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Editor’s Note: HUD joins a long list of entities shown to be dealing unfairly with appraisers. Here is the story of one appraiser who is shining the light on government blacklisting and his fight for due process.
HUD Blacklisting: Guilty Until Proven Innocent
By Isaac Peck, Associate Editor
Being on HUD’s FHA Appraiser Panel and performing FHA appraisals is an essential source of work for many appraisers. However, according to a recent legal brief filed by the National Association of Appraisers (NAA), HUD has been quietly blacklisting appraisers for years without due process.
At the center of the case against HUD (U.S. Department of Housing and Urban Development) is Ken Taggart, an appraiser in Penn., who was removed from HUD’s roster in January 2010. Taggart says that his mortgage servicer, GMAC Mortgage, LLC, mistakenly forclosed on his FHA-insured mortgage. Since then, Taggart says HUD blacklisted him without due process to appeal the decision, effectively cutting off FHA work and threatening his livelihood.
Taggart is currently suing HUD and vowing to fight until he is restored to the FHA roster. In addition to clearing his name, he hopes HUD will change its policies to ensure that other appraisers receive due process.
Foreclosure and CAIVRS
Taggart had an FHA-insured mortgage serviced through GMAC Mortgage, LLC. He alleges that GMAC erroneously foreclosed on his property. Taggart says GMAC incorrectly calculated the escrow portion of his payment and also required insurance on the property when he was already carrying insurance. “Ultimately, they tried to raise my payment by $1,200. I disputed their demands under the Real Estate Settlement Procedures Act (RESPA) laws and submitted the correct payments to them. They refused to accept my payments and instead of working with me, they simply filed foreclosure on the property,” says Taggart.
In August 2009, GMAC filed for foreclosure and reported to HUD that Taggart was in default even though he was attempting to make payments, according to Taggart. Then, in January 2010, HUD removed Taggart from its roster with no notice because, according to HUD’s current policies, being in default or having claims submitted against an FHA-insured mortgage disqualifies an appraiser from performing FHA appraisals or being on the FHA Appraisal Roster.
Here’s why: one of the requirements for being on the FHA Appraisal Roster is that the appraiser not be listed in HUD’s Credit Alert Verification Reporting System (CAIVRS). CAIVRS is a shared database of federal debtors who are “in default or have had claims paid on direct or guaranteed federal loans.” In simple terms, if an appraiser experiences financial hardship and defaults on an FHA loan, that appraiser is not eligible to perform any FHA appraisals.
Taggart says the CAIVRS list also needs to be looked at. “HUD’s assertion is that people who are delinquent on their mortgage are not trustworthy to perform FHA appraisals. But what about the guy who is in default on a conventional mortgage? A lot of appraisers out there were forced into default after the real estate crash. HUD will tell you most foreclosures are due to social issues like divorce, illness, or loss of work. Most foreclosures are not because the owner is irresponsible,” says Taggart. “I’ve done close to 15,000 appraisals with no complaints but now they’re telling me because of an alleged default on an FHA loan that I am ineligible.”
In an update on this story, Taggart now says that GMAC has recently withdrawn the foreclosure case against him.
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HUD’s Hearing- Dubious Due Process
During his legal battles with HUD, another interesting fact came to light: the agency was not following its own guidelines by failing to offer appraisers a rebuttal process. HUD admits that between 2001, when the guidelines were enacted and 2012, when Taggart blew the whistle, HUD was failing to notify appraisers of their removal from the FHA panel. It was only after Taggart began fighting his removal from the panel that HUD began following its own guidelines, which state that an appraiser contesting his or her panel removal is entitled to an “Informal Conference,” where the appeal is heard by a HUD administrator who then decides the appraiser’s fate.
After he sued HUD for removing him without due process, HUD reinstated him briefly to allow him an informal hearing to defend his position. “I was the first appraiser who ever received an informal conference. They didn’t even know what their own procedures were because they had never held one before,” says Taggart.
In 2012, HUD held an informal conference where Taggart presented his case in front of a HUD designee. “At the conference, they have a HUD designee act as the judge, jury, and executioner,” reports Taggart.
At the heart of Taggart’s legal case, however, is that this “informal conference” does not rise to the level of due process. “My lawsuit contests that the informal conference is a violation of an appraiser’s due process rights because an appraiser should at least be given a formal hearing where they can call witnesses, subpoena evidence, and have a process of discovery and cross-examination, as well as having an independent judge,” says Taggart. “Due process requires an impartial party to decide a case and HUD is not an impartial party.”
