Appraisers say oversight is lacking
Regulators blame inadequate state funding
By Matt Carter, Thursday, September 4, 2008.Some regulators who oversee appraisers are taking issue with an Associated Press story that characterized oversight of the industry as "crippled" and "ineffective" despite an overhaul of the system after the Savings and Loan crisis.
But four other groups that represent appraisers themselves said the story -- the product of a six-month investigation -- underscores the need for better enforcement of existing laws.
The AP's investigation of the regulatory system put in place by the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) concluded that more than two dozen states and U.S. territories failed to investigate and resolve complaints about appraisers within a year of receiving them, as required by law.
An independent federal agency authorized by Congress to conduct field reviews and audits of appraisers, the Appraisal Subcommittee, has only four auditors and has not had a permanent director since the end of 2007, AP said. As a result, regulators were ineffective in preventing appraisers, real estate agents and mortgage brokers from colluding to inflate home prices during the housing boom, AP concluded.
Responding to the story, the Association of Appraiser Regulatory Officials (AARO) complained that FIRREA "established an unfunded federal mandate" requiring states to organize, administer and pay for their own regulatory programs for appraisers.
Any deficiencies in the system "stem largely from the lack of adequate funding at the state level," the group said in a press release. "This condition exists because appraiser license fees collected by a regulatory agency typically end up in that state's general fund with only a portion of those revenues being returned ... for the operation of the agency."
In defense of the current system, AARO said minimum pre-certification qualifications for appraisers include a college degree, at least 2,500 hours of supervised appraisal experience, and a passing score on a "rigorous" national appraiser examination. Regulators have handed down sanctions including license suspensions and revocations to about 10,000 appraisers since the system was instituted, the group said.
"Overall, the vast majority of appraisers in this country are ethical and competent appraisers and the quality of appraisals has improved since the enactment of FIRREA," AARO said. "Similarly, the majority of appraiser regulatory jurisdictions function properly and in compliance with federal law."
But four other organizations representing appraisers said the AP investigation highlighted issues they have been trying to get Congress to address since 2001. Those organizations -- the Appraisal Institute, the American Society of Appraisers, the American Society of Farm Managers and Rural Appraisers, and the National Association of Independent Fee Appraisers -- wrote Sen. Chuck Hagel, R-Neb., urging him to support regulatory reforms included in HR 3915, the Mortgage Reform and Anti-Predatory Lending Act.
"For too long, federal appraiser regulators have failed to oversee properly the activities of state appraiser regulatory agencies, while many of those state agencies have failed to conduct active oversight or enforcement over licensed appraisers," the groups said. "Many complaints against appraisers have gone unheard and uninvestigated, allowing these individuals to continue to remain in the appraisal profession."
Passed by the House last year, HR 3915 would give the Appraisal Subcommittee more authority to monitor the performance of state appraisal agencies, and penalize attempts to influence the independent judgment of an appraiser through collusion, coercion and instruction.
The groups representing appraisers called "onerous" other proposals introduced in Congress that would require appraisers to carry a surety bond. The proposals would cost individual appraisers as much as $50,000 a year, and "cripple the residential appraisal profession" without solving the underlying issue -- a lack of enforcement of existing laws and regulations -- the groups said.
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Submitted by Michael LittleBig on September 4, 2008 - 9:21am.
In 2003 Am Trust Bank who at that time held my mortgage of 2-1/2 years required an appraisal of my property for a refinance of the current mortgage. I was qualified for a refinance under federal regulation 12CFR 564 and the Banks Board of Directors Appraisal Policy with no appraisal needed. However, the Bank had changed my loan purpose to a “cash out refinance” from a “no cash out refinance” which meant that an appraisal was required even though I never missed a payment.
The purpose of the refinance was to lower the interest rate to offset the increase of real estate taxes and sity four thousand dollars of improvements.
The banks staff appraiser an employee, who was an Ohio state licensed appraiser of 12 years performed the appraisal. The bank denied the refinance request based of the appraiser's market value. The bank stated in essence that the property was not worth what was owed on it.
