That's a Violation
matrix states that the purpose of appraiser discipline is
"to protect the public from appraisers who have not or will not competently perform their duties to their clients. The ultimate disposition of appraiser discipline should be public in case of revocation, suspension and reprimand; only in cases of minor misconduct should private discipline be imposed." Hence, the matrix suggests that states should make their appraiser sanctions public. There are some states that make all their sanctions against appraisers public - you can find them on their website or in state records or wherever they post these announcements. There are other states where a lot of their sanctions are public but some of them are not.
In a real property appraisal, USPAP requires an appraiser to analyze the sales and transfer history of the subject property for:
3 years prior to the effective date
Level V Example
A certified appraiser entered into an agreement with a non-certified person to allow the non-certified person to use the appraiser's electronic signature. That is, the non-certified person was completing appraisals and was signing the certified appraiser's name to the reports with the certified appraiser's blessing. I was personally involved in this case and there were a lot of very interesting details that came to light. This case culminated in a formal hearing. The evidence showed that the non-certified individual sent a check at the end of every month to the certified appraiser based on how many appraisals the non-certified individual completed that month. The non-certified individual was paying $75 per appraisal to the certified appraiser to use their signature. Under oath at the formal hearing, the appraiser testified that they knew their actions were wrong, and stated that they had tried to end the relationship immediately after entering into it. At that point, the prosecuting attorney for the state held up copies of the cancelled checks and said (and I'm paraphrasing), "But you kept on cashing the checks every month." This arrangement between the two individuals went on for well over a year. The appraiser received a monthly check based on how many times the non-certified individual had signed to appraiser's name to appraisal reports. In this situation there was no amount of continuing education or remedial education that was going to turn this appraiser around. This appraiser had gone a long way across the metaphorical line between right and wrong. As such, the sanction in this case was revocation of the appraiser's certification. As an aside, the non-certified individual who was doing appraisals without a proper certificate in that state received a very large monetary fine.
An individual who is a real estate broker and also an appraiser is asked to perform an "Exterior Broker Price Opinion" on a condominium unit. Assuming this is legal under state law, what form should the individual use to report the assignment?
A form that is not for reporting appraisals
Which type of error in an appraisal would likely NOT be a violation of USPAP?
A minor typographical error
What happens when the effective date of an appraisal is changed?
A new assignment is created
A licensure requirement that an appraiser must be "of good moral character" would MOST likely be established by:
A state licensing agency
A requirement spelling out how an appraiser's license number and license level must be displayed in an appraisal report would MOST likely be established by:
A state licensing agency
Which type of error by an appraiser is specifically prohibited by USPAP?
A substantial error of omission or commission
Which of these would be the LEAST severe sanction taken by a state enforcement agency against an appraiser?
Admonition, The letter of warning would be the least severe of these; in many states a letter of warning (sometimes called an admonition or private reprimand) is not published and is not part of the public record. (Ch 2, Types of Sanctions from the Matrix)
Which of the following statements is FALSE regarding appraisers and workfiles?
An appraiser can always add to the workfile after the report has been transmitted to the client.
example
An appraiser completed an appraisal on a single-family residential property that was under agreement for purchase, and the appraiser valued the property at less than the contract purchase price. That happens sometimes, right? Sometimes the real estate agent or the owner contacts the appraiser but we cannot discuss the value with them, and then often the lender will later contact the appraiser to discuss the valuation. Of course, the lender is the client so appraisers are free to discuss these issues with them. In this case, the agent and the borrower did not contact the appraiser, but the lender did. Based on the discussion with the lender, the appraiser agreed to increase the appraised value to meet the contract price and the appraiser did this by simply changing the condition adjustments that were made to all three comparable sales, and then the adjusted values of the comps all came up. The appraiser then issued a revised report with a higher value opinion, but the appraiser did not provide a new date of report. That's right - the appraiser issued a revised appraisal report with different adjustments and a higher value. They kept the same effective date (as they should have) but also kept the same report date. This is a problem because when there is a new report issued, there should be a new date of report. Here is where it takes a turn. In this case, the buyer was from outside the area and had made the offer on the property on the advice of a real estate agent. The buyer was concerned that he might be paying too much for the property, and so when the appraisal came back at a certain value and then later got raised, the buyer thought "Hmm... there's something fishy going on here," and the buyer filed a complaint with the state appraisal regulatory agency.
Level II Example
An appraiser prepared an appraisal report for a non-lending appraisal assignment. The appraiser made an exterior-only inspection of the subject property but the appraiser reported the appraisal on the URAR form and did not indicate anywhere in the report that he did not make an interior inspection of the property. As you know, the pre-printed language on the URAR form states that the appraiser made a complete interior and exterior inspection of the subject property, and an appraiser certifies to this when they affix their signature to the report. The appraiser did not state in the appraisal report that they made an exterior-only inspection of the subject property. Furthermore, the appraiser indicated that the report was a Self-Contained Appraisal Report and the report did not state the correct intended use of the appraisal. There is a pre-printed statement in the URAR form that says the report is intended for use in a mortgage lending transaction; however the appraisal report had in fact been prepared for a non-lending situation. The appraiser did not intend to mislead; there was nothing in the appraiser's workfile or the report that indicated they had intended to mislead the client or intended users. The appraiser simply used an inappropriate form and did not revise the pre-printed language on the form or in the templated comments that the appraiser used in the appraisal report. The bottom line was that the appraiser did not specify the actual intended use and did not specify the extent of the subject property inspection. These kinds of errors are largely the result of carelessness, and thus would be considered a Level II violation.
