OLR Bill Analysis

sSB 13

AN ACT CONCERNING REAL ESTATE APPRAISAL MANAGEMENT COMPANIES.

SUMMARY:

This bill requires appraisal management companies to register with the Department of Consumer Protection (DCP) before doing business in Connecticut and pay a $ 1,000 application fee. It sets out requirements for such companies and authorizes the DCP commissioner to adopt implementing regulations. It also authorizes the commissioner to investigate the companies and impose penalties for violations.

EFFECTIVE DATE: October 1, 2010

1 — APPRAISAL MANAGEMENT COMPANY

The bill defines an “appraisal management company” as any person, partnership, association, limited liability company, or corporation that performs appraisal management services. It excludes:

1. an appraiser who enters into a written or oral agreement with another appraiser to conduct an appraisal, which must be signed by both appraisers upon completion;

2. an appraisal management company that is wholly owned by a state or federally regulated financial institution (e. g. , bank) or a department of such a bank that only receives appraisal requests from an employee of the bank; or

3. any local, state, or federal agency or department.

“Appraisal management services” means:

1. administering an appraiser panel;

2. recruiting certified or licensed appraisers to be part of an appraiser panel, including negotiating fees to be paid to, and services to be provided by, such appraisers; or

3. receiving an appraisal request or order and delivering it to an appraiser panel.

An “appraiser panel” is a network of certified or licensed appraisers who are independent contractors of an appraisal management company and who have:

1. responded to an invitation, request, or solicitation from an appraisal management company to perform appraisals (a) requested or ordered through the company or (b) directly for the company on a periodic basis as assigned by the company and

2. been selected and approved by the company.

2 & 4 — REGISTRATION PROCESS

The bill requires an appraisal management company to register with DCP before doing business in Connecticut, including:

1. engaging or attempting to engage in business,

2. performing or attempting to perform appraisal management services, or

3. advertising or holding itself out as engaging in business.

Under the bill, an appraisal management company applying for a certificate of registration cannot:

1. be more than 10% owned by a person who has had an appraiser license or certificate denied, refused to be renewed, suspended, or revoked in any state;

2. be owned by any partnership, association, limited liability company, or corporation that is more than 10% owned by a person who has had an appraiser license or certificate denied, refused to be renewed, suspended, or revoked in any state;

3. employ any person to order, prepare, perform, or review appraisals who has had an appraiser license or certificate denied, refused to be renewed, suspended, or revoked; or

4. enter into any contract, agreement, or other business arrangement, written or oral, to procure appraisal services in Connecticut, with (a) any person who has had an appraiser license or certificate denied, refused to be renewed, suspended, or revoked, or (B) any partnership, association, limited liability company, or corporation that employs or has entered into any contract, agreement, or other business arrangement, whether oral, written, or any other form, with any person who has had an appraiser license or certificate denied, refused to be renewed, suspended, or revoked.

The registration application must be in writing on a form the commissioner prescribes, be accompanied by a $ 1,000 fee, and include:

1. the company's name, business address, and telephone number;

2. for out-of-state companies, the name, address, and telephone number of the company's agent for service of process in Connecticut and a completed Uniform Consent to Service of Process form;

3. the name, address, and telephone number of (a) any person or business entity owning 10% or more of an equity interest, or the equivalent, of the company, (b) the company's controlling person who will serve as the main contact for communications between the commissioner and the company, and (c) the company's compliance manager;

4. a certification that no 10% owner has had an appraiser license or certificate denied, refused to be renewed, suspended, or revoked in any state; and

5. any other information the commissioner may require.

Before issuing or renewing a certificate of registration, the bill authorizes the commissioner to:

1. certify that the company has procedures in place to (a) verify that a person being added to the company's appraiser panel holds a license in good standing, (b) maintain detailed records of each appraisal request or order it receives and of the appraiser who performs each appraisal, and (c) review periodically the work of all appraisers to ensure that appraisals are being conducted in accordance with the Appraisal Foundation's Uniform Standards of Professional Appraisal Practice (USPAP);

2. determine to the commissioner's satisfaction that each 10% owner is of good moral character and has submitted to a background investigation, as deemed necessary by the commissioner; and

3. determine to the commissioner's satisfaction that the controlling person (a) has never had an appraiser license or certificate denied, refused to be renewed, suspended, or revoked in any state, (b) is of good moral character, and (c) has submitted to a background investigation, as deemed necessary by the commissioner.