On September 2006 I filed a complaint with the Ohio Division of Real Estate citing a flawed (2003) appraisal of 4 violations. The State after a year discounted my 4 violations but charged the appraiser with 5 violations of state law and rules of the American Standards Board (USPAP)
In September2007, the banks attorney and the state behind closed doors made a deal. The settlement agreement stated that the agreement was made to “save time and money” The appraiser pleaded guilty for two violations. I also bought to the attention of the Ohio Real Estate Division’s Attorney, Mr. Woodruff who did the settlement, that the banks attorney and the banks appraiser are both employees of the bank and in another respect that the bank is a client of the attorney and the appraiser. That in itself raises questions regarding the settlement. The punishment for the appraiser was an additional 14 hours of real estate education. My punishment for this flawed appraisal was the catalyst for the foreclosure and sheriff sale of my home of 7 years.
The State of Ohio was remiss in their investigative responsibilities of not looking at previous appraisals that he performed which by law must be kept for 5 years. That I believe this would have shown if a pattern of flawed appraisals existed. It would have been a simple matter for the state to request those records. If this licensed appraiser of 12 years could do this to me, then logically and most likely he has repeated his lack of appraisal criteria on past appraisals.
The States citation of the violations of this flawed appraisal also triggered violations of federal appraisal regulations and violated the Bank’s Board of Directors written Appraisal Policy.
I fought the States’ settlement agreement with contact to State Senator Dale Miller, Senator Steve Stivers and Governor Strickland. There was no response. The Ohio Attorney Generals office told that they represented the State in the Settlement Agreement. Three other states for example have sued Countrywide bank for their citizens that were financially harmed.
The Congressional Appraisal Sub Committee under the mandate of Congress told me that they audited the States for appraisal compliance, but there was nothing they could do regarding my flawed appraisal. The Office of Thrift Supervision said that there was no violation of federal regulations even though the flawed appraisal was cited by the State of Ohio. The Inspector General of the Treasury agreed with the OTS. There was no response from my elected Congressional Senators Brown and Voinovich.
The State of Ohio and the Federal government has no credibility with their appraisal regulations and laws. The federal regulators are pathetic. This is the proof of the wealthy and the powerful protecting the wealthy and the powerful through government regulation or rather the lack of government regulation.
I read that the projected foreclosures by 2008 year end will be 4 million and by 2009 year end
6 million. Out of 6 million foreclosures how many have flawed appraisals? Of those homeowners who have lost their homes through foreclosure due to a flawed appraisal, who is accountable? Of the 6 million foreclosures with the States and the Federal Regulators inability to perform their duties, how many foreclosed homeowners even know that their appraisal was flawed? The mortgage borrower has no rights or redress to object, contest or question the actions of a federally chartered savings bank that has harmed them even though that federal bank lends mortgage money under the same regulatory system. This is because as the Office of Thrift Supervision, (the banks supervisor) state, that there are no Federal Consumer Banking Regulations to protect the borrower. Our elected officials have done this by legislative design to protect the wealthy and powerful banks.
As more of the American public is educated they will begin to realize that property appraisals are now questionable. That those federal and state officials that are accountable to maintain the integrity of the appraisal standards have been negligent in their responsibilities.
It is frightening to even think that the entire real estate system of buying, selling and financing
appears to be collapsing because of negligence and arrogance of the State and Federal appraisal systems that supposedly are there to protect the parties in a real estate transaction.
From my standpoint a property appraisal in the State of Ohio is questionable at best, because the Ohio system to maintain the integrity of the appraisal is non existent. The mortgage borrower has no voice. The State and Federal oversight of the appraisal process is a myth.
Michael LittleBig
PO Box 16588
Rocky River OH 44116-0588
Submitted by Peter J. Pike on September 4, 2008 - 2:03pm.
Having been involved in the real estate industry for over 25 years, I am still amazed at the confidence that is placed in appraisals. My personal belief is that home appraising is much more of an "art" than a "science" (and, in most likelihood, a dark art, at best). This belief is borne out by the document that some banks have borrowers sign at closing indicating that the appraisal that they just paid for is not necessarily indicative of the true value of the house! The reality is that a house is worth what someone, who plans on living in it, is willing to pay.