Development and Reporting Violations Example 2
An appraiser valued a single-family residence located in an older urban area, and the appraisal report that was submitted to the client by the appraiser had a number of errors and discrepancies. For example, the lot sizes for three of the four comparables were reported incorrectly, and the GLA figures for the subject and all four comps were incorrect. The subject's GLA figure was not consistent with the actual measurements that the appraiser used in the appraisal, and for the comps the GLA figures did not agree with the GLA figures obtained in the MLS and public records. The number of garage spaces for one comparable was reported incorrectly, and the room count and bathroom count for another comp was also reported incorrectly. After the complaint was filed the appraiser had a chance to justify what she had done, and admitted to the state investigator that one of the comps was not a good comparable. She stated that this comparable should not have been included in the report and it was not relied on in developing the value. This is something that an appraiser would want to explain in the appraisal report so that intended users can understand the appraisal and reconciliation processes. But she didn't, instead she stated after the fact that she should not have used the sale but she decided to put it in there anyway. The appraiser's attempt at mitigating the numerous errors in the appraisal report was an explanation stating she had just purchased a new appraisal report software program and was experiencing numerous glitches in the program and was unable to correct the errors in the report.
Which of these statements is FALSE about challenges to appraisal enforcement?
An appraiser who has a complaint filed against him or her is considered guilty until proven innocent.
When the original appraisal standards were produced by The Appraisal Foundation in 1987, who was required to follow them?
Appraisers from member organizations of the Foundation
An individual who is a real estate broker and also an appraiser is asked by a mortgage lender to perform a "Broker Price Opinion" on a single-unit residence. BPOs for lending purposes are not permissible in this state. What should the individual do?
Communicate with the lender and offer to complete a USPAP-compliant appraisal on the property.
The Matrix
Each state operates its own appraisal regulatory program and each state has the authority to issue whatever sanctions it sees fit in disciplinary cases. To foster consistency among the states, several years ago The Appraisal Foundation created a task force made up of state regulators and Foundation personnel, including some members of the Association of Appraiser Regulatory Officials, and they created voluntary guidance regarding disciplinary penalties for certain types of violations. The result was the Voluntary Disciplinary Action Matrix. It was originally produced in 2010, and it has been updated every two years to correspond with changes to USPAP. Whenever a new USPAP comes out, the Foundation updates this Matrix document. Of course as the name indicates, this is voluntary; after all, that is the first word in the title. This is voluntary guidance that state enforcement agencies may follow, if they choose to, but they are under no legal requirement to do so. A state appraisal regulatory agency can issue penalties that are greater or lesser than those suggested in the matrix, or they can follow the matrix faithfully, or they can completely ignore the matrix if they want to. Many state regulatory agencies have used the matrix since its inception and it does indeed promote consistency. The matrix itself is available on The Appraisal Foundation's website www.appraisalfoundation.org. The document is 24 pages long, and you are not required to print it out. We also have it available for you as a downloadable document in this course.
An appraiser has a complaint filed against her. The attorney for the state wants to negotiate a consent agreement to settle the matter. Which of these is the BEST advice you can give this appraiser?
Engage an attorney to negotiate the consent agreement terms
FIRREA
FIRREA is still an important piece of legislation, even after all these years. The Appraisal Standards Board of The Appraisal Foundation was recognized in FIRREA as a source of appraisal standards for federally-related lending transactions. As you know, The Appraisal Foundation is not a government agency - it is a private, non-profit educational foundation. In FIRREA, Congress recognized USPAP as the standard to which all appraisals performed for federally-related lending transactions must comply. FIRREA also recognized the Appraiser Qualifications Board (AQB) of the Foundation as a source of minimum qualifications for appraiser licensure and certification. FIRREA also required each state to set up an appraisal licensing and certification agency, and every state complied with that requirement. Some of these agencies within the states are boards or commissions that are made up of a majority of appraisers; in other states their agency is part of the state's mortgage lending or consumer affairs department and that agency is staffed by state employees. The majority of states have a board or commission made up of practitioners, but there are several states, most notably California, that have no board or commission. In California they created the Office of Real Estate Appraisers (OREA) as an agency staffed by government employees; there is no board or commission. The name of this agency was later changed to the Bureau of Real Estate Appraisers (BREA). Every state is a little bit different, but most of these agencies - whether they're a board or commission or another type of entity - have the legal authority to promulgate administrative rules and regulations.
