penalty against the taxpayer after disagreeing with IRS experts who said the exterior easement had no value, but did affirm the IRS’ imposition of a penalty against the taxpayers for negligence or disregard of rules and regulations. Marvel wrote, “We find that Seventeen Seventy did not make a reasonable attempt to ascertain the correctness of the charitable contribution deduction without adjusting the deduction for the consideration received.”
The IRS announced March 19 that its Office of Professional Responsibility had settled with a group of appraisers from the same firm accused of aiding in the understatement of federal tax liabilities by overvaluing façade easements for charitable donation purposes. Under the settlement agreement, the appraisers admitted to violating relevant sections of Circular 230 related to due diligence and submitting accurate documents to the government. The appraisers agreed to a five-year suspension of valuing façade easements and undertaking any appraisal services that could subject them to penalties under the Internal Revenue Code. The appraisers also agreed to abide by all applicable provisions of Circular 230.
Karen L. Hawkins, director of OPR, announced the settlement, noting, “Appraisers need to understand that they are subject to Circular 230, and must exercise due diligence in the preparation of documents relating to federal tax matters.” She also said that “Taxpayers expect advice rendered with competence and diligence that goes beyond the mere mechanical application of a rule of thumb based on conjecture and unsupported conclusions.”
The IRS announced June 23 that an appraiser from Arizona had agreed to be disqualified indefinitely by consent for having failed to exercise due diligence in preparation of an appraisal submitted to the IRS.
Being disqualified means that an appraiser is barred from presenting evidence or testimony in any administrative proceeding before the U.S. Department of the Treasury or the IRS. A disqualification by consent is in lieu of a disciplinary proceeding and typically contains conditions that the individual must observe during the suspension and that pertain to the individual’s opportunity to file a petition for reinstatement.
View a copy of IRS Announcement 2014-26
Real Estate Groups Request Revisions to Section 8 Guide Book
The Appraisal Institute is part of a coalition of real estate associations that, in a May 14 letter, expressed opposition to a proposed U.S. Department of Housing and Urban Development Section 8 Renewal Policy Guide Book.
The proposed guide book would use raw census data as a comparison of proposed renewal rents established by an owner-contracted rent comparability study for the purposes of determining whether a second HUD-contracted RCS is warranted. HUD contends that research has shown that market rent estimates, as determined by an owner’s RCS, often are higher than market rent estimates, as determined by an RCS secured by HUD.
In May 2012, HUD issued guidance to require appraisers to provide additional justification if the gross rent potential in the RCS exceeded 110 percent of the fair market rent in rural areas or the small area fair market rent in urban areas. The coalition opposed that effort, and after further consideration, HUD has proposed another revised benchmark against which owner RCS rents can be assessed. The Guide Book states:
“As a preliminary matter, the Department believes the most reliable benchmark is a market-based, rather than a FMR-based, measure. Further, HUD believes that the most comprehensive market based benchmark would be median gross rents, as determined and as published by the United States Census Bureau or some other comparable source. HUD considers these rents comprehensive because they are available for every zip code within the United States. The new guidance would require a comparison of the rents in the RCS to a market-based benchmark (i.e., median rent estimates published by the United States Census Bureau or other comparable source), should RCS rents exceed 110 percent of the median rents for the zip code area. Should this be the case, HUD will order a third party RCS and undertake a comparison of the RCSs.”
The coalition opposed the benchmark as proposed because median gross rents do not reflect market conditions and affirmed that median gross rents are based on outdated information and not adjusted for inflation. The coalition letter also cited multiple methodology concerns relating to the staleness of census data.
In addition to AI, the coalition includes the Council for Affordable and Rural Housing, the Institute of Real Estate Management, LeadingAge, the Mortgage Bankers Association, the National Affordable Housing Management Association, the National Apartment Association, the National Association of Home Builders, the National Association of Housing Cooperatives, the National Leased Housing Association, and the National Multifamily Housing Council.
AI Addresses FBI Advanced Mortgage Fraud Conference
Appraisal Institute President Ken P. Wilson, MAI, SRA, and Bill Garber, AI’s director of government and external relations, addressed nearly 100 Federal Bureau of Investigation agents and investigators during the FBI’s Advanced Mortgage Fraud conference June 17 in Arlington, Virginia.
AI provided suggestions for curtailing mortgage fraud, and presented an overview of common “red flags” within real estate appraisal reports.