HUD’s Position
HUD argues that Taggart received due process, emphasizing the importance of them having an efficient procedure for removing appraisers who do not meet HUD’s eligibility requirements or who perform poorly. The Honorable J. William Ditter, Jr., presiding over Taggart’s original case in the Eastern District of Pennsylvania, wrote: “While some form of hearing is typically required prior to final deprivation of a property interest, the fundamental requirement of due process is the opportunity to be heard at a meaningful time and in a meaningful manner.” Ditter concluded that informal procedures have been found sufficient to comport with due process under many circumstances and found that HUD’s procedures met the requirements of due process. Taggart is now appealing that decision in the Third Circuit Court of Appeals.
National Association of Appraisers
The National Association of Appraisers (NAA) recently filed a legal brief in support of Taggart’s right to due process in the court where his case is now pending. The brief was written by Ted Whitmer, MAI, attorney and expert in the Uniform Standards of Professional Appraisal Practice (USPAP), who writes that “HUD often files complaints against appraisers and…under their current policies, can arbitrarily deny an appraiser the right to make a living.”
Whitmer argues that HUD’s procedures, including the Informal Conference, are in violation of the 5th and 14th Constitutional Amendments, which guarantee fair treatment and due process of all individuals in legal processes. Since filing the legal brief, Whitmer says that he has been contacted by three different appraisers who have also been removed from the FHA roster, some say, without even being notified. “For many of these appraisers, a big percentage of their income comes from FHA work. The NAA’s position is that appraisers are being denied due process. We think HUD’s policies are not well defined and they don’t afford the appraiser the right to answer their critics. It’s about giving appraisers the right to be heard, to understand the charges against them and to have the right to defend themselves,” says Whitmer.
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“One appraiser who called me said he was taken off the FHA roster for over-appraising a property, but they used an automated valuation model (AVM) to dispute his value, so I really don’t think appraisers are being treated fairly,” Whitmer said.
Appraiser License as “Property”
Central to Taggart’s legal argument for his right of due process is that his position on the FHA Roster constitutes a professional license and that a professional license is property. “In legal terms, a professional license is considered property. I have asserted in court that being on the FHA roster constitutes a professional license and neither HUD nor the District Court has disputed the position that the FHA Roster constitutes property interests. Therefore, the removal of that property interest legally requires at least a hearing prior to the loss of your license/ FHA Roster privileges. An informal conference falls very short of these standards,” Taggart argues.
Going Forward
Taggart is seeking reinstatement to the FHA roster, as well as damages from HUD. He also hopes that through his case, HUD will change their policy and give appraisers their constitutional right of due process before removing them from the FHA roster. “Appraisers should take a close look at this case because appraisers have been getting removed from the Roster for years without any due process. HUD has been failing to give appraisers an informal conference which is their right under HUD’s own guidelines. These laws are discriminatory and they likely aren’t aware of it,” argues Taggart.
As his legal battle with HUD continues, Taggart is hoping that as word spreads about HUD’s policies, other appraisal organizations will take notice. “I encourage appraisers to email their appraisal organizations or whatever organization they are a part of and ask them to examine this case and its issues because there are a lot of things going on with HUD that need to be addressed. Individual appraisers don’t have the resources to fight the federal government so we need to work together on this. I had to start this case on my own and it’s really been an uphill battle,” says Taggart.
For appraisers who have been removed from the FHA roster and are wondering what they can do, Taggart recommends that they demand a due process hearing. “It is important for appraisers to know that HUD hasn’t followed its own rules for the last 12 years, so any appraiser who was removed from the list during this time should ask for a hearing. HUD says they are now notifying appraisers and giving them an informal conference, but I doubt they’ve gone back and offered an informal hearing to all those appraisers who were removed over the years. Appraisers should demand that HUD hear their case,” says Taggart. “HUD is violating appraisers’ right of due process and destroying their livelihoods in the process. We are supposed to be innocent until proven guilty not the other way around.”
September’s “Better Appraising” Webinar (in two parts)
“Excellent presentation and looking forward to part 2.” -R. Estrada
Watch at Your Own Convenience!
Part 1: Defining Market Value & How to Adjust for Concessions
Available for immediate download.
In this webinar, Richard Hagar, SRA explains why Sales Price and “Market Value” are not always the same and how the federal definition of concessions may differ from what borrowers, agents and lenders believe. “Market Value” is the value appraisers are required to use when appraising property for a federally regulated transaction. The definition is included in every appraisal for a lending institution and failure to appraise “by the book” can result in the creation of a misleading appraisal, an appraiser losing his or her license, and fraudulent loans being approved by lenders. In this webinar, Hagar shows appraisers how “concessions” impact sales prices and market value and how to properly handle them in every appraisal. Sign Up Now!
Part 2: Defining Market Value & How to Adjust for Concessions
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We’re always listening: Send your story submission/idea to the Editor: dbrauner@orep.org.
by John Rambo
THEY DIDN’T CARE ABOUT ALL OF US, WHY SHOULD THEY CARE ABOUT YOU?