Common Violations (cont)
Failure to disclose significant real property appraisal assistance is another common violation. This can be a violation of USPAP and a violation of state law or regulation. States often see this when a trainee or assistant applies to become a licensed or certified appraiser and they submit their appraisal log to be reviewed by the state agency. The state agency will pick out random entries from the log and require the applicant to send in copies of those appraisal reports so they can be looked at. Believe it or not, sometimes trainee/applicants will send in the appraisal reports and the state reviewer finds that the trainee is not mentioned in the appraisal reports as having providing significant real property appraisal assistance. This is a really unfortunate circumstance because in many cases: (1) the trainee doesn't get experience credit for those assignments when he or she was not properly acknowledged; and (2) it often results in a disciplinary case being opened up against the supervisor for failure to disclose real property appraisal assistance. Another common violation is mischaracterization or misrepresentation of the subject property. We have a few examples in this course where a mixed-use property or a commercial property is appraised as a residential property in order to obtain a residential mortgage; this can sometimes be considered the improper use and/or disclosure of a hypothetical condition. Finally, the last violation on the list is appraisal report content does not meet USPAP requirements. Standards Rule 2-2 (a) sets forth the minimum content requirements for an Appraisal Report. Standards Rule 2-2 (b) sets forth the requirements for a Restricted Appraisal Report. These requirements are minimums, but sometimes appraisers do not meet these minimum requirements and that becomes a USPAP violation.
Which of these is NOT a USPAP violation in an appraisal report?
Failure to include the appraiser's certification number and title
For example
For example, in some states the board or agency is not permitted to issue monetary fines, but in other states they are. In some states certain other sanctions are available and certain other sanctions are not, so again, the matrix is voluntary. If a state has a particular sanction at its disposal it can use the sanction in various situations for various different violations. We're going to talk about that on the next several pages.
Level IV continued
Going back to the list, another sanction is payment of restitution and/or costs of investigation. As with the other levels, a state enforcement agency may issue any of these sanctions or any combination of these for a Level IV violation.
Level III Example
Here is a real-life example of a Level III violation. An appraiser completed two appraisals on residential properties. They were both single-family dwellings located in a rural area, and the appraisals were prepared for mortgage lending. The appraiser used comparable sales from subdivisions in more suburban-type areas and did not comment on why they were using these sales, and did not make any adjustment for the fact that the sales were located in suburban subdivision-type locations. The appraiser also failed to consider the quality and view of the subject property in comparison with comparable sales, and as a result of these errors, both properties were overvalued by roughly 10-15%. Neither the investigator nor the appraisal reviewer provided any allegation or evidence of intentional overvaluation. These were inadvertent errors and the overvaluation was primarily the result of the appraiser's lack of familiarity with the market area. One could say this is a relatively minor violation of the COMPETENCY RULE (if there is such a thing). The appraiser received a sanction consisting of a $2,000 fine plus they had to pay $1,000 towards the cost of the investigation. The appraiser was also required to take two 15-hour qualifying education courses which could not be used to satisfy the appraiser's continuing education requirements. When we talk about qualifying education courses, we are referring to the courses that you took in order to become a certified or licensed appraiser, such as Residential Market Analysis and Highest and Best Use, Statistics, Modeling and Finance, or Residential Sales Comparison and Income Approaches. As previously stated, states also use the 15-hour USPAP course as a common punishment for appraisers.
Level IV Example
Here is a real-life example of a Level IV violation. An appraiser completed an appraisal on an operating bed and breakfast (B&B) property with over 100 acres of land located in a rural area. Unlike many other B&B properties, which are simply large old houses converted to B&B use, this one had actually been designed and built as a B&B. It had a non-standard residential layout; it was designed and built with bathrooms off every bedroom, wide hallways, a very large communal dining area and a relatively small kitchen area that was suitable for preparing food but not for eating. There was a large paved parking lot, and extensive signage identifying the property as a B&B. The appraisal was being prepared for a mortgage lender, and lender requested that the appraiser value only the house and 5 acres and appraise the property as a single-family residence. The lender essentially said, "We want to make a residential loan, so please value this property as a single-family residence and only do the house and 5 acres." The appraiser complied with the lender's request and reported the appraisal on the URAR form. The appraiser used large, high-quality single-family houses from high-end suburban communities as comparables and made very small location adjustments and no site adjustments. Even worse, the appraiser made no functional utility adjustments for the fact that the subject was built as a B&B and its layout really wasn't conducive to single-family use.
When might a voluntary surrender happen?
Here's an example. Perhaps an appraiser will get involved in a mortgage fraud ring and they are convicted in federal court on fraud charges. Then the state comes along and says, "You have been convicted on federal fraud charges, let's take a look at that appraisal license you have." In most of these cases, the appraiser thinks: I've already been convicted in federal court on fraud charges, there's no way I can defend what I did to the state appraisal enforcement agency. So in a case like this, the appraiser will often simply surrender their certificate or license in lieu of disciplinary action.
When would it NOT be acceptable for an appraiser to change the appraised value after an appraisal has already been completed and transmitted to the client?
If the appraised value does not meet the sales price
Continued..
In this case the appraiser was required to pay a $3,000 civil penalty and $1,000 for costs of investigation, and complete 30 hours remedial education. The appraiser was also required to take and pass the national uniform certification exam for certified residential appraisers. As mentioned previously, the national exams are quite difficult; there are plenty of practicing appraisers out there who might struggle to pass the exam today. It is a very technically challenging exam, and this appraiser/respondent was one of the unlucky ones who had to retake it because of their failure in this case to perform the appraisal in compliance with USPAP. The bottom line in this case was that the state enforcement agency found a series of significant violations and determined the appraisal report was misleading.
