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Q2 2019 Washington Report

April 18, 2019

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                                                                                

The Appraisal Institute on Feb. 4 was one of six organizations signing a comment letter that “strongly opposed” a proposal from the Federal Reserve, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency to raise the residential appraisal threshold from $250,000 to $400,000. 
 
If the proposal is approved, nearly three-quarters of residential real estate loans held in portfolio by depository institutions would be exempt from appraisal requirements. A high percentage of those loans are from rural areas.
 
The Agencies’ proposed rule requires concurrence with the Consumer Financial Protection Bureau, which is under the direction of Kathy Kraninger following her recent Senate confirmation. Kraninger has significant government agency experience. 
 
AI President Stephen Wagner, MAI, SRA, AI-GRS, and staff from AI’s Washington office participated in a Feb. 28 meeting with the CFPB where they expressed continued concern with the proposal. Also in attendance at this meetings and subsequent meetings on Capitol Hill related to the proposal were the American Society of Appraisers, American Society of Farm Managers and Rural Appraisers and the Massachusetts Board of Real Estate Appraisers. 
 
More than 90% of the comments submitted during the open comment period expressed opposition to the proposed rule. Two consumer organizations, the Center for Responsible Lending and the National Consumer Law Center, were among those leaving comments in opposition. However, the Agencies may still press forward with a final rule later this year. 
 
 
Bipartisan legislation that aims to ensure honest philanthropy in land conservation and prevent the abuse of chartable incentives for profit was introduced in the Senate in January and the House in March. The Appraisal Institute and the Land Trust Alliance are among those supporting the legislation. 
 
The U.S. Department of the Treasury and the IRS designated syndicated conservation easement transactions as abusive tax shelters in Notice 2017-10, published in December 2016. As a result, the tax shelters are officially recognized as among the most egregious abuses of U.S. tax law. According to the Notice, the promoters of these transactions are syndicating these schemes, promising investors the opportunity to obtain charitable contribution deductions in amounts that significantly exceed their investments. 
 
For these syndications to be successful, an appraisal relying on a generous analysis of highest and best use needs to be utilized. 
 
Moreover, the Senate Committee on Finance has begun a probe of conservation tax benefit abuse, and has requested documents from several people allegedly involved in the abuse.
 
 
The Senate Committee on Banking, Housing and Urban Affairs on March 26 held a hearing on housing finance reform where various stakeholders raised concerns about real estate appraisal policy. 
 
One of the stakeholders, the National Association of Home Builders, reiterated its call for appraisal reforms, including changes to the way appraisal standards and guidelines are developed and asking for more stakeholder input and a move away from agency- and enterprise-driven appraisal policies.  
 
Another stakeholder, the Housing Policy Council of the Financial Services Roundtable, called for Fannie Mae and Freddie Mac to share more appraisal and loan-level data, stating, “The (government-sponsored enterprises) have amassed millions of residential property appraisals, records that capture information on both the subject property and several comparable properties. Similarly, the GSEs, representing approximately one-half of the $10 trillion mortgage market, have millions of loan records, composed of indispensable transaction and performance data.” The statement continues, “Some portion of this data was released to support investor participation in the Credit Risk Transfer initiative, but a significant segment of this critical information has not been published. This data should be shared with other market participants.” 
 
During the question and answer session, Sen. Mike Rounds, R-S.D., questioned the NAHB about appraisals in rural areas and appraisal threshold level increases, and the NAHB reiterated its call for reform. Likewise, the HPS reiterated its call for access to GSE data. 
 
Housing finance reform has received attention in the current Congress, as members seek to advance a reform plan while the market — and notably, the GSEs — are relatively healthy. The White House, too, has applied pressure, issuing a memorandum on federal housing finance reform. The confluence of events may set the stage for consideration of a reform package before the end of the session. 
 
 
 
President Trump on March 12 signed bipartisan legislation permanently reauthorizing the Land and Water Conservation Fund. The fund’s future had been in doubt when Congress failed to reauthorize it ahead of its Oct. 1, 2018, expiration date.
 
The LWCF is the largest source of federal funding for conservation programs, and the Appraisal Institute was part of a coalition of organizations that supported the reauthorization. 

IN THE AGENCIES                                                                       

The Small Business Administration on March 29 issued revised guidance for SBA 7(a) and 504 loans following the passage of legislation that ties the SBA appraisal threshold to the threshold for commercial real estate as established by the federal bank regulatory agencies. 
 
The SBA threshold had long been set by statute at $250,000, but new guidance states that an appraisal may still be needed to evaluate the creditworthiness of commercial real estate loans below $500,000. 
 
The guidance makes it clear to lenders that if they do not get an appraisal, they must obtain an evaluation consistent with the Interagency Appraisal and Evaluation Guidelines for commercial loans below the half-million-dollar threshold.
 
 
The IRS on April 17 released additional regulations pertaining to opportunity zones, which provide real estate investors with a means to defer capital gains taxes by making investments that promote economic development in distressed areas. Many investors and property analysts had been awaiting these regulations before making decisions on opportunity zones. 
 