I am in the process of purchasing a foreclosed house from the bank. They have hired an appraiser to determine the "value" of the house. I met him at the house, to let him in. We discussed the house's history (he had done some homework), and during our talk, he defended the appraisal done three years ago, which allowed the borrower to obtain a $335K mortgage. It should be noted that the house sold for $135,000.00 a little over a year earlier. Nothing was done to improve the house. How anyone can justify an increase in price of an existing house of about 150% in little over a year, when inflation was running only 2%, and the costs of borrowing had not dropped apprciatively, only goes to underscore that there needs to be a better way to judge a house's value. I think that we can all agree that the run up in prices was fueled in part by "flippers" who effectively were "day trading" in houses. They never intended to live in the house, only to flip it out to someone else (usually another "flipper") for more money!
This is not intended to be an affront to any appraiser. I understand that my "logic" in trying to understand how the price could inflate so fast, is not a part of an appraisal. However, it is my opinion that part of any appraisal should include a history of the sales prices of the house, and should include some reasoning for the increase in price (which would, of course, keep housing prices down, help to avoid bubbles like the last one, and keep "flippers" from running up the value of a neighborhood, without an underlying reason for such increase).
Submitted by Derek Eisenberg on September 4, 2008 - 4:10pm.
Mr. LittleBig's comment is ludicrous that his appraiser caused the sheriff's sale and foreclosure of his home. Only one thing caused it. Mr. LittleBig did not repay his loan.
While the securitization of a loan gets one a better interest rate, in Mr. LittleBig's case to offset tax increases, people should not live to their last penny. Anyone knows that due to inflation, expenses like taxes will go up over time and should not take such a big mortgage that an increase in taxes will put them over the edge.
Nowhere does Mr. LittleBig accept responsibilty for the fact that he caused a bank to lose money on him. There needs to be a level of personal responsibility and less finger pointing.
Derek Eisenberg
Continental Real Estate Services, Inc.
State Certified General Real Estate Appraiser
Submitted by Michael Espiritu on September 4, 2008 - 5:03pm.
Good and honest appraisers, like our revered profession (Haha) are hard to find. I have encountered appraisers who won't even drive by a property???
An appraisal can be very subjective and I sometimes have to ask where they got their information from. Many lenders have stated the value they "need" to have the property appraise at in order to close the deal.
I had a client who contacted me about a possible short sale because she had no clue how to proceed.
her boyfriend at the time was a lender and he used her perfect creditto buy a house that appraised for $70,000 over the neighborhood's highest solds and $70,000 higher than the last sale of the property in a 2 month time-frame.
The client had the title and the loan and the boyfriend skipped w/ the $70,000 after telling her that he would try to rent it out.
Clear case of collusion, fraud.
Bottom line was my client lost her house, her credit is ruined, her boyfriend bailed to swindle someone else. It would not have been possible if an appraiser was not willing to commit fraud.
Maybe this crackdown will force agents to price their homes accurately.
Michael Espiritu
Broker
Copeland Wealth Management / CWM Real Estate
So Cal
Submitted by Michael Espiritu on September 4, 2008 - 5:03pm.
Good and honest appraisers, like our revered profession (Haha) are hard to find. I have encountered appraisers who won't even drive by a property???
An appraisal can be very subjective and I sometimes have to ask where they got their information from. Many lenders have stated the value they "need" to have the property appraise at in order to close the deal.
I had a client who contacted me about a possible short sale because she had no clue how to proceed.
her boyfriend at the time was a lender and he used her perfect creditto buy a house that appraised for $70,000 over the neighborhood's highest solds and $70,000 higher than the last sale of the property in a 2 month time-frame.
The client had the title and the loan and the boyfriensd skipped w/ the $70,000 after telling her that he would try to rent it out.
Clear case of collusion, fraud.
Bottom line was my client lost her house, her credit is ruined, her boyfriend bailed to swindle someone else. It would not have been possible if an appraiser was not willing to commit fraud.
Maybe this crackdown will force agents to price their homes accurately.
Michael Espiritu
Broker
Copeland Wealth Management / CWM Real Estate
So Cal
Submitted by Michael LittleBig on September 5, 2008 - 6:20am.
Derek Eisenberg
You are certainly are entitled to your opinion and I respect your opinion.
Yes, there are good appraisers who follow their professional rules and then there are appraisers that do not follow the rules.
My problems were two fold. One was Am Trust Bank that did not follow the rules and then there was the appraiser that did not follow the rules.
First. The Bank.
Here is a Bank that in 2007 settled a class action lawsuit for $14 million dollars (Cleveland Ohio) that was filed in 1985 for miscalculation of mortgage interest.