Level II Example continued...
In this case, the appraiser received a $500 civil penalty and was ordered to complete the 15-hour USPAP course. As stated previously, there are a number of states that use that 15-hour USPAP course or an equivalent course as a remedial or corrective education course.
Level IV violations include significant violations:
Including violations of the ETHICS RULE and/or COMPETENCY RULE
Who creates laws?
Legislative bodies
Here is another example of restriction on scope of practice.
Let's say that a general certified appraiser produces a deficient appraisal on a commercial property, for example, he or she developed the income approach incompetently. The state enforcement agency might say, "You performed the discounted cash flow analysis poorly on this commercial appraisal and so we're going to restrict your scope of practice to only residential appraisals, you're not allowed to perform any appraisals on non-residential properties for the next two years."
As a sanction, a letter of warning would be MOST consistent with which level of violation?
Level I
Violation Levels
Level I is the least severe and Level V is the most severe; each level up from Level I becomes more severe. The matrix includes recommended sanctions for each violation level. We are going to look at each violation level and provide real-life examples of violations and the sanctions that were issued. When creating courses like this, we can make up examples if we want. However, I think it's a lot more meaningful if we use real-life examples, i.e. actual disciplinary cases that have been adjudicated. These real-life cases show what types of violations can take place and what happens to an appraiser who commits such a violation. Hence, all of the examples in this section of the course are based on real-life disciplinary cases against appraisers.
Level II
Level II violation would be a technical error or carelessness where the appraiser would benefit from education, and this error or carelessness does not involve the ETHICS RULE or COMPETENCY RULE. It states in the matrix that an appraiser who commits a Level II violation would benefit from education, and we will see that one of the primary recommended sanctions is corrective education. The first recommended sanction is a formal reprimand or equivalent. Corrective education is also recommended, either continuing education (CE) courses or qualifying education (QE) courses that cannot be used towards renewal. We didn't mention this previously, but one of the fundamental requirements for corrective or remedial education is that an appraiser cannot take corrective education, then turn around and use those corrective education hours to fulfill their mandatory continuing education for their license renewal. That would defeat the whole purpose of corrective education. Instead, the appraiser would have to take their required hours of CE (whether it's 14, 28, 30, or 42 hours depending on the state and the length of the CE cycle) plus the appraiser would also have to take the corrective education. The point is that an appraiser cannot "double-dip" by using the corrective education toward renewing their license or certificate. A short period of probation is also a Level II recommended sanction, so is monitoring which, as I mentioned previously, often goes hand-in-hand with probation. A small to moderate fine is also listed as a sanction. Of course, the actual sanction handed down to an appraiser could include any combination of these listed sanctions. So, for example, an appraiser might be issued a small fine of $500 and also be required to take a 15-hour USPAP course, or a course on documenting the workfile or something si
A willful (intentional) violation of the ETHICS RULE would likely be considered what level of sanction in The Appraisal Foundation's Matrix?
Level V
Which level of violation is MOST likely to result in an appraiser having his/her license revoked?
Level V
Which of the following would be considered an aggravating circumstance in an appraisal disciplinary case?
Licensee has a prior disciplinary history
Because not all complaints against appraisers have merit:
Many states have a process for weeding out frivolous complaints early in the process
Which statement is TRUE regarding the 15-hour National USPAP Course?
Many states use this course as a remedial (corrective) education course.
An appraiser completes a deficient appraisal that results in disciplinary action being taken against him by the state appraisal regulatory agency. The appraiser has no prior disciplinary history, has exhibited no pattern of similar offenses, and has no other complaints currently pending against him. These would be __________ circumstances that would likely result in ____________ sanction.
Mitigating, a decreased
Level III
Now let's examine Level III violations. According to the matrix, these are minor violations of the ETHICS RULE and/or the COMPETENCY RULE or other violations that rise to the level of affecting the credibility of the assignment results. Recommended sanctions for a Level III violation include a formal reprimand or equivalent, corrective education (they recommend qualifying education courses which would be a minimum of 15 hours in length), a short suspension, a medium period of probation or monitoring. The matrix also recommends a restriction on scope of practice, the area of practice, or the ability to supervise. That restriction can involve several different possibilities, for example restricting an appraiser on what they can appraise, where they can appraise, and/or their legal ability to supervise a trainee. A moderate fine would be consistent with a Level III violation, as would payment of restitution or costs of investigation. Any of these sanctions (or a combination) would be considered appropriate for a Level III violation.
