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Q3 2020 Washington Report

Sept. 18, 2020

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. 

CORONAVIRUS NEWS                                                                

The Appraisal Institute continues to monitor how the coronavirus (COVID-19) pandemic affects AI professionals and the rest of the real estate valuation profession, and is updating its website as information becomes available.
AI Answers is a series of free webinars produced by the Appraisal Institute that address multiple issues affecting the valuation profession during the COVID-19 emergency. Each episode averages about an hour and is available on AI’s YouTube channel.     
Recent topics included residential valuation impacts from COVID-19, federal and state legislative and regulatory updates, value sustainability concepts and an update from The Appraisal Foundation. 
Find additional information on how the coronavirus pandemic is affecting AI professionals and the rest of the real estate valuation profession. 
ON THE HILL                                                                                
The Senate Finance Committee concluded its long investigation into syndicated land conservation easements in August by releasing a bipartisan report that asks Congress to crack down on the abusive practice that costs taxpayers billions of dollars each year.
The report says that syndications are “nothing more than retail tax shelters that let taxpayers buy tax deductions at the end of any given year, depending on how much income those taxpayers would like to shelter from the IRS, with no economic risk.“ The ploy relies on appraisals that inflate the value of land based on claims of substantial development or extraction potential that is diminished when a conservation easement is granted, thus allowing investors to write off a large charitable deduction.  
The Appraisal Institute supports legislation introduced last year to end abusive conservation easements; S. 170, The Charitable Conservation Easement Program Integrity Act of 2019, was referred to the Committee on Finance. 
Sen. Ron Wyden, D-Ore., on Aug. 13 announced that he will introduce legislation to make it harder for gas pipeline companies to use eminent domain against landowners who don’t want their property usurped for this purpose. Wyden said the legislation is in response to increased use of eminent domain for pipeline development and the “failure of the Federal Energy Regulatory Commission to protect landowners’ rights.” 
The legislation is expected to be introduced this month, and should include a provision that requires all property to be appraised in accordance with uniform appraisal standards before an offer of just compensation is extended. Additionally, the landowner’s representative will have the opportunity to accompany the appraiser during the inspection. 
The Appraisal Institute wants its professionals to contact their representatives and urge them to co-sponsor HR 7688, the Portal for Appraisal Licensing Act, known as the PAL Act.
Introduced by Reps. David Kustoff, R-Tenn., and Ed Perlmutter, D-Colo., this bipartisan legislation will modernize the real estate appraisal licensing system, reduce costs and improve efficiencies by authorizing creation of a nationwide licensing platform known as the Portal for Appraisal Licensure.
AI professionals can enter their information and be directed to their representative and provided with talking points in support of this important legislation.  

IN THE AGENCIES                                                                       

The Consumer Financial Protection Bureau on Aug. 18 released for comment its proposal to create a new category of qualified mortgages, to be known as “seasoned QMs,” to encourage innovation and help ensure access to responsible and affordable mortgage credit.
Seasoned QMs must be first-lien, fixed-rate covered transactions that meet certain performance requirements over a 36-month seasoning period. Covered transactions will be held on the creditor’s portfolio during the seasoning period, and they must comply with general restrictions on product features and points and fees, and meet certain underwriting requirements. Additionally, loans eligible for consideration as seasoned QMs must have had consumer debt-to-income ratio or residual income taken into account when the creditor originated the loan. 

AT THE STANDARDS SETTERS                                 

The Appraisal Institute on Aug. 20 sent a letter to The Appraisal Foundation offering its support of reinforcing existing requirements to help combat potential bias in the appraisal process, specifically citing a need to make the AQB Real Property Appraiser Qualification Criteria and Uniform Standards of Professional Appraisal Practice more illustrative on such matters. 
In its letter, the Appraisal Institute references recent claims made by academic institutions and think tanks that allege racial bias in real estate appraisals, claims that AI takes seriously because they form part of the larger national debate and because they raise questions about the objectivity and independence of appraisers. AI said it sees an ongoing need to educate the public and stakeholder organizations about the role of appraisals and valuation processes and procedures.
Noting that appraisers are already bound by strict ethics and anti-bias requirements in USPAP, and that lenders are also bound to collateral valuation guidelines (executed as contracts) that translate to appraisers in scope of service requests and through appraisal review processes, AI encourages the Board of Trustees and the Appraiser Qualifications Board to consider additional steps that could be taken to reinforce existing requirements and obligations to promote education and awareness by appraisers.
Specifically, AI notes that “Criteria” could be expanded to encourage development of education on bias and discrimination for appraisers, users of appraisal services and the real estate community. Additionally, AI suggested that the required USPAP courses developed by The Appraisal Foundation and used to establish equivalency for other USPAP courses could be enhanced with additional illustrative material on bias and discrimination as it relates to standards.