-WHAT ABOUT THE 20,000 FHA APPRAISERS THAT WHERE REMOVED FROM HUD’S APPROVED ROSTER IN 2009 JUST BECAUSE OF THE “CATEGORY” OF THEIR APPRAISER LICENSE!!! Maybe your attorneys should consider a class action law suit against HUD!!! Let me repeat that, 20,000 TAX PAYING AMERICANS LOST THEIR ABILITY TO DO HUD RELATED APPRAISALS BECAUSE THEY WERE “LICENSED RESIDENTIAL” APPRAISERS AS OPPOSED TO “CERTIFIED RESIDENTIAL” APPRAISERS!!! This should be considered the crime of the century by our federal government. The first time in the history of our country that there was no GRANDFATHER clause to protect our livelihoods. Anyone in the appraisal industry knows that the “category” of your license has nothing to do with competency and ethics. There is NO difference in the two categories because WE ALL HAVE TO PLAY BY THE SAME RULES. Are there two sets of USPAP, one for “Licensed” appraisers and one for “Certified” appraisers? NO. The problem is, always has been and continues to be, the governments lack of oversight and reprimands for bad appraisers. Some of the BEST appraisers I knew were put out of business completely in 2009. And many, like myself, lost a substantial amount of business and still suffer today because of this incredibly unfair legislation that was sponsored by YOUR Pennsylvania Senator, Bob Casey (section 1404 of the 2008 Housing & Economic Recovery Act). Did you know Senator Casey was specifically lobbied to do this because Pennsylvania has never had the “LICENSED RESIDENTIAL” category for appraisers, therefore he would not have any constituents that would be negatively affected by this incredibly corrupt act of government.
THIS IS THE STORY THAT NEEDS TO BE TOLD TO OUR NATION. THIS IS THE KIND OF GOVERNMENT CORRUPTION THAT COULD AFFECT ANYONE IN ANY LICENSED PROFESSION.
Feel free to contact me with a message on this site. I have many more details and facts about this story.
by Carl
When I first signed up with HUD in 1998 I gave a mailing address where I worked/lived at the time. Over the years I never bothered to update my HUD profile. However, every single report had my current business address and email address. When HUD randomly reviewed two of my reports in 2012 and asked for a rebuttal, they mailed (not emailed) the request and of course they sent it to the old address on file where I no longer lived or worked for well over 10 years. Mind you, the current address that matched the national data base and an email address was clearly typed at the bottom of each report. When the mailed request for a rebuttal was sent back to the Santa Anna office as “Undeliverable” here’s the genius of a government bureaucracy: They mailed it a second time, this time via registered mail, to the exact same address that went right back to them again as undeliverable. Don’t forget, my current address and email address were all printed in plain English on the signature page of the appraisal. The second piece of mail they sent as registered mail was more serious. In it, they informed me that if I failed to respond to the registered mail and accompanying request for explanations about the appraisal reviews within 15 days, I would be “Administratively dropped” from the approved list for a period of six months. Since they sent it to the exact same address, I never received the registered piece of mail informing me of he impending doom. The 15 days came and went and I, along with one of my local AMC clients that is responsible for approximately 70 – 80% of my volume, had no idea I had been dropped on the 15th of the month. Three FHA orders were placed and accepted by me between the 12th and 13th of the month, so when the orders were placed, all was well. But by the time I inspected all three and completed and delivered two of the reports, neither me nor my client had any idea I had been dropped. Two of the orders had already been submitted to underwriting and it was my client who realized I had been dropped. I effectively did three appraisals for nothing and all three appraisals had to be re-ordered, one of which, the new appraisal came in lower than my appraised value and purchase price, and the deal fell through for the buyer. Sure, it was my fault for failing to update my profile, but you have got to be kidding me. I’m a business man trying to run a business here. The people in the Santa Anna office never quite understood that by dropping me from the list for such a small infraction they were effectively putting me out of business for half the year. Mortgage payments, car payments, insurance payments, electric bills, phone bills, gas bills, food bills…they had zero, zip, zilch, absolutely no concept of what that meant. I got nowhere with them. Nobody could explain to me why they couldn’t have just sent me an email, which, by the way, was the same email I had been using since I first signed up with HUD and was still on my profile page. Nobody could explain anything to me as to why the so called “punishment” had absolutely no correlation to the supposed “crime”. Eventually, I also got my Senator involved, Senator Kyle. Not even a sitting senator could penetrate the monolithic “boneheadedness” of the Santa Anna office. All I got from Kyle”s office was a copy of the same explanation I received earlier from the HUD inspector general, who dutifully cited page after page of bureaucratic speak as to what the department of HUD policy was regarding appraisers and the need to keep profiles current. Not once did anyone answer my question about “proportionality” regarding the punishment and my now “unemployed” status. Its useless to go up against these bureaucrats. They have their jobs, their pensions, their “policies and procedures” that some egghead with a degree in “Government Studies” probably from the Kennedy School of Government proudly produced as their Masters Thesis and they will defend “it” and the process to the end. In the mean time, you, Mr. Taggart are just another fool who is dumb enough to think you can win against their brilliance. How dare you. Surely I jest, but you know what I’m saying. So here’s a parting question for some thought: Can anyone name anything that an employee of HUD or any other GSE for that matter , could do that is so heinous, that their superior would call them into the office and send them home for six months or worse, permanently, without pay, without sick leave, without vacation time or without any compensation whatsoever, and be able to do so without giving the “guilty” employee the opportunity to have a hearing or rebut the reasons for such a dismissal? I say no! There is absolutely nothing, and when I say nothing, I mean absolutely nothing a bureaucratic employee could do that would get them fired and sent home without warning and certainly without pay. They either get promoted or sent to the rubber room. In the mean time, appraisers get nothing but crap sandwiches.