Common Violations
One of the most frequent and significant problems is use of inappropriate sales in a sales comparison approach; we're going to look at some of these cases in a lot more depth as we go through the course. Another common violation is use of unsupported site value in the cost approach. That is something that lot of boards have cited as a common deficiency or a shortcoming in appraisal reports. Failure to analyze the three-year sales and transfer history of the subject is another common violation; this is surprising because it is so easy for someone else to check if you omit or don't analyze the sales or transfer history. A reviewer or an underwriter can check that from their desk in about three seconds, so if you fail to do it, chances are someone is going to find out about it. Another common violation is failure to analyze the current pending purchase agreement on the subject - that sometimes goes along with failure to analyze three-year prior sales and transfer history. Failure to include certification number or license number and title with signature is not a USPAP violation, as you well know, but it would be a violation of state law or regulation depending on who set forth the requirement that you have to include your certification or license number and title with your signature.
In most states, state appraisal regulatory agencies have the power to:
Promulgate rules and regulations
According to The Appraisal Foundation's Disciplinary Action Matrix, the purpose of appraiser discipline is
Protect the public
Which of these would be considered an aggravating circumstance in an appraisal disciplinary case?
Refusal to acknowledge violation
Once a complaint file is opened against an appraiser, in many cases, the appraiser is referred to as:
Respondent
An appraiser is not properly supervising his trainee, and the state enforcement agency prohibits the appraiser from supervising any trainees for a period of one year. This sanction would be called:
Restriction on scope of practice
Which of these possible sanctions would NOT be consistent with a Level I violation?
Suspension
Which of these was NOT a result of the passage of FIRREA in 1989?
The Appraisal Foundation was formed
1987
The Appraisal Foundation was formed, and the member organizations produced a standards document which we know today as USPAP. However, in those early days, only the appraisers who were members of the organizations that made up the Foundation were required to follow these standards. If an appraiser was not an affiliate or a member of one of these organizations, USPAP did not apply to that appraiser.
Do you need to change the report date when making revisions to a completed appraisal report?
The answer is yes! The date of report is the date the report is transmitted to the client, according to USPAP.
The first question is when is it okay to revise an appraised value after the fact? Is there any circumstance under which you could or should revise an appraised value after you have already transmitted the appraisal report to the client?
The answer is yes, it can be done under certain circumstances. It would be acceptable, for example, if the appraiser was correcting an error or errors in the appraisal report, or if additional information about the subject property or comparables was brought to the appraiser's attention. Nobody is perfect, and sometimes a revision to the value opinion is warranted.
For an appraiser, one of the advantages of a consent agreement in a disciplinary case is that:
The appraiser gets a say in negotiating the penalty
An appraiser is valuing a property that is currently under agreement for purchase. Which statement is TRUE regarding the agreement of sale?
The appraiser should carefully review the agreement and provide appropriate analysis of the agreement in the appraisal report.
The date that an appraisal report is transmitted to the client is:
The date of report
An appraiser has transmitted an appraisal report to a client, and was later asked to add two additional listing comparables. The appraiser adds the listings and is getting ready to re-transmit the report to the client. Which date in the appraisal report needs to be changed?
The date of report only
Financial Institutions Reform Recovery and Enforcement Act, which is better known by its acronym FIRREA. The intent of this legislation was to bail out the failed institutions and reform the federally regulated mortgage lending system - sort of like what Congress did 21 years later when the Dodd-Frank Act was passed in response to the mortgage and credit crisis of the early 2000s.
The legislation was passed and signed into law in 1989
Aggravating Circumstances
The matrix defines an aggravating circumstance as any factual information or evidence regarding the appraiser or the violation that might result in an increased sanction.
Which statement is TRUE regarding the state enforcement process for appraisers?
The process varies from state to state.
In most states, the finer details of the state's qualifications for appraiser licensure are:
The responsibility of the state board or commission
An appraiser is making corrections to an appraisal report that was transmitted to the client last week. Which statement is TRUE regarding this situation?
The revised report should have a new report date.
For a state enforcement agency, one of the advantages of signing a consent agreement with an appraiser is:
The state saves in enforcement costs and attorneys' fees
Level V
This brings us to Level V, which as I mentioned previously is the most significant level of violation. The matrix says Level V violations include significant ETHICS RULE and/or COMPETENCY RULE violations, and/or willful violations. When you see the word willful, think intentional. Willful violations are intentional violations, some of which would be considered fraud on the part of the appraiser. After all, fraud requires intent. Fraud is not a word we throw around lightly in the appraisal regulatory world, because in order for something to be fraudulent the person who produced it had to do it intentionally, and it's really hard to judge intent. How do you know whether an appraiser screwed up intentionally or not? Perhaps the appraiser simply just didn't know what they were doing when they did a bad job - it doesn't mean they committed an intentional act. When we get into Level V we are indeed talking about significant violations and/or willful or intentional violations. As you might have already guessed, the sanctions for Level V are the most severe sanctions available. These include revocation or voluntary surrender in lieu of disciplinary action with or without a large fine, and payment of restitution and or costs.
Restriction on scope of practice is another type of sanction
This is a period of time during which an appraiser is prohibited from performing certain types of appraisal assignments, and it could also include a restriction on supervising other appraisers. This is particularly common in disciplinary cases where the appraiser who is a supervisor fails to appropriately supervise a trainee or assistant. If the case involves a violation where the appraiser was not supervising the trainee properly (or not supervising the trainee at all) the state regulatory agency might say "Appraiser, for this period of time you are no longer permitted to supervise a trainee."