IN THE STATES                                                            

Lawmakers in Alabama, Arkansas, Iowa, Kansas, Louisiana, Mississippi, North Carolina, Oklahoma, Utah and Wyoming have adopted laws that may limit civil liability for individuals, businesses and others, including real estate appraisers, from injury or death relating to COVID-19 exposure. It is likely that other states will adopt similar laws.
While the details may vary, the laws generally provide limited immunity from liability or damages related to exposure to or infection from COVID-19 where a person or entity is acting in accordance with federal, state or local guidance, and is not acting with gross negligence or willful or reckless misconduct. 
These laws may provide some protections to real estate appraisers who unknowingly transmit the virus while performing field or other work, so long as they followed appropriate public health directives, orders or other applicable guidance. Further, the laws may provide some protections to appraisal firms that have employees at a physical office or have visitors to the office who contract the virus while on the premises.
Lastly, Congress currently is considering legislation to provide liability protections for businesses, employers and others, which, if adopted, would create an exclusive federal cause of action preempting all state laws that would otherwise apply.
Mississippi Gov. Tate Reeves on June 25 signed SB 2430, legislation that enacts an appraiser-specific statute of repose, making it the eighth state to do so. Appraisers in Mississippi spent a year lobbying for the legislation, which took effect July 1. Similar laws exist in Kentucky, Louisiana, Minnesota, North Carolina, Oregon, South Dakota and Tennessee. 
Now, all civil lawsuits against appraisers (including trainees) and the appraisal firms, appraisal management companies and lenders for which they work must be filed within five years of the date that “the appraisal was relied upon or utilized by an intended user” or within three years after the date that the cause of action occurred, whichever is earlier.
The three- or five-year limitations do not apply to actions where an appraiser, appraisal firm or AMC are alleged to have “fraudulently inflated the value of the property or colluded with others to fraudulently inflate the value of the property.” The law applies to all civil actions against appraisers, including but not limited to, professional negligence, negligent misrepresentation, false information and breach of contract. Licensed real estate brokers or salespersons in the state also are subject to similar limitations.
The Appraisal Institute’s Texas Chapters on June 26 submitted a letter to the state’s attorney general noting that appraisers are authorized by federal banking law to provide evaluations. 
The letter was sent in response to an inquiry that the Texas Appraiser Licensing and Certification Board made to the attorney general asking if it has the authority under the TALCB Act to exempt licensed or certified appraisers from the statutory requirement to comply with the Uniform Standards of Professional Appraisal Practice when providing evaluations allowed under federal Interagency Appraisal and Evaluation Guidelines.
In their letter, the Texas chapters wrote, “TALCB is charged with ensuring that appraisals are performed in accordance with professional standards by appropriately qualified appraisers. Federal statutes, regulations and policies have established that individuals who hold a state-issued license or certification to appraise real property may also provide evaluations of real property to federally regulated financial  institutions. As such, appraisers are authorized by federal banking law to provide evaluations.” 
They also wrote, “Appraisers should not be required to comply with the TALCB Act when providing evaluations to federally regulated financial institutions.”
The attorney general has 180 days to respond to the TALCB. 
The Georgia Real Estate Commission & Appraisers Board on July 30 adopted a rule change that “eliminates language that has caused confusion in the industry concerning when Georgia appraisers can conduct evaluations.” The change addresses the reporting format for evaluations that are prepared by appraisers for financial institutions that are not regulated by a federal financial institution’s regulatory agency.
The previous rule stated that evaluations are allowed to be “prepared in any reporting format, such as, but not limited to, a self-contained appraisal report, a summary appraisal report and a restricted use appraisal report if the reporting format meets the requirements of the nonfederal financial institution.”
The updated rule, which took effect Aug. 19, removes specific references to the transactions for which an appraiser may provide an evaluation, stating instead that appraisers can provide evaluations “for any transaction that qualifies to be performed as an evaluation under the Interagency Appraisal and Evaluation Guidelines.”  
The rule also eliminates enumeration of an evaluation’s required content in favor of language that states, “at a minimum, the development and content of an Evaluation Appraisal shall comply with the guidelines set forth in the Interagency Appraisal and Evaluation Guidelines.” 
California Gov. Gavin Newsom on Sept. 4 signed AB 2257, legislation that clarifies how the state’s employment laws apply to services provided by state-licensed and state-certified real estate appraisers, allowing them to work as independent contractors.
Last year, the state enacted AB 5, creating a three-part test, commonly known as the “ABC” test, to determine if workers are employees or independent contractors for purposes of the state’s Labor Code and Unemployment Insurance Code and the wage orders of the Industrial Welfare Commission. A person who provides labor or services for remuneration is considered an employee rather than an independent contractor unless the hiring entity demonstrates: (A) the person is free from the control and direction of the hiring entity in connection with the performance of the work; (B) the person performs work that is outside the usual course of the hiring entity’s business; and (C) the person is customarily engaged in an independently established trade, occupation or business.
Prior to AB 5, the employment relationship between a contracting entity and a service provider was determined using a multifactor test commonly known as the “Borello” test. Many appraiser/client contractual relationships, including some between appraisers, appraisal firms and appraisal management companies, satisfied each prong of the Borello test, and the employment relationship was defined as that of an independent contractor. 
However, once AB 5 took effect, appraisers in California expressed concern that the ABC test, specifically the “B” prong, meant they would be considered employees of some clients, specifically appraisal firms and AMCs. Appraisers, appraisal firms and AMCs were worried that it would be determined that they were in the business of providing appraisal services, to the extent that appraisers would not be performing work “outside the usual course of the hiring entity’s business.” In contrast, AB 5 did not affect the independent contractor nature of the relationships between appraisers and other client groups, such as private businesses and individuals, direct engagement lenders, government agencies and law firms.  
The new legislation clarifies that contractual services provided by licensed and certified appraisers are “professional services” for which the Borello test, rather than the ABC test, would apply. It requires six factors to be satisfied before the Borello test can be considered: 
  1. The appraiser must maintain a separate business location (a home office is permitted);
  2. The appraiser must have all appropriate business licenses and tax registrations;
  3. The appraiser must have the ability to set or negotiate their own rates;
  4. The appraiser must have the ability to set their own hours;
  5. The appraiser must provide services to other entities or hold themselves out as being available to have other customers; and
  6. The appraiser must be permitted to exercise discretion and independent judgement in the performance of the services.
If all six factors are satisfied, then the Borello test could be used to determine whether the business relationship is that of an independent contractor or employee.

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The Appraisal Institute's Washington office wants to know if AI professionals have relationships with critical policymakers, or are aware of a burgeoning issue of opportunity or concern. Please contact any member of the AI Government Relations Committee or Washington office staff with more information.    












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