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Editor’s Note: Frivolous State Board complaints are a quiet crisis in the appraisal profession. Here is an overview of the issue and one state’s attempt at making the process more fair.
State Board Moves to Curb Frivolous Complaints
by David Brauner, Editor
Sandy Smith is irate. Like most appraisers, Smith (not her real name), has numerous issues to rail about these days, and like many others, there is one issue in particular causing her serious heartburn: Smith is being “punished” for what she considers to be a “frivolous” state board complaint against her. Here is the problem and one state’s solution.
Punishment for someone found culpable of an infraction often reverberates beyond what is meted out by a state board- such as a monetary fine and additional coursework. The negative effects often include a tarnished professional record which, if part of the public record, will probably mean a tougher time being accepted onto fee panels as well as landing expert witness assignments. Why? Because the “expert” testimony of an appraiser with a disciplinary action can be discredited easily in court, so attorneys are apt to skip you for someone with clean record.
Worst of all, a complaint typically means a tedious, time-consuming and stressful rebuttal process which often results in a fine and required coursework- costing more time and money. A complaint also can result in a more complicated E&O insurance process and sometimes a more costly one as well.
If all this is unsettling for an appraiser who may be “guilty” of a minor USPAP violation (Uniform Standards of Professional Appraisal Practice), for someone facing a frivolous complaint it can be downright maddening. Why is this issue so acute now?
Complaints are on the rise with the new rules requiring access of the appraisal to borrowers (See Fed Says: High Quality Appraisers or Else). Consequently, complaints dashed off by disgruntled borrowers have escalated. AMCs and lenders, many of whom are not qualified USPAP experts, are now required to turn in appraisers for “USPAP violations” under the threat of a fine if they don’t. And as a result of the current difficult market conditions, frustrated real estate agents who are fed up losing deals are applying pressure to appraisers to get what they want and reporting them for “USPAP violations” when the deal fails.
Appraisers, the recognized low-person on real estate totem pole, are bearing the brunt of this perfect storm.
Beware Consent Decrees (and your State Board)
The complaint against Smith was dismissed but with a “letter of caution,” which unfortunately is now part of her permanent record and raises a red flag with insurance underwriters, AMCs, lenders and others, fair or not. “There was no culpability on my part,” Smith says. “The complaint was about value. The board investigator tore the report apart and decided I should have listed other sources in the cost approach to determine how I derived the land value. There was nothing wrong with the land value, just that I should have disclosed other sources of information. This is why there was a letter of caution. This is why the board investigator and a few members of the board in an informal meeting decided to recommend to the full board that the complaint be dismissed.”
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The complaint was dismissed but with a letter of caution. What does this mean? For Smith, it means a tarnished record.
In his story Beware Consent Decrees, appraiser Tim Andersen, MAI makes the case for taking a deep breath before doing anything that seems too quick and easy, such as signing a consent decree (or something similar), paying a small fine and taking coursework. “If such a quick solution feels a little too simple and a little too painless, that’s because it may be,” says Anderson. “As soon as you sign that consent decree you are admitting your guilt to whatever charges the state includes in the decree. You consent to whatever administrative penalties the state chooses to impose.” Andersen, a USPAP instructor and consultant, continues, “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.”
Experts like Andersen urge appraisers to seek reliable advice before agreeing to anything. Most insurance programs specializing in appraiser’s E&O, such as OREP’s, provide free legal advice (and defense) to help insureds facing a state board complaint. But keep in mind that while attorneys may know the law, few are USPAP experts. In his story Understanding State Board Complaints, Andersen sites numerous examples of appraisers being falsely accused of USPAP violations by their state boards. From that story, Andersen writes, “In a Stipulation and Consent order authorities found that an appraiser violated the ETHICS RULE. Here is the quote from the Order: The original client was (Bank X) but this was changed to (Bank Y) by altering the statement of the intended user of the report without full disclosure of the original client or why a new user appeared, which is misleading. The key is the phrase ‘without full disclosure of the original client.’ If one looks over the ETHICS RULE one does not find anywhere any requirement that the appraiser must disclose who the client was on a previous appraisal assignment. Yet, by signing the Stipulation and Consent Order, this appraiser agrees that such a failure to disclose is a USPAP violation. Indeed, had the appraiser so disclosed, that would likely have violated the Confidentiality provision of this RULE! Thus, the state made the appraiser stipulate to an admission of breaking a rule that does not exist, as well as consent to a sanction for so doing.”