An appraiser completes an appraisal for a property owner, and does not use a pre-printed report form because he doesn't want the appraisal to be considered a "formal" appraisal. Which statement is TRUE regarding this situation?
This is incorrect thinking; an appraisal is an appraisal regardless of the form used.
Example of Aggravating Circumstances
This was a case where an appraiser completed an appraisal on a residential dwelling, the comps the appraiser used were better quality houses in superior neighborhoods, but the appraiser made no location or quality adjustments, and the appraised value ended up being inflated as a result of these errors. After the complaint was filed, the state requested the appraiser to submit their workfile to the state, but the appraiser didn't cooperate with the investigation and refused to provide a copy of the workfile when he was asked to do so. The state also filed a formal charging document against the appraiser and the appraiser failed to respond to that. This might have otherwise been a Level III or Level IV offense, but because of the aggravating circumstance (the appraiser's refusal to respond or cooperate), the sanction ended up being an indefinite suspension of the appraiser's credential, which would have been consistent with a Level V violation. The point is that if you fail to respond or fail to cooperate, you might think you are acting in your own best interest (and within your rights), but that might be considered an aggravating circumstance and it's probably not going to help you in the end.
Why did The Appraisal Foundation create the Disciplinary Action Matrix?
To foster consistency in disciplinary actions among the states
In most states, ________ is established as the minimum standard of practice for real property appraisers.
USPAP
An appraiser is convicted of embezzlement and the state appraisal regulatory agency suspends his credential. By being convicted of embezzlement, the appraiser has MOST likely:
Violated state law
For state appraisal enforcement agencies, use of The Appraisal Foundation's Disciplinary Actions Matrix is:
Voluntary
Voluntary Surrender
Voluntary surrender in lieu of disciplinary action is used in certain states. This is the equivalent of a forced resignation from a job. When an appraiser knows that he or she really did a bad appraisal and is likely to have their license revoked, instead of going through the formal disciplinary process, the appraiser might simply say, "Take my certificate, I'm done." They hand in their license or certificate and walk away. It saves the appraiser the costs of going to a formal hearing and hiring an attorney, particularly in a case where the appraiser knows he or she is going to be the recipient of a Level V sanction. It also saves the state money and resources in prosecuting the case.
An individual provided a "Report of Capitalized Amount" for an income-producing property. In this report, the individual took the income from the property, deducted operating expenses, and capitalized the resulting net income amount to indicate a "Capitalized Amount." Is this an appraisal under USPAP?
Yes
The subject is a commercial property, but the client (a mortgage lender) asks the appraiser to value the property as a residence to facilitate the making of a residential mortgage loan. The appraiser obeys the client's request. Is this a violation?
Yes, the appraiser has mischaracterized the subject property
Mitigating Circumstances
a mitigating circumstance is any information or evidence regarding the appraiser or the violation that might result in a decreased sanction.
Aggravating circumstances might include
a prior disciplinary history, the number of appraisals involved in the case, the number of total violations involved in the case, a pattern of similar violations, significant financial harm done to a lending institution or a consumer or someone else, a refusal to reissue or correct an appraisal report when warranted, evidence that the violation was willful or intentional, evidence that the violation was grossly negligent, failure to exercise due diligence in the supervision of others, refusal to acknowledge violation (later, we'll cover an example where that came up), lack of cooperation with the investigation, submission of false statements or evidence, or other deceptive practices. For example, creating or adding to a workfile after the complaint is filed is an aggravating circumstance. I mentioned previously about the importance of keeping a thorough workfile and not having the mindset that I can just add to the workfile later if there's a complaint or there's a problem. If it is determined that the appraiser added to the workfile afterwards, that is an aggravating circumstance. Also - and this is pretty obvious - intimidation of or threats to witnesses or others involved with the investigation is an aggravating circumstance.
A non-public sanction could include things like
a private reprimand which could be, for example, a warning letter for very minor violations. The agency may not want to ruin an appraiser's disciplinary record over a minor issue, so they will send the appraiser a letter saying something to the effect of, "This is a fairly minor violation but we don't want it to happen again, consider this a warning." The appraiser gets a chance to clean up his or her act without being punished and without the world knowing about it.
Level I violations
according to the matrix, are minor violations that do not involve the ETHICS RULE or the COMPETENCY RULE. As we go through the course, you are going to discover that ETHICS RULE violations and COMPETENCY RULE violations are considered the most severe violations and they receive the most significant sanctions in the matrix. Since we are starting at Level I here, we are not talking about ETHICS RULE or COMPETENCY RULE violations. Level 1 violations are essentially minor violations, and recommended sanctions for these violations would include a letter of warning or equivalent, a censure (which could also be called a reprimand or a reproval), corrective education which would be continuing education (CE) courses or qualifying education (QE) courses. Continuing education courses are normally shorter than qualifying education courses. For example, the course you are taking now is a continuing education course; these courses are often 3, 4, or 7 hours, or anywhere in between. Qualifying education courses are a minimum of 15 hours in length and include a proctored final exam. These QE courses can also be used for remedial or corrective education. For example, if someone commits a minor USPAP violation, the state might require him or her to take the 15-hour USPAP course as a remedial course. A small fine would also be a recommended sanction for a Level I violation. The state regulatory agency is not limited to only one sanction; the agency may issue any combination of these sanctions. For example, an appraiser might receive a formal reprimand and a $250 fine; that would be a combination of two recommended sanctions for a Level I violation.