Qualifying investments must be determined this year — some as early as this summer — to qualify and maximize benefits. 
 
The Appraisal Institute has participated in several presentations on opportunity zones, and indications suggest that the new guidance might not offer sufficient information to persuade investors to move forward with opportunity zone investments. 
 
AI encourages its professionals to study the opportunity zone issue, as advisory services likely will be sought and investments likely will impact local real estate markets. One of the better resources for opportunity zones is maintained by the Community Development Financial Institutions Fund.
 
 
The Consumer Financial Protection Bureau is seeking comments on its residential Property Assessed Clean Energy financing regulations, and on March 4 released an Advance Notice of Proposed Rulemaking. Comments are due May 3. PACE allows homeowners to obtain financing to make improvements that increase energy efficiency. 
 
 
Breakdowns in real estate management at Amtrak resulted in more than $23 million in unnecessary costs and caused the transportation corporation to miss out on nearly $7 million in revenue, according to a report released March 29 by the Office of Inspector General for Amtrak.
 
The report said the overruns and loses could have been avoided if Amtrak kept better data on its real property portfolio, used analytic tools to make decisions about real property and adopted a long-term facility plan. 
 
Specifically, the report recommended that Amtrak develop a timeline for collecting and using data to develop property metrics consistent with common practice in the public and private sectors. To do so, Amtrak will need to first develop a process for collecting information on office assignments, hiring, departures and relocations. The report also recommended that Amtrak require sponsoring departments to prepare business cases or similar analyses to make more informed decisions on property leases. Finally, the report recommended the development of a long-term facility plan to ensure that real property decisions from different departments are consistent with Amtrak’s strategic goals.
 
The Appraisal Institute has seen similar reports for federal agencies result in greater attention being paid to real estate management, including valuation matters.
 
 
Fannie Mae and the National Urban League in March announced a partnership to promote the real estate valuation profession, and several workshops and seminars have been held in major markets to showcase professional opportunities. John Nolan, MAI, and other practicing appraisers spoke at a March 23 workshop in Baltimore about opportunities in the valuation profession, including commercial valuation. 
 
Fannie Mae and the National Urban League also partnered on a video posted to YouTube that highlights opportunities available for residential real estate appraisers. 

IN THE STATES                                                            

The New Jersey Real Estate Appraiser Board is being sued in the U.S. District Court for New Jersey by two Pennsylvania appraisers who allege that disciplinary actions taken against them for violations of the Uniform Standards of Professional Appraisal Practice are unconstitutional pursuant to the due process provisions of the Fifth and Fourteenth Amendments.
 
The plaintiffs allege that their rights were violated when the board delegated to private individuals free from government oversight the task of establishing standards of conduct for appraisers. They also allege that their rights to due process were violated when the board of private individuals — who they noted are competitors — enforced the standards of conduct without themselves abiding by those same standards.  
 
The case is MCNAMARA et al v. GREWAL et al (3:19-cv-00173), New Jersey District Court. 
 
 
The legislatures of 39 states plus the District of Columbia and Puerto Rico currently are in session — and a few states have already concluded their 2019 sessions. 
 
The Appraisal Institute’s Washington office continues to work with chapters, regions and state coalitions to help shape public policy affecting AI professionals and the valuation profession. 
 
Legislative activity this year has included:
 
Evaluations
Alabama (HB 304) Louisiana (HB 340) and Oregon (SB 109) are considering bills that will amend appraiser licensing laws so that appraisers can perform for financial institutions evaluations that do not comply with the Uniform Standards of Professional Appraisal Practice when not required by federal law. If the laws pass in these states, they will join Florida, Georgia, Illinois, Indiana, Tennessee, Utah, and Virginia in allowing appraisers to perform these services. 
 
 
• Statutes of repose
Illinois (HB 2963), Louisiana (SB 191/HB 344), Rhode Island (HB 5773/SB 259) and Texas (SB 939/HB 1116) are considering statutes of repose that would limit the time frame an appraiser could be sued civilly or have disciplinary action taken against them following the completion of an evaluation.
 
These efforts build upon statutes recently enacted in Minnesota, Oregon and Tennessee, and upon preexisting statutes of repose in Kentucky, North Carolina and South Dakota. 
 
A statute of repose bill (HB 1015) was introduced in Washington, but it’s still pending in committee. Massachusetts is considering legislation (HB 216) that would allow only clients and intended users to sue appraisers. Oregon is considering legislation (HB 3218) that would shorten to five years its existing statute of repose, and to make it applicable to disciplinary actions. 
 
• Minimum appraiser qualifications
Many states are rewriting their appraiser licensing laws (statutes and regulations) because of changes to the Real Property Appraiser Qualification Criteria that took effect in May 2018. This is the fourth major rewrite of the criteria since it was established by the Appraisal Standards Board in 1991. Some states are implementing all changes, while others are only implementing changes related to college-level education requirements and not to the number of required experience hours. 
 
