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Q2 2018 Washington Report

April 19, 2018

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 House Financial Services Committee on March 8 approved HR 3221, the Securing Access to Affordable Mortgages Act, legislation that grants appraisers an exemption from having to conduct evaluations in accordance with the Uniform Standards of Professional Appraisal Practice for loans under $250,0000 that were held in a portfolio for three years.
 
Appraisals are not required for loans of $250,000 or less, but federal bank regulatory policy requires lenders to obtain an evaluation to understand the collateral risk involved with the loan. HR 3221 creates greater flexibility for lenders, allowing them to more easily use appraisers for such services when allowed by federal regulations. 
 
Section 2 of the legislation provides an exemption from specific appraisal requirements, such as second appraisals and full interior inspection appraisals, mandated by the Dodd-Frank Act and related to higher risk loans. The Appraisal Institute interprets HR 3221 as a move to provide regulatory relief and align Dodd-Frank requirements with the long-standing appraisal requirements found in Title XI of FIRREA. However, the number of loans affected by the alignment likely is less than 5 percent. 
 
AI supports the legislation, noting that it could increase the need for certain valuation services and give lenders the flexibility to hire appraisers to perform evaluations. 
 
A date has not been set for a vote by the full House, but Jeb Hensarling, chairman of the House Financial Services Committee, noted that he wants the legislation included in any package negotiated with the Senate regarding regulatory reform.
 
 
The Appraisal Institute led nearly three dozen valuation organizations in supporting revisions to a bipartisan Senate bill that passed March 14. The measure, which now goes to the House, rolls back many post-financial crisis banking rules found in the Dodd-Frank Act. 
 
“Thank you for including several clarifying provisions relating to rural residential appraisals to Section 103 of S. 2155, the Economic Growth, Regulatory Relief, and Consumer Protection Act,” the Appraisal Institute and 33 other real estate valuation groups wrote to Sen. Mike Crapo, R-Idaho, chair of the Senate Committee on Banking, Housing and Urban Affairs.
 
Although the Appraisal Institute took no position on the bill, it endorsed changes to proposed appraisal exemptions found in a previous version of the measure. The bill now clarifies that a bank must engage at least three appraisers on the bank’s approved appraiser list, in the local market area and in compliance with existing appraiser independence requirements. It also establishes a reasonable timeliness standard.
 
“These provisions will help ensure that banks make a good faith effort to place the appraisal with local market appraisers, consistent with the bill’s intent,” the organizations’ letter stated.
 
The measure, which the Senate passed 67-31, marks the most significant revision of banking rules since Congress approved the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, a sweeping financial regulatory law enacted in response to the 2008 economic crisis.
 
Backers of the new bill argued that smaller banks shouldn't have to face the same set of strict rules as behemoth Wall Street banks that could endanger the entire financial system if they go under. Proponents of the Dodd-Frank law sharply criticized the bill, arguing it would weaken consumer protections aimed at keeping the financial system safe from another crisis.
 
Many of the measure’s Democratic co-sponsors are from rural states won by President Trump. They argued that measures must respond to the specific political and banking needs in their states, which they said have been hurt by consolidation in the banking industry post-Dodd-Frank.
 
 
Efforts to redevelop environmentally contaminated properties received a boost March 23 with the passage of an omnibus spending bill that included the BUILD Act, known as the Brownfields Utilization, Investment, and Local Development Act, which extends federal funding for brownfields through 2023 and makes additional program reforms. 
 
The law improves the flexibility of the program, authorizes multipurpose grants, raises the limits for grants per site and removes some funding caps. It also allows the Environmental Protection Agency to reserve as much as $1.5 million in brownfield funding each year to assist small communities, tribes and rural or disadvantaged areas. Grants can be used for training, research and technical assistance. Additionally, the EPA will be required to consider the potential for renewable energy production when ranking applications for brownfield grants to incentivize green energy projects. Waterfront brownfield sites also receive special recognition. 
 
The brownfields program was created in 2002 by bipartisan legislation to assist communities with the cleanup of former industrial properties environmental contaminants complicate redevelopment. When the program was authorized, the EPA estimated there were 450,000 brownfield sites nationwide. More than 59,000 brownfield sites have since been revitalized.
 
IN THE AGENCIES                                                                       
 
The Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation in late March approved a final rule that will double the appraisal threshold for commercial real estate transactions. 
 
The federal banking regulatory agencies maintained the $250,000 threshold level for one- to four-unit single family residential loans. They also maintained the $1 million threshold level for business (owner occupied commercial real estate) loans. 
 
“It is confounding given pricing and risk management concerns expressed about the commercial real estate market by leaders of the agencies themselves,” Appraisal Institute President James L. Murrett, MAI, SRA, said. “Without a doubt, the final rule increases risk to the commercial real estate lending system.” 
 