Paying the costs of enforcement
activities is similar to a fine. It requires a respondent to reimburse the state for the cost of investigation and enforcement. This is best explained with an example. An appraiser does some bad work and the state has to pay an investigator several hundred dollars to investigate the case and perhaps they also have to pay a review appraiser several hundred dollars to do an appraisal review on the case. In some states, the state agency may pass along the costs of the investigation and enforcement to the certificate holder or licensee. In other words if the state pays $1,500 for costs of investigation they can charge that back to the appraiser/respondent as a sanction. Not every state permits this, so it depends on the state's laws and regulations as to what the state enforcement agency is allowed to do.
Aggravating circumstances are actions or factors that make matters worse. If, for example
an appraiser has a prior disciplinary history and he or she is now sitting in front of the agency to be disciplined again, that's going to be an aggravating circumstance. The agency is probably thinking You have been here before, we sanctioned you in the past, we hoped you would have learned your lesson from your previous encounter with us, but obviously you did not. The appraiser's prior disciplinary history would be an aggravating circumstance which could result in an increased sanction. Another aggravating circumstance is the number of appraisals involved in the case. For example, if an appraiser does 10 bad appraisals, then obviously that's a lot worse than completing just one bad appraisal.
Another mitigating circumstance
could be taking additional education and/or gaining additional experience after the violation occurred. For example, let's say an appraiser does an FHA appraisal incompetently and a complaint is filed two years later, and the appraiser says, "I know I did a bad job, I was a little uncomfortable doing FHA appraisals at that time so I took this class on FHA appraising several months after I did the appraisal." That might be effective as a mitigating circumstance. Cooperation with investigation can mitigate the circumstances, but probably will not make the violation go away entirely. Little or no financial harm to the consumer or others would be a mitigating circumstance, as would timely mitigation of financial loss, and re-issuance of a corrected appraisal report before the complaint was filed. For example, an appraiser might say,"I knew I made a mistake in that appraisal, but I corrected it and re-issued a corrected appraisal report long before this complaint was filed." That doesn't get the appraiser off the hook for issuing the initial deficient report, but the appraiser might have mitigated the situation somewhat by admitting the error and issuing a corrected appraisal report.
States can and do establish other requirements, such as
how an appraiser's credential must be displayed in an appraisal report. For example, some states allow abbreviations for an appraiser's credential; other states allow only certain approved abbreviations and do not permit other abbreviations. Some states establish other requirements such as when a trainee may inspect a property without the supervising appraiser being present.
Level IV
include significant violations, including violations of the ETHICS RULE and/or the COMPETENCY RULE. A Level IV violation could be an ETHICS RULE or COMPETENCY RULE violation, or it could be a violation of STANDARD 1 or STANDARD 2. The point to remember is that these are significant violations. As logic would dictate, when the violations are more significant, the recommended sanctions also become more significant. The listed sanctions include a formal reprimand or equivalent (which would be very minor). However, the other suggested sanctions include significant amount of education, significant suspension, significant probation, monitoring, restriction on scope of practice, the area of practice or ability to supervise, a large fine, and a downgrade of credential. We haven't mentioned a credential downgrade before, but that can happen. As an example, if a general appraiser does a deficient appraisal on a commercial property, the state may say, "You are no longer a general certified appraiser, we've downgraded your credential to certified residential and now you're only allowed to appraise 1-4 family residential properties." Successful completion of the national licensing exam is another recommended sanction. Some states use this one frequently; they make the respondent re-take the licensing exam and their credential is suspended until they pass it. This might not seem like such a significant sanction, but it really can be. The current versions of the exams are not easy, in fact I have known existing credentialed appraisers who have been required to retake the exam and have had to take it multiple times in order to pass.
Revocation
is a fairly easy sanction to understand, as it terminates the person's status as a credentialed appraiser. When a license or certificate is revoked that means the individual is no longer a licensed or certified appraiser in that state.
Probation
is a period of time in which the appraiser and or the appraiser's work may be more closely scrutinized and monitored; in some cases, there is a specified period of time during which the appraiser's work is subject to additional review by the state appraisal regulatory review agency. Some states will require an appraiser to maintain a log of his or her appraisals and appraisal review assignments and then submit that log periodically to the state. The state would then have the right to go through the log and select entries from the log for review. The agency might say, "Appraiser, we want to see this appraisal you did on September 1st on Oak Street, please send it in." The state agency will do an in-depth review of the appraisal to make sure that it meets the applicable standards. Probation and monitoring are individual things but they often go hand in hand.
fine
is a sum of money required to be paid as a penalty. In real life, different state regulatory agencies have differing abilities to fine practitioners. In most states there is a limit on the amount of a fine that can be issued. In some states the fine is capped at $500, in some states it's capped at $1,000, and in other states it's capped at $10,000. You are not required to memorize these numbers; the point is that states have varying abilities to fine practitioners for wrongdoing.