• Appraisal management company oversight and regulation
Massachusetts is the only state without comprehensive regulation of appraisal management companies; however that’s likely to change this year with the introduction of HB 1114. Also without comprehensive AMC regulations: the District of Columbia and some U.S. territories.
 
Many states have enacted legislation to bring their existing AMC laws into compliance with the federal minimum requirements, including Arizona (SB 1333), Arkansas (SB 393), Colorado (SB 46), Georgia (HB 192), Maryland (SB 69; SB 20), Mississippi (SB 2697; SB 2451), Nebraska (LB 77), New Mexico (SB 56), North Dakota (SB 2075), West Virginia (SB 597) and Wyoming (SF 83).
 
Other states are considering AMC-related bills, including Connecticut (HB 6865), Indiana (HB 1569), Nevada (SB 39), North Carolina (SB 462), Ohio (HB 166), Oklahoma (SB 731), South Carolina (HB 4151) and Washington (HB 1244/SB 5124).
 
Other actions of note:
 
• The Appraisal Institute on Jan. 31 submitted testimony to Florida Gov. Ron DeSantis as part of his “Deregathon,” asking him to urge the Florida Real Estate Appraisal Board to finalize implementation of the evaluations law enacted in 2017. 
 
• The Illinois Department of Financial and Professional Regulation cautioned in its February IllinoisAppraiser newsletter that a “hybrid” appraisal assignment that used “filtered data,” such as room count and improvement in property quality/condition and size, among other things, “needs to come from a licensed appraiser.” The publication noted, “If it is clear that unlicensed inspectors are providing filtered data to appraisers, an appraisal service, then AMCs have breached this section of the Act and are subject to enforcement action.”
 
• Legislation under consideration in Iowa (HF 502) would allow out-of-state appraisers to practice in state without obtaining an Iowa credential or a temporary practice permit. Appraisers who invoke the “practice privilege” (with the exception of out-of-state reviewers) may not refer to themselves as “certified appraisers” or otherwise give the impression that they are certified in the state without obtaining an Iowa license. 
 
• Legislation under consideration in Oklahoma (SB 737) would add certified appraisers to a group of occupations that provides “professional services” for the purposes of state contracting. Doing so would make it easier for state agencies to contract with the most competent and qualified appraisers. 
 
 
Arkansas Gov. Asa Hutchinson on March 19 signed SB 394, legislation that establishes a statute of repose applicable to claims against real estate appraisers and states that any action to recover damages from an appraiser must be brought within three years of the date the appraisal or appraisal-related service was performed. 
 
The legislation also states, “An appraiser shall not perform … an appraisal where the property … lies within the borders of the state of Arkansas” without first obtaining a licensing from the Arkansas Appraiser Licensing and Certification Board. This provision likely means that appraisers who perform reviews of appraisals of subject property in Arkansas must be licensed in the state.
 
 
Utah Gov. Gary Herbert on March 26 signed SB 140, legislation that allows state-licensed and state-certified appraisers to perform evaluations for federally regulated financial institutions. 
 
Under the new law, appraisers who provide evaluations in compliance with the Interagency Appraisal and Evaluation Guidelines are exempt from compliance with the Uniform Standards of Professional Appraisal Practice. Appraisers will sign the evaluations, certifying that they comply with the IAEG. However, they must still abide by the basic elements of USPAP’s Ethics, Competency, Scope of Work and Recordkeeping rules. This concept has been advanced by several Appraisal Institute chapters in recent years. 
 
The legislation takes effect May 14. 
 

AT THE STANDARDS SETTERS                                 

The Home Innovation Research Labs, an ANSI-accredited standards developing organization, announced in March that it will revise or reaffirm the American National Standard for Single-Family Residential Buildings, Square Footage – Method of Calculating, ANSI Z765-2003. The Appraisal Institute is lending its support, recognizing that the standard is referenced throughout the AI body of knowledge and is an important underpinning of residential property valuation. 
 
The ANSI standard has been used since 1996 and addresses the need for uniformity in calculating and reporting square footage of dwellings in the United States.
 
The ANSI consensus process allows interested parties in the residential sector to contribute to the standard review and revision by submitting public proposals or by applying to join the Consensus Committee. All committee meeting notices and tentative agendas will be available online 30 days prior to each meeting. Proposed changes will be accepted online through May 7.
 
Updates on the standard development process and all relevant forms and documents are available online.
 

IN THE COURTS                                                                          

The United States Court of Appeals for the 5th Circuit on Feb. 28 dismissed the Louisiana Real Estate Appraisers Board’s petition for review of a Federal Trade Commission decision that disallowed the LREAB from asserting its state-action immunity defense in ongoing administrative proceedings. The court ruled that it did not have jurisdiction to consider the petition.
 
The FTC’s stay of action, which had been in place pending outcome of the review petition, was lifted March 21, and the evidentiary hearing in the case is scheduled for Sept. 17. 
 
Read the court’s decision, and find more information on the pending administrative action
 

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