February 04, 2009
SB 223 - Unlawful Influence of Appraisers
California Business and Professions Code section 11323 provides that no appraiser licensed by the Office of Real Estate Appraisers shall engage in any appraisal activity if the licensee's commission is contingent upon the conclusion generated by the appraisal. Similarly, California Civil Code section 1090.5, subdivision (a), provides that "No person with an interest in a real estate transaction involving an appraisal shall improperly influence or attempt to improperly influence, through coercion, extortion, or bribery, the development, reporting, result, or review of a real estate appraisal sought in connection with a mortgage loan."
To further restrain undue influence upon appraisers, Civil Code section 1090.5, subdivision (c) provides, "If a person who violates this section is licensed under any state licensing law and the violation occurs within the course and scope of the person's duties as a licensee, the violation shall be deemed a violation of that state licensing law."
It is the jointly held intention of the Commissioners of the Department of Real Estate (DRE), the Department of Corporations (DOC), the Department of Financial Institutions (DFI), as well as the Director of the Office of Real Estate Appraisers (OREA), to provide outreach to their respective licensees for the purpose of informing those licensees that the following acts may constitute evidence of a violation of California law, and Civil Code section 1090.5 in particular, and should be avoided when engaging the services of a licensed real estate appraiser. Such informative outreach will be included in bulletins, newsletters, brochures, or other forms of communications issued by DRE, DOC, DFI, and OREA. The acts include:
- withholding or threatening to withhold timely payment or partial payment for a completed appraisal report, regardless of whether a sale or financing transaction closes;
- withholding or threatening to withhold future business from an appraiser, or demoting or terminating or threatening to demote or terminate an appraiser;
- expressly or impliedly promising future business, promotions, or increased compensation for an appraiser;
- conditioning the ordering of an appraisal report or the payment of an appraisal fee or salary or bonus on the opinion, conclusion, or valuation to be reached, or on a preliminary value estimate requested from an appraiser;
- requesting that an appraiser provide an estimated, predetermined, or desired valuation in an appraisal report prior to the completion of the appraisal report, or requesting that an appraiser provide estimated values or comparable sales at any time prior to the appraiser's completion of an appraisal report;
- providing to an appraiser an anticipated, estimated, encouraged, or desired value for a subject property or a proposed or target amount to be loaned to the borrower, except that a copy of the sales contract for purchase transactions may be provided;
- requesting the removal of language related to observed physical, functional or economic obsolescence, or adverse property conditions noted in an appraisal report;
- providing to an appraiser, appraisal company, appraisal management company, or any entity or person related to the appraiser, appraisal company, or appraisal management company, stock or other financial or non-financial benefits;
- allowing the removal of an appraiser from a list of qualified appraisers, or the addition of an appraiser to an exclusionary list of disapproved appraisers, used by any entity, without prior written notice to such appraiser, which notice shall include written evidence of the appraiser's illegal conduct, a violation of the Uniform Standards of Professional Appraisal Practice (USPAP) or state licensing standards, substandard performance, improper or unprofessional behavior or other substantive reason for removal;
- ordering, obtaining, using, or paying for a second or subsequent appraisal or automated valuation model (AVM) in connection with a mortgage financing transaction unless: (i) there is a reasonable basis to believe that the initial appraisal was flawed or tainted and such basis is clearly and appropriately noted in the loan file, or (ii) such appraisal or AVM is done pursuant to written, pre-established bona fide pre- or post-funding appraisal review or quality control process or underwriting guidelines, and so long as the lender adheres to a policy of selecting the most reliable appraisal, rather than the appraisal that states the highest value; or
- any other act or practice that impairs or attempts to impair an appraiser's independence, objectivity, or impartiality or violates law or regulation, including, but not limited to, the Truth in Lending Act (TILA) and Regulation Z, or the USPAP.
While the above list is illustrative of acts that may be evidence of violations of the prohibitions against undue influence contained in Business and Profession Code section 11323 and Civil Code section 1090.5, it is not exhaustive. It is, however, intended to alert licensees of practices that could potentially lead to disciplinary action.
In addition to the above, licensees of DRE, DOC, DFI and OREA will be informed that neither Civil Code section1090.5 nor any other California code section prohibits a person with an interest in a real estate transaction from asking an appraiser to do any of the following: (1) consider additional, appropriate property information, (2) provide further detail, substantiation, or explanation for the appraiser's value conclusion, and/or (3) correct objective factual errors in an appraisal report.
Licensees of DRE, DOC, DFI, or OREA will also be cautioned through this outreach that a violation of Civil Code section 1090.5 is a basis for disciplinary action, which could result in the revocation of their State license(s).