The establishment of the appraiser-client relationship dates back to the 1989 Financial Institution Reform and Recovery Act (FIRREA) and an attempt to curb fraud. The client is defined as the person who hired the appraiser and knows the initial assignment details — from the scope of work to the amount of detail needed in the appraisal.
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“Anyone else, like a bank, is likely to receive a copy of the appraisal, and if they want to rely upon it, that’s on them,” said Richard Hagar, SRA and leading expert in real estate and mortgage fraud who is assisting with unjust blacklisting cases. “But they better do a full review before accepting it. Banks failed to do a proper review because they hired cheap. The Interagency Guidelines say that they are supposed to review appraisals before accepting them — not after the fact. They don’t like that they can’t talk to the appraiser to get additional information, but the reality is that they were supposed to review the appraisal and they have two options: a) accept the appraisal or b) reject it. There is no reason to ask the appraiser for more information.
“I know for a fact that the borrower is likely to get an appraisal; it doesn’t make the borrower the client,” he continued. “Eighty percent of all loans today are going to Fannie and Freddie and that doesn’t make them the client.”
What is the proper solution for the successor, bank or any other entity stuck with the bad debt?
In an ideal world, the proper appraisal review would have been performed and the loan would have been rejected or accepted before the loan was made, not after. Since lenders are stuck with incomplete loan files, the only option they have is to contact the original appraisal client who can then contact the appraiser. If the original client doesn’t exist anymore, then they’re out of luck. Of course, the lender could order a new appraisal, but that doesn’t solve their “incomplete loan file” problem.
“They don’t want a new appraisal — they want the old one fully explained and in their files,” Hagar said. “Banks don’t have the appraisal in their file. Having a new appraisal looking at a historical value doesn’t solve their compliance issue. The issue is they don’t have a complete loan file. They’ve been caught with their pants down, and they don’t like the breeze. So, they’re desperately trying to get a copy of the appraisal in their file before the regulators show up.”
Appraisers have been bullied by banks and lenders, and the bullies are used to getting their own way. Though it’s hard to stand up to a bully, it’s the appraiser’s responsibility to themselves, their industry and the law to say that these practices are not right.
“I’ve been blacklisted I can’t even tell you how many times because I stand up and say ‘No, that’s not right,’” Hagar said. “I’ve had underwriters threaten me. I’ve had mortgage brokers threaten me physically and monetarily. I’ve had to go above them to a vice president level and they apologize and take care of it. It’s the policy and procedures of the banks that aren’t properly written or being properly followed. By regulation, banks are required to have written policies and procedures that describe the proper operation of the bank and how to address these exact issues. If the banks do not have written policies, then they have a regulatory failure. If the banks have written policies and their employees (including AMCs) are failing to follow them, then there is a failure of their procedures, not the appraiser’s.
“This is common; this happens everywhere I go. I have appraisers in tears saying that if they don’t break the law they’ll never work again. How wrong is that?”