As a risk management firm which has been serving real estate appraisers for over 20 years, we are in a relatively unique position in terms of offering suggestions how to improve the current residential real estate appraisal process. To offer some perspective, during our history we have had close to 20,000 appraisers as members of our risk management family and we have been actively involved in the resolution of close to 2000 claims brought against appraisers, both inside and outside of the courtroom. Furthermore, our management team has been around long enough to witness not only the most recent collapse of the real estate market, but also the all of the previous collapses dating back to the 1970’s.
Here are a few proposals to improve the integrity of the appraisal process while protecting appraisers from open-ended exposure to liability and an unfair, unlevel playing field:
- Proposal: Adopt a uniform national statute of limitations for filing claims against an appraiser for USPAP violations or other errors or omissions which requires claims to be filed within three (3) years of the date the appraisal was delivered to the original client.
Rationale: The lending community should be able to determine whether the value in an appraisal is correct within 3 years of the date of the appraisal. After all, there are so many layers of review and AVMs being used by lenders, the appraisal gets more scrutiny than the credit score of and ability to pay the loan by the actual borrower.
- Proposal: Extend this statute to include complaints filed with a state licensing agency so both the courts and the state agencies are using the same rules.
Rationale: There is no reason a lender who cannot file a civil lawsuit over an old appraisal should still be able to file a licensing complaint over the same issues with a state agency.
- Proposal: Require the party filing a state licensing complaint to have standing so not just anyone with an axe to grind can initiate a complaint. Plus, the complainant should have to pay a filing fee of $50-$100 when a licensing complaint is filed. This would cut out a lot of the frivolous filings.
Rationale: There is no reason the servicer for the current owner of a loan made years ago by a different lender should be able to file a state licensing complaint against an appraiser. Also a disgruntled borrower whose loan was turned down should not be able to seek retribution by filing a licensing complaint against the appraiser who was hired by the lender and not the borrower.
- Proposal: Institute a requirement that any lender buying a loan more than 3 years old must obtain a new, current appraisal before buying the loan.
Rationale: Allowing a subsequent purchaser of a loan to rely on a dated appraisal is simply crazy. If you apply for a loan today and get turned down, you cannot use the same appraisal when you re-apply in six months so why should buyers of loans in the secondary market be able to rely on old appraisals?
None of these are really very radical ideas and, if implemented, should result in a more efficient, uniform, and understandable appraisal system for residential mortgage lending.
Brian L. Trotier, JD, is the Executive Vice President and Chief Operating Officer of FREA and a former practicing attorney with more than 30 years experience in real estate and risk management.