Editor’s Pick: One Appraiser’s Solution to Getting Paid
by Isaac Peck, Associate Editor
Here is one answer to “show me the money.”
The practice of appraisal management companies (AMCs) slow paying appraisers or not paying at all continues to be a problem for the industry- to the tune of millions of dollars in unpaid invoices as a result of recent bankruptcies of three prominent AMCs. As a result, appraisers are looking for ways to protect themselves and their businesses.
One appraiser has a solution that has worked for 20 years: she combines commonsense screening techniques, before taking on a client, along with the imposition of liens against deadbeat payers.
Shelli Jones, an appraiser in Indiana, has been appraising 20 years and says that she has only lost $50 to non-payment issues. “When I bring on an AMC, they sign my agreement which lays out all my terms, including payment items,” says Jones.
Jones says that in the aftershock of the HVCC, she ran into payment issues for the first time when her lender clients began to hire AMCs that failed to pay in a timely manner. In each case, Jones says she fought back with liens on the properties she appraised.
“Like many appraisers, I ran into payment issues with some notable AMCs who were slow to pay, or simply refused to pay for appraisals that I delivered. I would give them 30 days after I delivered the appraisal to pay my invoice and then I would email them notification that a lien would be placed on the homeowner’s property that was appraised,” Jones said. “I also sent notification to the homeowner stating that because their lender hired a company to handle the appraisal on their property and the appraiser fee was not paid, a lien would be placed on their property for the amount of the fee plus any late fees and filing fees. I gave them all 30 days to respond.”
Jones says the threat of a lien wasn’t always enough to get paid, however. “Several times I actually had to file the lien. I sent a certified letter letting them know that a lien was filed with the county courthouse and that it would not be lifted until my fee was paid, plus an extra 10 percent every 30 days for late fees,” says Jones.
In these cases, the person who pays for the appraisal sometimes isn’t even the AMC. “When I would file a property lien, twice the homeowner paid me, and a few times the lender paid me. One time only, did the AMC ever pay me,” Jones says.
According to Jones, one lender that she was working for wasn’t aware of the AMC non-payment issue and promptly demanded that the AMC pay upon receipt of the lien warning. “Apparently, the lender wasn’t from this area and they contacted the company to take care of it. They had no idea this was the kind of company they were dealing with,” Jones says.
Jones says she feels for the homeowners and that the fact that she has to file these liens at all highlights the problems of AMCs who think they can pay appraisers whenever they want. “What’s bad is that the homeowner’s have paid for the appraisal; the lender collects that fee and I think the lender ought to be responsible for who they hire. It’s a major problem. The homeowners are usually livid, since they had to pay all those fees to the lender upfront,” says Jones.
Jones explains that in her state of Indiana, it is very simple for an appraiser to file a lien on a property. “You go to the county courthouse and you file something similar to a mechanic’s lien. They can actually put a lien on your home. So if it is ever sold or refinanced the lien would have to be settled,” Jones says.
Jones’s approach is not an option for all appraisers, as the laws vary by state. “It’s allowed in my state, but it’d have to be something that appraisers check on in their own state. In Indiana, they call them a mechanic’s lien. My appraisal service was performed at the property, so it qualifies,” says Jones.
In her area, Jones sees a pattern of lenders taking the appraisal ordering division back in-house, after AMCs failed to deliver on quality or to pay appraisers in a timely manner. “A lot of lenders don’t even use an AMC anymore. They’ve gone back to having a separate, in-house person do the ordering. I think the more the lender is going to be responsible for their actions, the more we’ll see them going back to managing appraisals in house, but still removed from the influence of loan officers,” says Jones.
Show Her the Money- First
Jones has refined her techniques even further. Her current policy is to refuse to submit the appraisal until payment is received. After her appraisal report is complete, she notifies the AMC or correspondent lender that it is ready to upload as soon as payment is received. In regards to late payment, Jones says she refuses to work on that basis. “I don’t think you have to settle for it. They need an appraiser or they wouldn’t have called you. You can bet your butt that the people at the AMCs probably get paid every week or two. My theory is that I can sit on my butt and it won’t cost me any money, but if I start doing work that I don’t get paid for, then I’m in the hole. No other profession is paid the way we are, we can’t work for free and we need to stand up for ourselves,” says Jones.
Jones admits that working in a rural area, where good, geographically competent appraisers are hard to come by, has strengthened her negotiating position but she insists that even appraisers in competitive markets can’t afford to work for free, nor should they.
Legal Issues: State by State
Richard Hagar, SRA cautions appraisers that property lien law vary by state and can be legally complex, depending on what state the property and appraiser are located in. “In most states, before you have lien rights, that property owner must be notified that the appraiser has the right to lien the property if payment for services is not received. It’s a law to prevent a type of fraud where anybody can go around placing liens on properties. For instance, when you go to borrow money from a home, you agree to a lien being placed on your house,” says Hagar. “In some states, when work is performed on a property, you may have the right to lien the house, without the owner’s advanced permission. However, there are legal notification requirements and lien rights may have to be executed within certain time periods.”
Not only are the legal issues complex, but they can vary widely by state. The fact that mechanic’s liens are most often used with construction projects also complicates the matter. “The question becomes who has that right to file that lien. In Washington, for instance, if you are building a new house you could put a lien on it for the delivery of concrete. With new construction, if I provide an appraisal to get a construction loan then I have rendered services at the property just like a tradesman. But if it’s a 20 year old house do I have that same right?” Hagar says it is not always clear.
Hagar says that his company has actually filed a lien on a property that was appraised but the appraisal never paid for. The result was that his company was paid in full because the property lien prevented the lender from placing their own “primary” lien on the property, which they needed for lending purposes. “The lien my company put on the property really messed up the bank’s ability to place their own lien on the property. Because my company recorded this mechanic’s lien, it had to be paid off, otherwise the bank would be in second position, which is not a position banks want to be in,” says Hagar.
“So appraisers shouldn’t run out and file liens until they understand their state laws or hire a good attorney who has experience with lien rights. This is a nice tool for forcing payment from poorly run lenders and AMCs. But better yet, find a good client (lender or AMC) who actually pays on time and do not allow your receivables to become more than 45 days old,” says Hagar.
About the Author
Isaac Peck is the Associate Editor of Working RE Magazine and Marketing Coordinator at OREP.org, a leading provider of E&O Insurance for appraisers, inspectors, and other real estate professionals in 49 states. He received his Bachelors in Business Management at San Diego State University. He can be contacted at firstname.lastname@example.org or (888) 347-5273. http://www.workingre.com