According to Bob Keith, MAA, IFA, Former Executive Director and Appraiser Program Compliance Coordinator for the Oregon Appraiser Certification and Licensure Board, what many appraisers don’t realize is that not all state board investigators are trained appraisers and few are experts in USPAP. “Only slightly more than one-half of one percent of all credentialed appraisers are nationally certified as experts in the minimum USPAP. As a result, those making decisions about your professional license and career may be less of an expert in USPAP than you are,” says Keith. “It pays to have an expert on your side.”
Keith says that to have a fair chance in a complicated and often unfair process, appraisers must understand a few basics about protecting their license and their livelihood and they should obtain expert advice when they need it. (Keith offers a consulting service to help appraisers evaluate and deal with state board complaints. OREP insureds enjoy the first half-hour consultation free and a discount if additional services are needed.)
Law and Order
Andersen points out that to your state board, you are not innocent until proven guilty like in the criminal justice system. In his story Understanding State Board Enforcement, Andersen says, “Since violation of a state’s appraiser certification law is not a crime, the protection of our Federal Constitution- ‘innocent until proven guilty,’ does not apply. When the state sends a letter it informs you that you are guilty of a violation of USPAP and/or state law. There are no hearings, no trial, no judge, no jury. You are guilty. You can defend yourself and the state may even drop some of the charges. However, you are guilty of something for no other reason than the state says you are.” (See Andersen’s upcoming OREP/WRE webinar Complaints: What to Do When the State Board Comes Calling.)
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Andersen and Keith stress that state boards typically have staff in place to prosecute their case against you, including attorneys, and that appraisers should not enter the process without expert help. Smith’s experience underlines the need for professional guidance because she says she never “consented” to anything. “I made no appearance before the Board,” Smith says. “There was no disciplinary action and therefore nothing to sign off on. No fine, no coursework. We had an informal discussion about the complaint. The informal discussion was initiated with, ‘don’t worry, you didn’t do anything wrong.’ No meeting with the state licensing board. Nothing. I am being punished financially now because I was unable to truthfully check the (no disciplinary actions) box on an insurance application.”
Good Vibrations
Keith said that the Oregon Appraiser Board considered this issue and took corrective action in 2013, right before he left the Board. “We didn’t think it was fair that a meritless complaint should become part of the public record and negatively affect an appraiser,” Keith said. What was happening in Oregon and still happens in many states, Keith explains, is that even a dashed-off email complaint from a disgruntled borrower or real estate agent would begin the formal complaint process by the Board that becomes part of the public record and triggers a certified letter to the appraiser, requiring a formal response including the report and workfile. “Well guess what, about half the time the complaints were found to be without merit and dismissed but at that point it’s too late for the appraiser,” said Keith. “Now he or she has a ‘public record’ blemish on their professional record for no good reason.”
So Keith says they changed the process in Oregon to make it fairer. When a negative comment is submitted, it is classified as an allegation report; other states call them referrals. In Oregon, the allegation report is passed along to the Board’s Enforcement and Oversight Committee. If it is found that the allegation does not rise to the level of a complaint, it ends there. The appraiser is not notified and nothing makes its way to the public record to tarnish the appraiser’s reputation. “Appraisers have enough of the deck stacked against them,” Keith said. “We wanted to make things more fair.”
Larry Disney, Executive Director of the Kentucky Appraiser Board, says things work a bit differently in Kentucky. When a grievance is first filed, it is investigated for merit. If it does not rise to the level of a “complaint,” and if the board votes to dismiss the grievance, a complaint is not filed, even though, as Disney says, the report may have small problems that do not rise to the level of a sanction. However, the appraiser is notified initially about the “grievance” and must respond with documentation backing up his case. Disney says about half of the “grievances” rise to the level of a complaint and merit further action by the Board. Of course, this means that half to do not.
