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Editor’s Note: Author Tim Andersen, MAI shows you how to protect yourself from your state board and have as happy a New Year as possible. His advice? Beware of consent decrees.
Beware of Consent Decrees
by Tim Andersen, MAI
The letter arrives. You know, the letter from the state appraisal commission. You are not expecting it since you always do your best to complete your appraisals credibly and properly. Yet, despite your best efforts, here it is anyway. It’s in your hand. You have to open it and your stomach turns. This literally may be the future of your appraisal career, condensed to what amounts to a form letter- black ink on (cheap) white paper: cold and bloodless. Here’s how to handle it in your best interests.
You read it and fact-check. Yes, you did that appraisal on that date. Yes, you came up with such-and-such a dollar value. Yes, you have appraisal license number thus-and-so. But other than these details, what you read cannot possibly apply to you. It can’t apply to you since the letter, in its dry legalese, details your “…lack of due diligence in finding appropriate comparables to the subject property…”; your “…failure to reconcile the value indication via the Cost Approach with that of the Sales Comparison approach, thereby forming a value opinion that lacked credibility…”; and/or your “…failure to develop, and then summarize within the report, your conclusion of the subject property’s highest and best use…”.
This litany of infractions goes on for numerous pages, listing violations in the Uniform Standards of Professional Appraisal Practice (USPAP) Standards Rules, Ethics Rule and the Scope of Work Rule. It calls out violations of state statutes and state administrative codes and on and on. What’s worse is that the letter makes it sound as if you are already GUILTY of all of these charges. What? It’s innocent until proven guilty, right? With state appraisal boards, it’s often the other way around.
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Consent Decrees
Toward the end of this horrible letter the attorney/author who seemingly holds your fate in his/her hands, generously offers what may be your professional salvation. Behold, an offer for a consent decree. Yes, salvation is near! You read it through. It is relatively short (a whole lot shorter than the document you just read containing your bill of indictment). It basically says that while the state is convinced you are already guilty of dozens of heinous appraisal infractions, if you will just sign the consent decree, all but two of them will be dropped, and you will be required to take a 15-hour USPAP class, pay a $750 fine, and be put under state supervision for six-months.
Life is looking better. You know you can take the 15-hour USPAP class online for less than $300 and you can probably complete it in less than seven hours. The $750 fine is just two appraisals. And you already know the state is too short-handed and underfunded to look over your shoulder for six months. An administrative law attorney and a USPAP consultant will cost a lot more than the total of the state’s fees. It will take you just two minutes to sign the decree, cut a check from your business account and get online to sign up for the USPAP class. This is just too simple! Woohoo!
Admitting Guilt
If such a quick solution feels a little too simple and a little too painless, that’s because it may be. You open the letter back up, pull out the full package of doom from the state and read it carefully this time (which, due to your panic, you did not do earlier). You read it again and then again. Now you understand why at first it seemed so simple, so painless, and why the state wants you to sign the consent decree- now!
Now you realize that as soon as you sign that consent decree you are admitting your guilt to whatever charges the state included in the decree. You consent to whatever administrative penalties the state chooses to impose. Since your state appraisal board is a public entity, the consent decree, in its glorious entirety, with your signature on it, will soon become public record that any yahoo with Google® can find in less time than it takes to write a check.
If you sign that consent decree, not only have you admitted you are guilty of those specific violations, and accepted the administrative penalties associated with the admission of your guilt, you have also put every Errors and Omissions (E&O) provider in the world on notice that you are an insurance liability risk. And E&O providers don’t want to cash your check if they think there is any chance they will have to pay all the money back, and then some, defending you.
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Bad for Business
In addition to what you just told your E&O provider, you have also just notified every potential client on the planet that, when performing an appraisal, you chose not to exercise due diligence in forming a value opinion (at least in this case). If you think that makes clients skittish, you’re right. Books of business composed of skittish clients tend to be rather thin.
When you sign that consent decree, you also have just notified every attorney in the jurisdictions in which you work that you are an ineffectual expert witness. Why? Because you just admitted to all of them, your failure to appraise per the rules and regulations governing you. This is not something you want coming out in a trial or deposition, so you’ll have to admit it up-front to your clients. Given that, some will choose not to use you.