He acknowledged, “The agencies should be applauded for their restraint and focus on safety and soundness in residential and business lending,” 
 
The agencies’ final rule stated, “The OCC, Board and FDIC (collectively, the agencies) are adopting a final rule to amend the agencies’ regulations requiring appraisals of real estate for certain transactions. The final rule increases the threshold level at or below which appraisals are not required for commercial real estate transactions from $250,000 to $500,000. The final rule defines commercial real estate transaction as a real estate-related financial transaction that is not secured by a single 1- to 4-[unit] family residential property.” 
 
“It excludes all transactions secured by a single 1-to-4 family residential property, and thus construction loans secured by a single 1-to-4 family residential property are excluded.”
 
“For commercial real estate transactions exempted from the appraisal requirement as a result of the revised threshold, regulated institutions must obtain an evaluation of the real property collateral that is consistent with safe and sound banking practices.”
 
Murrett acknowledged that the agencies’ decision to increase the commercial real estate threshold levels was not unexpected. 
 
Murrett noted that as more evaluations are allowed, one likely result is a return to the loan production-driven environment seen during the leadup to the financial crisis, where appraisal and risk management were thrust aside to make more – not better – loans. He said that smaller institutions, in particular — which are less likely to maintain appraisal departments — are more likely to be susceptible to breakdowns in appraisal independence with fewer controls in place. 
 
“Seen through the lens of loosening regulations, the final rule may make sense,” Murrett said. “But from a safety and soundness perspective, the final rule raises significant concerns.”
 
He also noted, “A key takeaway from the agencies’ decision is that it increases the importance of modernizing the appraisal regulatory structure, including positioning appraisers to better offer evaluation services. Appraisers need to be nimbler in today’s marketplace — not only to compete, but to help maintain safety and soundness of the real estate financial system.”
 
 
The Consumer Financial Protection Bureau announced March 14 that it is seeking feedback on its current rules and inquiring whether they need to be amended or if new rulemaking is required. The comment period opened March 19 and will remain open for 90 days.
 
The Appraisal Institute will request that the CFPB undertake a review of Regulation Z (the Truth in Lending Act) and the two presumptions of compliance that include “customary and reasonable” fees to appraisers. AI also will ask for rulemaking that establishes a consistent federal standard conducted by the agency. Currently, this public policy issue remains at odds with crucial elements of appraisal independence requirements. 
 
AI recommends its professionals submit the same requests to the CFPB.
 
 
The Appraisal Subcommittee has scheduled a special meeting for April 23 to review and then approve or deny TriStar Bank’s request for a temporary appraisal waiver. The ASC made an open request for comments on the issue; the comment period closed April 9. 
 
The Appraisal Institute and a coalition of 20 other appraisal groups submitted on Feb. 13 a letter to the Appraisal Subcommittee asking them to reject TriStar Bank’s request because it does not satisfy the requirements established under ASC regulations. The letter pointed out that, contrary to TriStar’s initial claim, there is a healthy supply of commercial appraisers throughout Tennessee, including in the four counties cited in the bank’s letter.
 
An expanded, 25-member coalition submitted on April 9 an additional letter to the Appraisal Subcommittee reiterating their opposition to the appraisal waiver request from TriStar Bank. The letter again refuted bank claims of an appraiser shortage, and stated that granting the waiver would undermine safety and soundness of the transactions. 
 
 
The U.S. Department of the Interior’s Office of the Special Trustee for American Indians will host two tribal information sessions about its new Appraisal and Valuation Services Office. The new office, which will be located within the Office of Policy, Management and Budget, was created through the consolidation of the offices of Appraisal Services and Valuation Services.
 
The sessions will be held by phone on April 24, from 1 p.m. to 2:30 p.m. EST, and April 25, from 9 a.m. to 10:30 a.m. EST.
 
The toll-free call-in number for both sessions is 877-918-1345, participant code 8512946.
 
 
The Office of Inspector General at the U.S. Department of Housing and Urban Development in February released a fraud bulletin outlining cases of appraiser identity theft and suggesting steps appraisers can take to safeguard themselves.
 
While the schemes outlined in the bulletin vary, the fraud resulted from someone using the state certification number of an FHA rostered appraiser. The fraud cases occurred when the unnamed appraiser provided someone with his or her PIN number for desktop software. The OIG recommends appraisers not share their PIN with anyone. 
 
IN THE STATES                                                                            
 
The North Carolina Supreme Court in an opinion filed March 2 held that real estate brokers may legally testify regarding the fair market value of real property in condemnation cases. 
 
The case, North Carolina Department of Transportation (NCDOT) vs. Mission Battleground Leasco, LLC, involved the NCDOT’s condemnation in 2013 of approximately two acres of commercial property in Greensboro for a highway construction project. 
 