Even with further action by the board, Disney says, some complaints are eventually dismissed. Here’s the real rub Disney says: while the dismissed grievance is not public information, the appraiser’s file, which includes the grievance, must be turned over to anyone filing a simple “freedom of information” request with the Board. Disney says it is happening today by certain appraisal management companies and others who “vet” appraisers. This could amount to guilty after being proven innocent.
According to Keith, the issue was addressed by The Appraisal Foundation Industry Advisory Council at their meeting in March, and a motion was made to approach AARO (Association of Appraiser Regulatory Officials) to encourage all state boards to mirror Oregon’s approach.
Checking the Insurance Box
Many appraisers get tripped up when completing their E&O insurance applications because of Board complaints, according to Maria McCarthy, a senior insurance agent at OREP. It happens when they fail to acknowledge a board complaint on an insurance application. If this is in a state where the complaint is public record, it can create an issue for the appraiser because insurance underwriters check the public record for disciplinary actions. “Many times, if there is a dismissed complaint, a brief explanation as to what happened and the positive outcome is all that is needed to end the issue,” says McCarthy. “Our underwriters get it.” She says it is understandable why an innocent person, whose complaint has been dismissed without action, would not feel the need to acknowledge it on an insurance application, but not doing so can lead to problems.
“It’s worse when the outcome of an investigation is pending,” McCarthy says because it often can take months to play out. She says a common scenario is for an appraiser to respond to an inquiry letter from the state and not hear anything for many months. Sometimes the complaint is no more than an angry email from a homeowner who thinks their house is worth more than the appraisal. Meanwhile, it’s time to fill out the renewal insurance application. Should the appraiser check the box on the E&O application acknowledging the complaint? Is it a complaint? McCarthy says she understands the confusion but not every insurance underwriter does. “Our underwriters know what appraisers are up against,” says McCarthy but she still advises disclosing upfront with an explanation, rather than having to explain a discrepancy later. “It’s better to openly disclose than to have to defend the omission.”
Additional Advice
OREP offers the following to alll appraisers no matter where they are insured: first, familiarize yourself with the complaint process in your state. How long is the process taking to complete? Are complaints made public even if they are dismissed without merit? Are “accusations” automatically part of the public record and require a formal response or are referrals investigated internally first to evaluate their merit?
Second, when responding to a complaint, take it seriously. Respond respectfully and clearly. Take advantage of the free helpline most insurance carrier’s offer. Avoid rants and blaming others when dealing with the state or your insurance carrier; we are all human with feelings and making a positive impression pays off.
Third, consider seeking professional help, not just from E&O attorneys but from a qualified USPAP expert- someone you know personally to be qualified, someone referred from a professional association/group or someone who represents and defends appraisers against state boards routinely, such as Keith and Andersen. Do your homework: don’t necessarily accept your state’s determination that you have violated USPAP until you’ve gotten an expert’s opinion. If you have made a mistake, admit it, demonstrate how it has improved you professionally and the steps you’ve put in place to prevent it from occurring in the future.
When dealing with your insurance carrier, disclose everything fully as painful as it may seem. Get everything on the record for your own protection. If somehow the complaint turns into a claim for damages in the future, because it was reported to the carrier in a timely fashion when the policy is in force, that policy should respond and cover you in the future, whether you still have insurance then or not. It is incumbent upon you to report. If you don’t report and a claim does arise later, the carrier can technically refuse to respond to that claim, even if your policy is still in force, if they feel the delay in reporting hurt your defense.
Finally, keep learning. Read or reread the stories sited here and in other professional journals, blogs and forums where the advice is reliable. Webinars from OREP/WRE are a low-cost way to benefit from the knowledge and experience of industry experts- such as There’s WHAT in Your Workfile? and Complaints: What to Do When the State Board Comes Calling, presented by Tim Andersen, MAI and Keeping Off Fannie Mae’s New Appraiser “Blacklist,” presented by Richard Hagar, SRA. Fannie Mae has changed the rules with their new AQM and only the fittest appraisers will survive. These webinars show how to write defensible reports and avoid problems (Fannie Mae’s AQM and How to Stay Out of Trouble). According to Hagar, it will make you a better, safer and more efficient appraiser. (OREP members always save on the cost of webinars.)