One area of particular concern identified during the conference, which included presenters from the Federal Deposit Insurance Corporation, CoreLogic, Interthinx and Bank of America, related to correspondent lenders — or “mini-correspondents.” Correspondent lenders are similar to mortgage brokers but differ in that they only fund loans for short periods of time. Several industry experts identified the correspondent channel as a potential area for future mortgage fraud, given some of the financial and business arrangements. Mortgage brokers can satisfy correspondent lender status through net-worth requirements.
Wilson and Garber warned attendees that the Appraisal Independence Requirements of Fannie Mae and Freddie Mac allow correspondent lenders to order appraisals under the theory that correspondent lenders have some “skin in the game.” FBI investigators were urged to pay close attention to the correspondent channel as it relates to matters of appraisal independence.
AI attendance at the conference and subsequent dialogue also resulted in a referral of an apparent appraiser identity theft case to the FBI for review.
NCUA Proposes Appraisal Exemptions
The National Credit Union Administration on June 26 proposed aligning appraisal requirements relative to existing extension of credit (refinancing, modifications) with policies from the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation and the Federal Reserve.
Under the expanded exemption, federally insured credit unions would be able to refinance or modify a real estate-related loan without having to obtain an appraisal if there is no advancement of new monies or if there is adequate collateral protection, even with the advancement of new monies. Comments on the proposed rule are due Aug. 25.
View the proposed rule here
DOI-BIA Proposes Right-of-Way Grant Procedures
The U.S. Department of the Interior’s Bureau of Indian Affairs on June 17 proposed new processes for obtaining BIA grants of rights-of-way on Indian land while attempting to maintain tribal self-determination and self-governance.
In December 2012, the Interior issued final regulations reforming residential, business and wind and solar leasing on Indian land and streamlining the leasing process. Now the Interior is updating the rights-of-way program (25 CFR 169) to mirror those revisions to the extent applicable in the rights-of-way context.
Under the proposed rule, the DOI-BIA would use a market analysis, appraisal or other appropriate valuation method to determine the market value before granting a right-of-way affecting individually owned Indian land or, at the request of the tribe, for tribal land. The DOI-BIA proposes to: (1) Prepare, or have prepared, a market analysis, appraisal or other appropriate valuation method; or (2) Use an approved market analysis, appraisal or other appropriate valuation method from the Indian landowners or grantee.
The DOI-BIA will use or approve use of a market analysis, appraisal or other appropriate valuation method only if it has been prepared in accordance with Uniform Standards of Professional Appraisal Practice or a valuation method developed by the secretary of the Interior under 25 U.S.C. 2214 and complies with Interior policies regarding appraisals (including third-party appraisals) or has been prepared by another federal agency.
Comments on the proposal are due Aug. 18. View the proposed rule here
IN THE STATES
AI Asks AQB to Limit Appraiser Background Checks
The Appraisal Institute, in a July 11 letter to the Appraiser Qualifications Board, asked that an AQB requirement that states conduct background checks on appraisers be limited only to new applicants for initial appraiser credentials. Additionally, AI requested the removal of a requirement that appraisers submit fingerprints as part of their background checks, suggesting that there are less intrusive ways to confirm an applicant’s identity.
Beginning Jan. 1, 2017, the background check requirements will become part of the AQB’s minimum Real Property Appraiser Qualification Criteria, which all states will have to follow in order to be compliant with federal requirements regarding licensure and certification of real property appraisers.
In its letter, AI requested that the AQB clarify that an appraiser who is licensed in good standing in another jurisdiction should not be considered a new applicant when applying for a credential via reciprocity for the first time in another state and should not be subject to a background check. However, if a state is resolute about conducting background checks on out-of-state applicants for reciprocal licenses, then the state should delay implementation of the requirement until such time as there is a streamlined system in place to allow an appraiser to use a single background check to simultaneously satisfy multiple state requirements. AI also asked the AQB to declare that the requirements do not apply to applicants for temporary practice permits.
New AI Document Lists State Appraisal Review Credentialing Laws
The Appraisal Institute announced May 13 that its “Provisions of State Appraiser Licensing and Certification Laws Applicable to Appraisal Review” is available in the AI Bookstore free to Designated members, Candidates for Designation, Affiliates and Practicing Affiliates. The document is available for purchase by non-AI professionals.
In producing this comprehensive document, the Appraisal Institute compiled from all 50 states the relevant provisions of appraiser licensing and certification laws that apply to the review of appraisals by state-licensed or certified appraisers who are physically situated in another state.
