Making AMCs Pay Up
By David Brauner, Editor
(reprinted with permission from WorkingRE.com)
To most appraisers this story is familiar: “I have been working with an AMC who shall remain nameless,” says Vrej Avedissian. “Having accepted a few assignments from them and dealing with their constant emails and phone calls regarding the status of each report, which borders on harassment, when it comes time to pay, it is a very different story. My contract with them states 30 days net but it has taken me in excess of 60 days to receive payments for my work. Is there a governing body or watchdog where an appraiser like me can file a complaint regarding late payment or non-payment?”
In certain states, a civil action may be all that someone in a scenario like Avedissian can pursue, unless the delay in payment can be tied to coercion under a state’s appraisal independence law or in states where appraiser management company (AMC) regulation demands prompt payment for appraisers. In states where AMC regulation has been enacted and where “prompt payment” language made it into the final bill, appraisers do have recourse. As of this writing the states with “prompt pay” provisions in their AMC law include: AZ, CT, MD, MO, MT, NM, OK, OR, TN, MS.
Montana is one of these states, according to appraiser Darwin Ernst, a member of Appraisal Institute and Montana’s State Appraiser Board. “The guaranty of payment provision is section 17 of the Montana AMC regulatory statute, which was signed by the governor on April 22, 2011,” says Ernst. “Section 16(a) has related information regarding withholding or threatening to withhold timely payment. A violation of either statute allows appraisers to file a complaint with the Montana Board of Real Estate Appraisers. Non-compliance may also be discovered through the audit provisions within Section 14.” According to Ernst, if found guilty, an AMC could lose the right to do business in Montana. “The AMC interests wanted language that would allow them to withhold payment if there was a dispute over a quality issue,” says Ernst. “But we said, pay the appraiser first and if there is a problem with the appraisal, report it to the Board for review.”
Dodd-Frank, signed into law July 2010, calls for each state to enact AMC regulation within five years. Twenty-seven states have AMC regulation as of this writing but only those listed above have “prompt pay” language, according to Scott Dibiasio, Manager of State and Industry Affairs for the Appraisal Institute. The bills require payment between 30-60 days depending on the state. According to Dibiasio, appraisers in these states can file a complaint with their state appraisal board, which regulates AMCs. If found guilty, AMCs could lose the right to do business in that state or could have some other, lesser, sanction imposed.
States: Do Not Coerce
Many states have adopted appraiser independence laws with language prohibiting coercion in the form of withholding or threatening to withhold payment. These states include, as of this writing: AZ, AR, CA, CT, FL, JI, LA, MD, MN, MS, MO, NV, MT, NM, NC, OK, OR, SD, TN, UT, VA, VT, WA, WV. There is similar language in the Dodd-Frank Act, which is federal legislation and covers appraisers in every state. Here is sample language from the Arizona law: § 32-3674. Appraiser independence; prohibitions A. Any employee, director, officer or agent of an appraisal management company registered pursuant to this article shall not influence or attempt to influence the development, reporting or review of an appraisal through coercion, extortion, collusion, compensation, inducement, intimidation, bribery or any other manner, including: 1. Withholding or threatening to withhold timely payment for an appraisal.
Many appraisers report that they face the same kinds of pressures from AMCs today as they did from mortgage broker clients prior to the Home Valuation Code of Conduct (HVCC): namely withholding or threatening to withhold payments or future work as a result of not “making a deal work.” This post from the Working RE/OREP.org AMC Rater Blog, an information exchange for appraisers regarding AMCs, is one of many similar comments (posts are anonymous): “Regarding (XYZ ) AMC, I use to do appraisals for them until one day they told me the lender needed the value raised about $100,000. That I would not do, so they emailed me to say they would not pay for the appraisal. End of the work from (XYZ) AMC.” (To read other appraisers’ comments or to leave your own, visit the AMC Rater Blog at WorkingRE.com.)
Appraisers who live in a state with appraiser independence laws can file a complaint with the state regulator of the offending party if the payment issue can be tied to coercion, said Dibiasio. For instance, if the offending party is a real estate broker or salesperson, and they are specifically mentioned in the appraiser independence law, then the complaint would be filed with the state real estate commission. If it is a mortgage loan originator, then the complaint would be filed with the agency responsible for regulating mortgage loan originators. Most threats to withhold payment for an appraisal are going to come from a lender or an AMC. In those cases, the complaint would be filed with the state or federal regulator of the lender, and if the state has enacted an AMC law, the regulator of the AMC (see below). In states with “prompt pay” language included in AMC regulation, the coercion standard is not required. These complaints can be filed with the state appraisal board. States cannot force an AMC to pay an appraiser but they can sanction an AMC if it is found that the AMC withheld payment without good cause.
As stated, Dodd-Frank has tough appraiser independence language that covers all appraisers who allege coercion with respect to non-payment. According to federal regulators, in general, contract disputes between appraisers and AMCs are governed by state law (not by the Truth in Lending Act or Regulation Z). But to the extent that nonpayment is linked to appraiser coercion, appraisers have another arrow in their quiver: the conduct is prohibited by Section 226.42(c)(1) of the (federal) Truth in Lending Act: “In connection with a covered transaction, no covered person shall or shall attempt to directly or indirectly cause the value assigned to the consumer’s principal dwelling to be based on any factor other than the independent judgment of a person that prepares valuations, through coercion, extortion, inducement, bribery, or intimidation of, compensation or instruction to, or collusion with a person that prepares valuations or performs valuation management functions. (i) Examples of actions that violate paragraph (c)(1) include:… (B) Withholding or threatening to withhold timely payment to a person that prepares a valuation or performs valuation management functions because the person does not value the consumer’s principal dwelling at or above a certain amount;”
The example in Section 226.42(c)(1)(i)(B) is illustrative, not exclusive; so other conduct may violate the general rule under Section 226.42 (c)(1). However, withholding compensation due to breach of contractor substandard performance of services does not violate the rule. See Section 226.42(c)(3)(v).
Filing Federal Complaints
This language provides a pretty broad stick. Appraisers may file a complaint regarding a violation of Section 226.42 (c)(1) of the Truth in Lending Act, with respect to alleged coercion, by contacting the federal agency that supervises the party believed to have violated the rule or its affiliate. For example, to complain about a violation by an AMC that is not a depository institution but is affiliated with a national bank that has violated the rule, the appraiser can contact the Office of the Comptroller of the Currency. (The Federal Trade Commission has enforcement authority over non-depository institutions but does not investigate individual complaints.)
If the complaint is not linked to alleged coercion, the appraiser should be able to file a complaint with the state agency that supervises or licenses the entity in question (such as a state banking department or corporations licensing department).
About the Author
David Brauner is Editor of Working RE magazine and Senior Broker at OREP.org, a leading provider of E&O Insurance for appraisers, inspectors and other real estate professionals in 49 states (OREP.org). He has covered the appraisal profession for over 16 years. He can be contacted at firstname.lastname@example.org or (888) 347-5273. Calif. Insurance Lic. #0C89873.