At trial, Mission Battleground attempted to offer the testimony of a licensed real estate broker as to the property’s fair market value to establish “just compensation.” The NCDOT argued against allowing the broker’s testimony based upon state law that says licensed real estate brokers are only allowed to provide opinions of the “probable selling or leasing price” of real property. NCDOT argued that a state-certified appraiser is the only party legally allowed to estimate the fair market value of real property. 
 
The trial court agreed with the NCDOT, excluded the broker’s testimony, and a jury established “just compensation” based upon testimony offered by other experts. 
 
Mission Battleground appealed, but the Court of Appeals unanimously affirmed the trial court’s decision. Mission Battleground then petitioned the state Supreme Court to exercise “discretionary review” of the decision of the Court of Appeals. 
 
In the opinion written by the chief justice, the Supreme Court stated that the authority allowing experts to testify is found in the state’s Rules of Evidence, and not in a statute such as the one that allows licensed real estate brokers to offer broker price opinions and comparative market analyses. The court also stated, “Any person who can qualify as an expert under that standard, which is articulated in State v. McGrady, 368 N.C. 880, 787 S.E.2d 1, Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993), and other pertinent caselaw, can testify without having to invoke any other source of authority. Meeting that standard is both necessary and sufficient.”  
 
The case will now be returned to the Guilford County Superior Court for a retrial where Mission Battleground may reattempt to introduce evidence of the fair market value of the property as determined by a real estate broker. Importantly, the Supreme Court stated in its decision that it took “no position” on whether the broker in this case was qualified under the Rules of Evidence to offer expert witness testimony as to fair market value, only that the broker was legally allowed to offer that testimony. The court stated, “The superior court should decide in the first instance whether his testimony about fair market value is admissible under Rule 702.”
 
The North Carolina Supreme Court’s decision in this case means that state-certified appraisers are not the only party legally allowed to testify about fair market value in condemnation cases. In fact, the Court stated, “An intelligent lay person, without any license, could potentially testify about fair market value.” Whether a real estate broker or other lay person is qualified to offer expert testimony as to fair market value will be an issue for the trial court to decide. It is likely that this decision will have impact beyond condemnation cases, and could allow brokers to testify as to fair market value in other legal matters where real property valuation is concerned. 
 
 
Virginia Gov. Ralph Northam on March 9 signed two identical bills, HB 1506 and SB 979, that change state laws regarding the supervision of appraisal management companies. The legislation changes the definitions of appraisal management company, appraisal management services and appraiser panel to match the definitions in the federal minimum requirements. 
 
Previously, appraisal entities with only one appraiser who was categorized as an independent contractor could have been classified as an AMC and subject to oversight by the state’s Department of Professional and Occupational Regulation. Additionally, entities that engaged appraisers as independent contractors for commercial valuation assignments could have been labeled AMCs and also subject to oversight and regulation. 
 
The law now requires only those appraisal entities with panels of 15 or more appraisers in Virginia or 25 or more appraisers in several states and that engage appraisers for residential valuation assignments to register with DPOR. 
 
Additionally, Gov. Northam on March 30 signed HB 1453, legislation that makes changes to a current law allowing licensed and certified appraisers to perform evaluations that are not complaint with the Uniform Standards of Professional Appraisal Practice when a USPAP-compliant appraisal is not required under federal law. 
 
The legislation revises the definition of an evaluation, clarifying that it is a valuation service separate and distinct from a USPAP-compliant appraisal. It also clarifies that an evaluation provided by an appraiser need only comply with the Interagency Appraisal and Evaluation Guidelines. 
 
 
Idaho Gov. Butch Otter on March 19 signed HB 459, legislation that clarifies the state’s appraisal review provisions. The law states that an appraiser who is licensed in another state and is providing a review of an appraisal of a property in Idaho need only be licensed in Idaho if the appraiser is providing a value opinion. The law takes effect July 1. 
 
 
Indiana Gov. Eric Holcomb in March signed two bills that made favorable changes to the state’s appraisal management company laws. 
 
SB 351 was signed March 7 and clarifies that an appraiser must be paid according to the payment terms established in the engagement agreement, or according to the terms indicated on the appraiser’s invoice to the AMC if there is no contract or agreement in place or if a contract/agreement does not establish payment terms. If no payment terms are established via a contract/agreement or an invoice, then an AMC must pay an appraiser within 45 days of delivery of the appraisal to the AMC.
 
However, HB 1277, which the governor signed March 19, states that there must be a contract in place between an AMC and an appraiser that establishes the terms and conditions of payment, among other things. Additionally, the legislation requires an AMC to provide an appraiser with a contract outlining the parameters of the assignment, scope of work, completion date and terms and conditions of payment before engaging in any work.
 