Suspension
is a temporary removal of an appraiser's credential for a specified period of time, and the matrix actually lists three different types of suspensions. A short suspension is from 1 day to 2 months, a medium suspension is somewhere between 2 months and 1 year and a significant suspension is a suspension of more than a year. During the period of suspension the appraiser has no credential and is unable to perform appraisals in that state.
Corrective and remedial education
is a very common sanction. A number of states use this extensively. It is education aimed to correct or improve deficient skills in a specific area. Many state enforcement agencies believe that it is better to educate the appraiser and make sure he or she doesn't do it again than it is to simply punish them for the sake of punishing them. The idea is to make them a better practitioner so that they are no longer a danger to the public. That is the goal of corrective or remedial education. For example, if an appraiser violates the USPAP RECORD KEEPING RULE, the state may say to the appraiser, "You kept a deficient workfile so we're going to require you to take a course on workfile content so that you'll understand what you did wrong and you'll be able to carry on your appraisal business without violating USPAP any further." As with other sanctions, some states have the ability to issue remedial or corrective education, and some states do not.
Restitution
is another kind of sanction. Restitution is payment to those who were harmed by the appraiser's actions. Some state enforcement agencies have the legal right to issue restitution penalties and some do not.
In most states USPAP
is established as the minimum standard of practice for all appraisers, regardless of whether the appraisal is performed for lending or non-lending intended use. There are some states where USPAP is only applicable in appraisals for federally-related lending transactions. Obviously, an appraiser needs to know what the standards of practice are in his/her state.
respondent
is merely the person against whom the complaint has been filed. In this course we are talking about appraisal disciplinary cases, so once the case is opened up, the appraiser is referred to as the respondent.
The matrix also
lists and defines sanctions that are available, and there are myriad sanctions available to state regulatory agencies. We are going to cover these sanctions on the next two slides and I want to point out that not all these sanctions are available in all states. We talked about the issue of laws and regulations, state boards and enforcement agencies are only permitted to issue the sanctions that they are given the legal authority to do so.
Rules and regulations
may be promulgated by any government agency that is given the legal authority to do so.
Laws
may only be passed by legislative bodies such as the U.S. Congress or a state's General Assembly.
Another listed sanction is a formal reprimand or censure
some other states use different terms for this. I have read that it is called a "reproval" in some states. Terminology can be different from state to state, but the point is that a formal reprimand is a form of public discipline. A reprimand is noted in public record and declares the conduct of the appraiser improper, but does not limit the appraiser's right to work. Essentially the state is saying, "You did something wrong and we're going to tell the world you did wrong, but we're not going to take away your credential or fine you or otherwise restrict your ability to practice."
Mitigating circumstances include
the length of time since the date of violation, no prior disciplinary history (i.e. this person has a clean record), no other complaints currently pending against the licensee, no pattern of similar offenses by this licensee, no evidence that the violation was willful or intentional, and/or no evidence that the violation was grossly negligent. The respondent's license level at the time of violation could also be a mitigating factor. For example, let's say the violation occurred five years ago and the appraiser was a licensed residential appraiser at the time. Since that time, the appraiser has taken additional education and upgraded their credential to certified residential. That could be a mitigating circumstance where the appraiser could say "Look, I have a lot more experience and a lot more education now and I know that what I did was wrong." Does this excuse the violation? No, but it can be a mitigating circumstance.
Another type of sanction is a letter of warning;
this can also be called an admonition or a private reprimand. It is a form of non-public discipline that informs that appraiser that his or her conduct was improper, not warranted, or otherwise unacceptable. In some states, for example, if an appraiser signs their name to an appraisal report and doesn't properly indicate the appraiser's credential level or number, the state will send the appraiser a letter of warning. The letter of warning essentially says, "You did it wrong, we're not going to discipline you this time but please don't do it again." If you do it again, then maybe the sanction will step up to a formal reprimand or a monetary fine, or something more significant.
Level I Example
this was an actual case in which an appraiser completed an appraisal on a house for a mortgage refinance, and the property owner was unhappy with the value and filed a complaint against the appraiser. (This never happens, right?) The state asked the appraiser, "Please forward a copy of your appraisal report and your full workfile to our office for review." However, when the appraiser sent her workfile to the state, there was no true copy of the appraisal report in the workfile. The only copy of the appraisal report that was in the workfile did not contain the appraiser's signature. USPAP requires that you must maintain a true copy of an appraisal report in your workfile. In order to be a "true copy" the report must contain a signature - a true copy is an exact replica of the report that was transmitted to the client. In this case, the appraiser had only an unsigned copy of the appraisal report in her workfile. There were no deficiencies found in the appraisal report or the workfile other than this unsigned appraisal report, so the appraiser was issued a warning letter. The state sent the appraiser a letter that essentially said, "This is a deficiency; you must maintain a true (signed) copy of the appraisal report in your workfile. Please see to it that you do that from now on." In this case, the letter of warning was the only sanction that was taken against the appraiser because the violation was so minor. No appraiser should lose their license or be made to suffer significantly for such a minor violation.