Don’t Panic
When that letter comes in, don’t panic. First, before you respond to the state, call your E&O provider and get their advice. That’s why you pay for E&O insurance. Many providers have free claims lines. If you are not covered, for whatever reason, you need to contact an administrative law attorney before you respond to the state. An A/L attorney is experienced representing respondents in front of professional boards. Have your administrative law attorney respond to the state. The state appraisal board has a stable of attorneys representing it; you should have one too. Then take your attorney’s advice. Then, if necessary to defend yourself, you might want to retain a USPAP expert to determine if you really violated USPAP, and if the charges against you are based on its proper understanding and interpretation. (For more, please read Tim’s article Dealing Effectively with Complaints: When the State Comes Calling at WorkingRE.com, Library, Volume 24.)
It’s possible that, when all is said and done, you may end up signing a consent decree anyway but you want to sign it as a last step, not as a first one. Make the state prove its contentions that you are guilty of USPAP and/or state statute violations. Many appraisers have fought and won. You can, too.
About the Author
Timothy C. Andersen, MAI has been in real estate and consulting since 1975. He is a commercial real estate appraiser, AQB-certified USPAP instructor, USPAP consultant, Special Magistrate for the Palm Beach County Value Adjustment Board, author, instructor and expert witness. As a USPAP consultant, he works nationwide as an expert with appraisers whom the state has charged with license law violations. He is an instructor with the Appraisal Institute and has worked all over the U.S. with various proprietary schools, as well as a community college. The University of St. Thomas in Minneapolis, MN recently awarded him a Master of Science degree in Real Estate Appraisal. Tim’s e-mail address is maitca@bellsouth.net.
We’re always listening: Send your story submission/idea to the Editor: dbrauner@orep.org.
by Bill
PENALTY FOR EFFICIENCY: A few years ago two appraisers both sent in their respective license renewal applications 30 to 60 days before their licenses expiration dates. Each of them had one more CE course to take before they would have the required number of CE hours for that license renewal period. Each of them were pre-enrolled in the course they needed to complete their CE requirements for there renewal periods. Each of them completed their CE course BEFORE the date of their license expiration. Upon a routine state audit, they were both accused of fraud by their state licensing board because they had submitted their renewal application before having the required CE hours for that renewal period. Ignoring the fact that their respective licenses had not yet expired when they (efficiently) submitted their renewal applications and that by the time their licenses were in fact due to expire, they had completed the required CE, they were both offered the opportunity to sign consent decrees and pay fines. They were in fact being treated no differently than a licensee that had submitted a license renewal application with no CE obtained within their renewal periods. One appraiser signed the consent decree and the other retained an attorney and appealed consent decree provisions. This appraiser prevailed, after substantial legal expense, and was issued a warning letter. When the appraiser that had signed the consent decree learned of the outcome of the other appraisers appeal, he appealed his consent decree agreement and succeeded based upon the other case. He was similarly give a warning letter. You would think that practicing appraisers sitting on these boards would have offered the warning letter in the first instance instead of asking them to agree to fraud charges. But they chose to treat them as unethical appraisers when all they were doing was trying to be efficient in maintaining their require CE.
-by Bill
The Appraisal Institute needs to review their complaint process as well. Currently, a complaint can be filed against a member and/or affiliate and they are informed of such complaint and that one or more investigators have been assigned to interview the accused. The AI insists on keeping the identity of the complainant “secret” and the accused is denied a copy of the original complaint. This is not due process by any stretch of the imagination. There is a basic tenet in law that everyone has a right to confront their accuser and to be informed as to the accusations and allegations. The AI does not adhere to this basic right of an accused. When an appraiser’s reputation, business, and livelihood are at stake, denial of access to this basic information is unacceptable. It may be argued that the appraiser belongs to a “voluntary” professional organization and therefore accepts its rules and regulations, but that premise doesn’t withstand logical scrutiny. Joining any professional organization to further a career should not subject the member to draconian procedures affecting their professional reputation and career.
-When complainants know they can file false, malicious, and scurrilous accusations against a competitor, it can be an effective means to thwart competition with no recourse by the accused against the complainants actions. Complaints should be filed against unethical and incompetent appraisers and they should be investigated to the full extent provided under AI regulations–but not at the expense of basic fairness and due process–which is the case under current AI practices. No one could file a complaint against a practicing attorney without the accused being fully informed as to the allegations and the person(s) filing such complaint. AI members should be entitled to no less. An AI member that does not receive due process in the complaint process and suffers adverse impact on their reputations, business, and livelihood–not to mention the probable stress, loss of billable time, and legal fees, could have a substantial case against the AI. It’s time they re-examined their archaic procedures for processing complaints wherein the accused is kept in the dark and denied due process.
by james
Kevin, I’m in Colorado also. Several years after having a disciplinary action tagged on my license, I appealed to the current, and much more reasonable, current DORA staff, and they removed it from my record. Granted, in the consent decree I did not admit to any wrongdoing (because there wasn’t any), which may have been a factor in them removing it. Gook luck to you.