Situations in which the prompt payment requirements do not apply:
1. Breach of contract or agreement;
2. Committing significant and material errors of law, regulation or appraisal standards; or 
3. Producing poor quality work as compared to other appraisers engaged in similar assignments. 
 
The legislation establishes the mechanism through which the state will collect the AMC National Registry Fees as required by the Appraisal Subcommittee. This bill was authored by Sen. Dennis Kruse, father of appraiser Dennis K. “Matthew” Kruse, SRA. 
 
 
Utah Gov. Gary Herbert on March 19 signed HB 243, legislation that aligns definitions and other provisions in the state’s current appraisal management company oversight and registration law with the requirements contained in the federal minimum requirements. 
 
 
Nebraska Gov. Pete Ricketts on March 21 signed LB 17, legislation that makes several changes to the state’s Real Property Appraiser Act and the Nebraska Appraisal Management Company Registration Act.
 
The law clarifies that supervisory appraisers need only be certified appraisers in any jurisdiction for three years before they can apply for a state appraiser credential and qualify to supervisor trainee appraisers. Previously, supervisors were required to be licensed for at least three years prior to supervising trainees. This change is consistent with modifications made to the minimum qualification criteria adopted by the Appraiser Qualifications Board. 
 
The law also makes several changes to definitions and other provisions to make the Nebraska Appraisal Management Company Act consistent with federal minimum requirements. 
 
 
The Appraisal Institute reported April 17 that 21 pieces of legislation affecting the valuation profession are pending in 14 states. The proposed legislation includes:
 
Alaska
SB 155 establishes a comprehensive appraisal management company oversight and registration program. 
 
California
SB 70 allows an appraiser to produce a restricted appraisal report for non-mortgage lending purposes that identifies intended users other than clients. The bill passed the Senate and soon will be considered by the Assembly. 
 
Colorado
SB 18-210 updates the state’s AMC registration and oversight law so it’s consistent with federal minimum requirements. 
 
Florida
The state’s Real Estate Appraisal Board published a Notice of Development of Rulemaking to implement a 2017 law that allows appraisers to perform evaluations. 
 
Illinois
HB 5140/SB 2852 authorizes the state’s Department of Financial and Professional Regulation to participate in a multistate system for licensing appraisers and AMCs.
HB 5266 establishes a statute of repose applicable to civil actions against appraisers. 
HB 5502 repeals a law that says an associate real estate appraiser trainee credential only can be renewed twice. 
HB 5505/SB 3036 changes the appointment process and terms for the Real Estate Appraisal Administration and Disciplinary Board. 
SB 2617 brings the Appraisal Management Company Registration Act into compliance with federal minimum requirements. 
 
Louisiana 
HB 882 codifies an existing rule of the Louisiana Real Estate Appraisal Board related to reasonable and customary fees, and codifies the provisions of a Governor’s Executive Order establishing active supervision of certain rulemaking and disciplinary actions by the LREAB. 
 
Massachusetts
H.1975 clarifies that only the client and the intended user have standing to civilly sue an appraiser or to file a complaint with the state appraiser regulatory agency. 
 
H.2000 establishes a statute of limitations on disciplinary actions against appraisers of five years after the date of the appraisal report, or two years from the date of final disposition of a judicial proceeding in which an appraiser provided testimony related to the appraisal assignment. 
 
H.4331 establishes a comprehensive AMC registration and oversight program.
 
S.2246 makes it mandatory for appraisers to be licensed if they’re providing an opinion of value for real estate in the commonwealth.
 
Michigan 
HB 5591 establishes an 18-month limit on filing complaints for disciplinary action against appraisers. 
 
Minnesota
HF 2829/SF 2991 establishes a Real Estate Appraisal Advisory Board to provide input and suggestions on best practices to the state’s Department of Commerce on the regulation of appraisers, including matters of licensing, public discipline, continuing education and industry-related trends. 
 
New York
SB 8050 establishes a comprehensive AMC registration and oversight program. 
 
North Carolina
The state’s appraisal board on April 24 will hold a public hearing regarding proposed rules for qualifying and continuing education requirements, information that appraisal reports must include and appraisal management companies, including reasonable and customary fee payment requirements. 
 
Ohio
HB 213 establishes a comprehensive AMC registration and oversight program. 
 
Pennsylvania
HB 863 marginally increases the ability of brokers and salespeople to perform broker price opinions and comparative market analysis, although it imposes significant requirements on the brokers and salespeople who provide the services. The legislation passed the House and is awaiting consideration in the Senate. 
 
South Carolina
S 877 allows an AMC operating in the state to provide a surety bond rather than detailed financial information as part of the registration process. 
 
TIP LINE                                                                                        
 
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