During my foreclosure counter claim lawsuit, the bank in writing threatened to file a frivolous lawsuit against me for fighting my foreclosure.
Not once, but twice the bank denied a refinance with no cash out on my original mortgage with them. The first denial 2003was based on the loan to value ratio of the market value of
an appraisal performed by the banks employee who was a State licensed appraiser for 12 years. Keep in mind that this bank was a client for the appraiser and also his employer.
The second denial 2005 was based on the value of the property of appraisal that the bank ordered and then cancelled.
As you know Mr. Eisensberg if a bank intentionally changes your loan purpose from no cash out refi to a cash out refi, not only is that unethical but that is deceptive. When this bank changed the loan purpose they violated their own written bank lending policy which is required by the OTS and a federal regulation 12CFR564 –Appraisals. This then nullified my ability to refinance
my mortgage loan under federal requirements since the loan purpose was changed to cash out Refi.
This also affects the Banks integrity in filing their Home Mortgage Disclosure Act reporting requirements to the Office of Thrift Supervision.
The bank also violated Reg B under the notifications sections, and the Fair Credit Reporting Act regarding the section who is authorized to obtain a credit report.
What does this have to do with the appraisal? The appraiser worked for the bank who had this problem of not following the rules.
Second. The Appraiser.
I filed a complaint with the State of Ohio in 2006 citing 4 violations as detailed in the American Standards Board (USPAP). Ohio Laws and Federal Regulations and the Banks written Appraisal policies are based on the American Standards Board (USPAP).
After a year the State discounted my 4 violations, but cited 5 additional citations of Ohio Law and USPAP. The State said “That you (the appraiser) rendered appraisal services in a negligent or careless manner by making a series of errors that affected the credibility of the appraisal report).Then the State in 2007 behind closed doors made deal with the Banks attorney that the appraiser would plead guilty to 2 violations and must do 14 hours of additional real estate education.
Yes, Mr. Eisenberg this was the catalyst for the foreclosure of my home of seven years combined with the other aforementioned violations by the bank.
Yes, Mr. Eisneberg I did take responsibility, I spent $25,000 fighting my foreclosure. Did you know that the only protection that a federal mortgage borrower has is bankruptcy court. That is how I stopped my foreclosure so that I could fight it. The Bankruptcy cost me my 45 year old credit bureau that was stellar. And yes Mr. Eisenberg, the court agreed me that the value of my house as determined by the banks appraiser in 2003 placed me in a position that I owed more on the house than it was worth. 3 years later Mr. Eisenberg with a lot of research there is no question that I had dealt with people that operated without regard to theory of safe and sound banking practices.
Do I blame the bank and the appraiser, absolutely. Do I blame my self for believing and trusting the bank, absolutely.
I can understand your defending your profession. I have 40 years experience with real estate.
It took me a long time to understand what happened to me, it was overwhelming. I thought it was me, thought I was having a bad dream, it was only a bank that has a history of not following the rules. Mr. Esienberg you should contact Mitch Weiss a writer for the Associated Press in Charlotte NC Bureau who has written on this appraisal problem in the US based on their 6 month investigation which involved the Congressional Appraisal Sub Committee. As I understand it there are 8 states that have no formal appraisal laws. The State of Ohio is one of 27 states that had the most appraisal complaints. Sadly, Mr. Eisenhart at 70 years old l have lost almost everything I worked for because the State of Ohio does not properly enforce its appraisal criteria.
My point in responding to you is not to justify my actions, but to inform others that there are no federal regulators, no federal regulations or affordable legal avenues that can resolve issues with a federal savings bank that conducts its lending activities with without regard to the rules that they should follow.
Michael LittleBig
POB 16588
Rocky River OH 44116-0588
Submitted by Derek Eisenberg on September 12, 2008 - 3:18am.
Michael (LittleBig),
At the end of the day, regardless of whether the appraisal was good or bad, you signed a note and a check was cut. You saw how much money you would owe and had to know you were not capable of paying it back.
Now let's say your house could adequately collateralize the loan amount. You would still lose your house. The only difference is that if your house was worth more, maybe you could have sold it instead of being foreclosed on but either way you borrowed more than you could afford and had to give up the house.
Derek Eisenberg
Continental Real Estate Group, Inc.
Licensed Real Estate Broker
http://www.mls2u.com