-by Kevin
Let me add that in Colorado, the stipulation stays on the State website FOREVER. AMC’s, banks and other clients that check your license generally do not care what the “crime” was, only that it is on your record and they generally do not want to hire you. My “crime” was Conservation Easement Appraisals that they did not agree with and I signed an agreement not to do any more. Applied for a position reviewing 1-4 family appraisals and as soon as the company saw a “disciplinary action”, I was out of consideration. Should have fought to the bitter end and made them either absolve me of my sins, or take my license. That was over three years ago and I would be better off if they would have taken my license, at least I would have been forced out of this “industry” that used to be very well respected when I started in the 1980’s. Good luck to anyone who gets the dreaded “letter”.
-by Lorri Sell
The Appraiser Cleanse has begun. Thank god I am in my final years in this career. Of course I want to continue working. I have represented myself for the past 2 letters from the state. The first I had definitely made mistakes and took the state classes, mentorship and probation. The 2nd letter which I thought my goose was cooked, they dismissed!!!! OMG My E&O went up $150 for the year. I listened to what the Ted Whitmere had to say and followed how he defended his cases and had good results. Good Luck everyone.
-by Carol
As meaningless discipline is handed out by state boards your E & O goes up. The profit on your next 100 appraisals goes to pay for it. This, all in the name of USPAP, which two judges that heard the EAS bankruptcy case showed no deference toward.
-by johnny
USPAP and the state gestapo is as good as the 4 and 5 sections of USPAP being discarded, as the entire uspap mannual should be. The appraisal group should be above such a travasty of using this document, the USPAP doc is right out of NAZI GERMANY’S play book. The money spent and time spent on state levels to strip appraisers of the right to work is appalling. It should be left to the courts not to the no brain idiots that sit in these hearings being judge, jury and executioner. Its un-american and they need to be taken to task and shut down. The money would be better spent on MENTAL HEATH.
-by David
I have won in court and the E&0 stills goes up. My insurance did not want to cover another case due to my insurance agent mistake. I settle for a very low amount and my E&O still went up. My cost went to about $5,000 a year for 5 years. Try not to get these letters. Good luck!! They do not sue Pizza Delivery Drivers much do they. That’s my retirement plan.
-by Tom
After you read this article, the message is appraiser’s are screwed either way. If you admit guilt you won’t get E & O insurance, but if you call the E & O company to defend you, you will run up a bill and you won’t get E & O insurance. E & O is essential to be in business. I had a frivolous complaint against me, it got settled out of court but ran up some big attorney bills, and then I couldn’t get E & O from nearly every company in the country. I finally got a policy which cost $25,000, but at least I could still work. So, basically, if any letter arrives that requires you to even call your E & O company, you are totally screwed.
-by Harvey
Need to carry this a bit further. E&O attorneys defended me in a case that was filed against me by a bankruptcy attorney on behalf of the bankrupt homeowner. The allegation was the improper inclusion of a manufactured home on a permanent foundation with all utility hook-ups in the value opinion. In spite of the fact that the allegations were improper,, the attorney’s wanted a settlement immediately because there were no assets to pay reimbursement to the E&O insurance company. they claimed that there would be no impact on the E&O and the state board had no issue with the report. I agreed to the settlement. When my E&O went up, they claimed it was the economy. However, that proved to be false when I added a Trainee to the insurance and the rate became phenomenal. Upon inquiry, I was informed that the rate was high along with my regular rate because of the case filled against me. They obviously lied to me three years ago when the rate was increased the year following the case. So add, do not settle — carry the case to a conclusion~!!
-by Free Speech
Extremely finite pay, infinite liability. Appraisal is slavery.
-by John
Great article! I wish I could’ve come across this before I signed a consent decree years ago. While I argued my way out of 6 of the 8 violations (because they were false allegations), I realized after having spoken to another Working RE author and USPAP instructor that I possibly could’ve gotten out of the other two violations had I known USPAP better. Admittedly, my boss at the time was not a USPAP expert and having someone with USPAP expertise could have kept me from having a black mark on my record for several years. There are certain E&O companies who have denied me coverage for having this black mark. Good article. I completely agree with everything said in it!
-by George
At what point does the income not match the high amount of pressure and over-regulation? It has become illegal to make a mistake on an appraisal report. Why the hell are we still doing this?
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