Appraisal alternatives: A turf war in Oregon.
Those rolling green hills have become ripe for a turf war ensuing over the use of automated valuation systems by lending institutions and for those systems to be operated by individuals not licensed by the Oregon Appraiser Certification and Licensure Board. Although the use of AVMs by appraisers is widespread throughout the country, the case in Oregon is particularly troubling because recent agency actions have solidified their use and effectively written appraisers out of the process.
Them's Fightin' Words
The battle started in 1997 when the Oregon Real Estate Agency, which oversees the licensing of real estate brokers, salespeople and property managers, in concert with the Appraiser Certification and Licensing Board and the Oregon Association of Realtors were successful in getting legislation passed which better defined what realty agents, called real estate licensees, could do with competitive market analysis and letter opinions. Initially rejected by the ACLB for years, the legislation stated that licensees could express their findings in terms of value.
Around the same time, several lending institutions began to solicit real estate licensees for broker price opinions to establish value for the purposes of funding a loan. In response, real estate licensees sent numerous requests to the OREA inquiring about the legality of performing these BPOs. The OREA sent an opinion request to the Oregon Attorney General's office, which advised that exemptions for competitive market analysis and letter opinions round in the Oregon appraisal licensure statute do not apply to providing BPOs to lenders. Effectively, this meant that licensees performing BPOs for lenders likely were performing unlicensed appraisal activity.
Subsequent to this decision, the OREA received a request from a company called Market Intelligence, a subsidiary of Fidelity National Financial, Inc., about the possibility of allowing real estate licensees to provide them with some information without violating the appraisal statute. Shortly thereafter, the ACLB proposed a $445,000 civil penalty be levied against Market Intelligence for numerous counts of unlicensed appraisal activity. The ACLB cited the appraisal statute, which says that only a party authorized by the ACLB can render "an opinion of value of property." However, the information requested by Market Intelligence did not include arriving at an opinion of value.
Instead of being threatened by the ACLB's action, Market Intelligence filed suit against it, accusing the ACLB of flouting federal law. It argued that state law applies only to full appraisal and that under regulations adopted by the federal banking agencies in 1994 banks do not need full appraisals for transactions less than $250,000, and that "evaluations" will do. The company also cited the competitive market advantage of evaluations which cost substantially less than full appraisals.
That argument apparently worked. At the time Market Intelligence filed its suit, thc ACLB and its managing agency, the Department of Consumer and Business Services were at sharp odds over management issues, a huge backlog of pending disciplinary cases and scrutiny from federal regulators. The dispute became public in late 2000 and the DCBS proposed legislation in early 2001 to dramatically reduce the authority of the ACLB, eliminate its administrator and transfer its authority to another agency.
After learning that neither the DCBS nor the Attorney General would support its position, the ACLB opted to settle the lawsuit with Market Intelligence in early 2001. According to the settlement, the ACLB will allow banks to use the appraisal alternatives, ostensibly AVMs, in accordance with federal law and to use companies like Market Intelligence to provide those appraisal alternatives as long as they are used for a bank's internal purposes.
"Some state appraisal boards have maintained that they, rather than the Federal banking regulators, should determine when sound lending practices mandate full appraisals. We hope that this lawsuit has led to a fuller examination of the issues, the law and the future of technology in the financial industry, that will avert further conflicts in the courts."
-- Market Intelligence, Inc.
Following the settlement, Market Intelligence's general counsel issued a statement that said, in part, "Some state appraisal boards have maintained that they, rather than the Federal banking regulators, should determine when sound lending practices mandate full appraisals. We hope that this lawsuit has led to a fuller examination of the issues, the law and the future of technology in the financial industry, that will avert further conflicts in the courts."
As to the issue between the ACLB and its oversight agency, the DCBS, a realignment did happen in June 2001, but no to the ACLB's detriment, as the DCBS proposal had suggested. At that time, legislation was passed making the ACLB a semi-independent board removing it from the authority and bureaucratic control of the DCBS. This action allows the ACLB to fund its operations directly from licensing and fine income whereas that revenue used to go into the Oregon general fund and was applied for by various constituencies.
Analyzing the Outcome
Meanwhile, in March 2001, the OREA had issued an article in its newsletter attempting to clarify what effect the settlement had on real estate licensees. According to the article, the settlement raised more questions than it answered, so in response to this confusion OREA again sought the advice of the Oregon Attorney General office. In a statement issued in September 2001, the counsel of the Attorney General advised that as a result of the settlement agreement, analysis of an interest in real property can be performed for ownership or collateral purposes by real estate licensees for financial institutions, provided that the analysis is used for internal purposes only and that any loan transaction at issue is valued at less than $250,000.
Therefore a real estate licensee can analyze real estate for purposes of a lending collateral analysis which involves preparing or assisting in the preparation of a real property analysis when the purpose of the analysis is for use by a lending institution in support of a loan application. The licensee can also perform a default collateral analysis when performed for internal use of a lending institution when the institution is a considering its actions with respect to a loan in default.
Round Two: ACLB vs. OREA?
In response to this guidance. OREA recently issued an advisory letter in which it recommends that licensees performing these services require a written statement from the institution requesting the services specifying that the services:
* Do not constitute a real estate appraisal
* Are either for the purposes of a lending or default collateral analysis;
* Are for the internal use of the financial institution; and
* Are for a loan transaction valued at less than $250,000.
The ACLB has objected to the OREA's advisory letter, and has asked the Attorney General's office to reconsider parts of the advice given tot he OREA. Not dismayed by the ACLB's objection, the OREA "treats the advisory letter as sound advice, absent notice to the contrary."
As Director of Government Affairs, Bill Garber is based in the Appraisal Institute's Washington, D.C., office. There, the lobbies on Capitol Hill, tracks appraisal-related initiatives and bills and compiles material for Appraiser News Online and The PLAN, the Appraisal Institute's legislative action e-mail newsletter.
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|Publication:||Valuation Insights & Perspectives|
|Date:||Sep 22, 2001|
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