The document provides information on state agencies, definitions, certification and/or licensing requirements, as well as appraisal management company requirements. This document provides review appraisers with a single source from which they can view state statutes that are likely to determine whether or not the reviewer needs to hold a credential in the state where the subject property is located.
Review appraisers are reminded to check with the state appraiser licensing authority in the state where the subject property is located regarding the applicable credentialing requirements prior to performing the review.
Three Advocacy Experts Share Insights with LDAC Attendees
Three government relations professionals on May 19 conducted an informative session on effective government relations strategies at the Appraisal Institute’s annual Leadership Development and Advisory Council conference in Washington. Mitchell Feuer; R. Scott Hartman, SRA; and Louis J. Biacchi, who have a combined 80 year’s lobbying experience, provided useful real-world suggestions that attendees could take back to their chapters to help jump start state government relations efforts.
Feuer is with Rich Feuer Anderson, a leading bipartisan government affairs firm retained by the Appraisal Institute that designs and implements government relations strategies for a diverse range of clients in Washington. Hartman is chair of the Coalition of Pennsylvania Real Estate Appraisers where he has led CPREA’s efforts to defeat broker price opinion legislation. Biacchi, who serves as CPREA’s lobbyist in Harrisburg, Pennsylvania, is with Pugliese and Associates, one of the state’s leading government relations firms. AI is grateful to all three for taking the time to be part of the LDAC experience.
Kansas Enacts New Way to Appeal Valuations
A Kansas law that took effect July 1 gives property owners the right to appeal their property valuations to the District Court, taking away the final say from the Kansas Court of Tax Appeals. Many small business owners in Kansas have argued that their real estate is significantly overvalued, and that they were faced with appealing those valuations to a Court of Tax Appeals that allegedly was biased towards county assessors. The law renames the tax appeals group as a board instead of a court, and allows appeals from the board to any District Court or the Kansas Court of Appeals, with the District Court cases being considered de novo.
Pennsylvania Bill Limits Appraisal Reimbursements in Eminent Domain Cases
Legislation in Pennsylvania currently under consideration by Gov. Tom Corbett would limit the ability of property owners in condemnation cases to obtain reimbursement from the condemning agency for their engineering, appraisal and legal costs.
Under current state law, property owners challenging a right-of-way acquisition can seek reimbursement for up to $4,000 each for their appraisal, engineering and legal costs. The new legislation would change the maximum to $4,000 per property for each service in cases of right-of-way acquisition, and to $1,000 per property for each service in cases of easements related to underground piping for water or sewer infrastructure. It is believed that the intent of the original legislation was to calculate reimbursement on a per-property basis rather than a per-property owner basis. The bill is expected to be signed by the governor.
Appraisal Institute Expands International Education Offerings
The Appraisal Institute announced May 30 that it signed a licensing agreement with Kuwait University's College of Business Administration for AI to teach “Basic Appraisal Principles” and “Basic Appraisal Procedures” to university students in the Persian Gulf.
The agreement follows two visits to Kuwait this spring where AI taught the courses. AI past president Leslie P. Sellers, MAI, SRA, who taught the Principles course in March will do so again Sept. 16-23. AI’s Immediate Past President Richard L. Borges II, MAI, SRA, AI-RRS, will teach the Procedures course Oct. 28-Nov.4.
Additionally, the Saudi Authority for Accredited Valuers (TAQEEM Academy) signed a licensing agreement with AI for the organization to offer the same two courses to its appraiser staff. Jefferson Sherman, MAI, AI-GRS, will teach the Principles course in Jeddah in September and the Procedures course in November. Charles T. Cowart, MAI, who taught the Procedures course during the April trip to Kuwait, will teach the Principles course in Riyadh in September and the Procedures course in November.
AI Enhances International Efforts, Attends International Event
Appraisal Institute past president Leslie P. Sellers, MAI, SRA, attended the International Valuation Standards Council Advisory Forum Working Group May 19-20 in London.
AI President Ken P. Wilson, MAI, SRA; AI President-Elect Lance Coyle, MAI, SRA; Vice President Scott Robinson, MAI, SRA, AI-GRS; and AI Chief Executive Officer Frederick H. Grubbe, MBA, CAE; were in China May 23 to June 2, where they met with the China Institute of Real Estate Appraisers and Agents, the China Real Estate Valuers and Agents and the Guangdong Association of Land Valuers and Agents. AI officers also met with officials from Hong Kong University to notify them that their application for participation in the Appraisal Institute's master's degree program has been approved. As part of that trip, they also met with local AI professionals and provided continuing education programs.