-by Anonymous Appraiser
This is a comment in regards to the HUD blacklisting article. I did REO work for HUD for many years when a company from the Philadelphia office of Hooks Van Holm was the servicer of their REO properties in PA. Other than a few questions now and then my work was always accepted and there were never any problems. When their contract ran out HUD hired three companies to handle their REO work in the state. I had to go through tedious registration with each company because they could all order appraisals anywhere in the state. Each appraisal for each company had to be prepared in a different way from accepted wording down to how the pages of the appraisal were ordered. It was ridiculous since HUD was the client and there should have been only one way that an appraisal should be done. I gave up doing this work for HUD when one of the companies told me that my room count was wrong on one of my appraisals. The company was located in another state and no one from the company had ever been in the property. I believed my room count was right but they told me I had to change it. The long and short of it I refused and actually put a complaint into HUD’s Philadelphia office. And I never heard back from anyone.
-by Jim Plante
I fully sympathize with Mr. Taggart’s position. I really dislike a high-handed bureaucrat, and I absolutely despise a bully. In this case, HUD is being both.
But the references to law and due process contained in this article are a confusing mix of equity and criminal law. This is a civil matter–pure equity–so “innocent until proven guilty” doesn’t apply in the sense that it applies in criminal cases. On the one hand, the article says that an appraisal license is a privilege; a few words later, this privilege is suddenly converted into a right. Then, the article quotes Ted Whitmer as saying, “HUD … under their current policies, can arbitrarily deny an appraiser the right to make a living.” No, they’re not. They’re just saying that he can’t make a living working for HUD. But Whitmer is correct in saying that HUD needs to define its procedures better, and to give an accused appraiser a fair shot at defending himself in an *impartial* venue.
In a perfect world, HUD would write Mr. Taggart to say, “We think you’re in violation of our requirements.” He would respond, “I don’t thinks so. Let’s talk about it.” And an informal *conference* would take place in which each would lay out his case. If neither side could concede based on the evidence presented, the matter would move on to a formal hearing, with a qualified Administrative Law Judge presiding. The Federal Rules of Evidence would apply, and the ALJ would issue his ruling. The ruling should be appealable for trial de novo to the US District Court, with the normal legal course of appeals available. The fact that it can drag on for years is likely the reason HUD is trying a shortcut. Let’s hope they don’t succeed. Depriving a citizen of his constitutional or statutory rights under color of law, statute, ordinance, regulation, or custom is itself a crime (18 USC § 242). Taggart should, with competent legal assistance, consider fighting back with a few criminal statutes.
-by Free Speech
Nothing but a continuation of the war on appraisers by the lending industry …
-by Nick C
I was removed in 2009 without notice as well. After quickly realizing that no one had any clue of what CAIVRS was and that FHA contacts also had no idea of how that relates to appraisers I was forced to take other actions. I contacted my congressman who was unable to do anything. I also contacted HUD, my lender, and my state appraisal board. There is NOTHING anyone can do until this law is changed. FHA denying an appraiser an income because of a short sale is unethical. I not only lost my home that year, but also my job. It was a tough year. I tried everything I could do. Fast forward to 2014, I have been reinstated because the 3 year period I was on her list is over. So if you want to get back on, wait 3 years. It’s the only option until someone competent enough realize this law is incorrect and doing more harm than good.
-by Bill
I think the message from this Taggart/HUD situation is clear: stay the heck away from HUD and FHA. They have all the power, do not treat appraisers fairly and who needs this aggravation? There are plenty of other places to find appraisal work. I just finished an FHA inspection course and after realizing the appraiser’s true exposure in doing this type of appraisal, I can only shudder to think of how much appraiser’s can be held liable for. It is not worth the risk for a few hundred dollars!
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