Upcoming Webinar
Complaints: What to do When the State Comes Calling
“Excellent webinar. I could not write notes fast enough!” –P. Murphy
Date: June 5, 10-11 a.m. PDT
Presenter: Tim Andersen, MAI
Learn how to protect your license and your livelihood with this live webinar! Don’t miss this chance go inside the investigation /complaint process and learn how to protect yourself should the state comes calling!
***All webinars are recorded and available at no charge with paid attendance.
Recorded Two-Part Webinar Series with Richard Hagar
Part 1: UPDATED – Keeping Off Fannie Mae’s New Appraiser “Blacklist”
Available Now – Watch At Your Convenience
Hagar shares the latest on Fannie’s new rules including how its blacklist works, how Fannie Mae will be evaluating appraisers going forward, and what appraisers can do to stay out of trouble.
Part 2: Fannie Mae’s AQM and How to Stay Out of Trouble
Available Now – Watch At Your Convenience
Hagar shows you specifics on how to make the “correct” UAD choices to avoid “hard stops,” “fatal warnings” and “critical messages” and keep you in business.
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We’re always listening: Send your story submission/idea to the Editor: dbrauner@orep.org.
by Divedude
I recently concluded a board complaint from an attorney who thought his home was worth more than my opinion of value. He decided to become an appraiser and submit his own comparables along with verbage about Reg Z. I submitted a full rebuttal with my workfile and the case was dismissed. While this was rewarding, it took eight months. Appraisers must prepare every workfile with the intent of responding to a board complaint. There also needs to be an effective recourse for appraisers when unfounded claims are dismissed. Homeowners, realtors, etc should be held accountable for frivolous complaints that cause permanent damage to reputations and livelihoods.
-by Michael Ford
John,
If the consensus is held by those having been disciplined, human nature and reluctance to admit to error may be a factor. Lets assume that’s not the case.
ALL state Boards literally nit-pick reports apart. What WE as appraisers have to remember is the USPAP are MINIMUM standards. When one fails to meet minimum standards, there is plenty of room for criticism.
In my area and state I routinely offer FREE advice and peer review of associates work in an effort to help them identify weak areas of their reporting style. Sometimes it goes back to appraisal development as well. In turn, I often ask a gentleman I have mentored for many years, to do the same on my own (redacted) work. None of us are perfect, but we have to strive to be.
What AMCs and many of our peers / competitors fail to realize every time they accept a low fee, with an unrealistic turn time, the less apparent work quality suffers. When is the last time you saw anyone document the steps they took for a land value extraction (address and actual calculations)? When is the last time you saw anyone include sales of lots in the cost approach? Do you look at City zoning maps or rely on sources like NDC or RealQuest?
-My favorite? Excluding cost approach on an SFR where no income approach is used. It may no be REQUIRED, but reliance on ONE approach gives you no checks and balances. Ones thinking can become circular without that being intended. An initially perceived ‘value’ can influence the selection of comparables that appear to be relevant, but which are not. We should never let time, OR abbreviated work requirements leave us vulnerable to providing less than top quality work.
by Michael Ford
Excellent article and good advice. Each states procedures DO vary. California uses general certified appraisers to review the work files; and I believe they may contract field inspections out to highly competent filed reviewers, so we don’t have uninformed people making career breaking decisions.
They see education as being at least as important as enforcement; and are very good abut returning calls whenever an appraiser is in doubt about a compliance issue.
I can’t imagine trying to function under a system like ‘JohnBoy’ has described.
-by John Boy Appraiser
I am intimately familiar with the Board in at least one state, including the current Board and the past three Boards. The general consensus is that the current Board is vindictive, overly zealous in decision making, and deems almost any complainant is fully guilty and should be heavily fined, face heavy education (or both), and possibly have their license revoked. Not one member is credentialed to perform a Standard 3 review, but each of the “professional” members inherently believes they are capable of understanding and ruling on every type of appraisal report and on every type of property – even if they only perform residential work as a Certified Residential Appraiser and the report in question is a convoluted commercial or special-use complex assignment. It is just downright shameful.
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