Certificates of Registration

The commissioner may issue registration certificates that are valid for two years. The registration can be renewed by paying a $ 1,000 fee. The bill requires the commissioner to (1) issue a registration number to each appraisal management company registered in Connecticut and (2) publish annually a list of those registered.

3 & 4 — COMPANY REQUIREMENTS

Annual Certification

The bill requires each appraisal management company to certify annually to the commissioner that it maintains a detailed record of each appraisal request or order it receives and of the appraiser who performs each appraisal.

Audits

The bill allows each appraisal management company to audit appraisals performed by its appraiser panel to ensure that they are performed in accordance with the USPAP.

Compensation Disclosure

The bill requires each appraisal management company to disclose to a client before providing, or along with, the appraisal report the (1) appraiser's total compensation for performing the appraisal and (2) total amount to be retained by the company.

An appraisal management company cannot prohibit or attempt to prohibit an appraiser from including or referencing in an appraisal report the appraisal fee, the name of the appraisal management company, or the client or lender's name or identity.

Employees or Contractors

The bill requires any employee of an appraisal management company or any contractor working on behalf of the company who has any involvement performing appraisals in Connecticut or reviewing and analyzing completed appraisals to be licensed or certified and in good standing. This does not prohibit an unlicensed or uncertified person from:

1. examining an appraisal or an appraisal report for grammatical, typographical, or clerical errors and

2. doing work that does not involve formulating opinions or comments about (a) the appraiser's data collection, analyses, opinions, conclusions, or valuation or (b) the appraisal's compliance with the USPAP.

Paying Appraisers

Except in cases of breach of contract or substandard performance of services or where the parties have mutually agreed upon an alternate payment schedule in writing, each appraisal management company operating in Connecticut must pay an appraiser for completing an appraisal or valuation assignment within 60 days after the date the appraiser transmits or otherwise provides the completed appraisal or valuation study to the appraisal management company or its assignee.

No Intentional Influence to Misrepresent a Property's Value

The bill prohibits an appraisal management company's employee, owner, controlling person, director, officer, or agent from intentionally influencing, coercing, or encouraging or attempting to influence, coerce, or encourage, an appraiser to misstate or misrepresent a property's value by any means, including:

1. withholding or threatening to withhold timely payment for an appraisal;

2. withholding or threatening to withhold business from, or demoting, terminating, or threatening to demote or terminate, an appraiser;

3. expressly or impliedly promising future business, promotion, or increased compensation to an appraiser;

4. conditioning an appraisal request or payment of a fee, salary, or bonus on the appraiser's opinion, preliminary estimate, conclusion, or valuation;

5. requesting that an appraiser provide a predetermined or desired valuation in an appraisal report or estimated values or comparable sales at any time before completing an appraisal;

6. providing an appraiser an anticipated, estimated, encouraged, or desired value for a property or a proposed or target amount to be loaned to the borrower, except that a copy of the contract to purchase may be provided;

7. providing or offering to provide an appraiser or any person or entity related to the appraiser stock or other financial or nonfinancial benefits;

8. removing an appraiser from an appraiser panel without prior written notice as set forth in the bill;

9. obtaining, using, or paying for a subsequent appraisal or ordering an automated valuation model in connection with a mortgage financing transaction, unless (a) there is a reasonable basis to believe that the initial appraisal was flawed or tainted and the basis is clearly noted in the transaction file or (b) such subsequent appraisal or automated valuation model is performed pursuant to a bona fide pre- or post-funding appraisal review, loan underwriting, or quality control process; or

10. using any other act or practice that impairs or attempts to impair an appraiser's independence, objectivity, or impartiality.

The bill specifies that it does not prohibit an appraisal management company from requesting an appraiser to provide additional information about the basis for a valuation or correct objective factual errors in an appraisal report.

5 — REMOVING APPRAISER FROM APPRAISAL PANEL

The bill prohibits an appraisal management company from removing an appraiser from its appraisal panel, or refusing to assign him or her appraisals, after 30 days from when the appraiser is initially added to the panel without:

1. notifying the appraiser in writing of (a) the reasons for the removal and (b) any alleged illegal conduct, USPAP violation, or violation of state licensing standards and

2. providing the appraiser with an opportunity to respond to such notice.

Complaint Process

An appraiser removed from an appraiser panel for alleged illegal conduct, USPAP violation, or violation of state licensing standards may file a complaint with the DCP commissioner and request a review of the removal decision.

The commissioner must notify the company within 10 days after any complaint is filed and render a decision within 180 days thereafter. He may hold a hearing before making his decision. If he determines that the appraiser did not engage in illegal conduct, violate the USPAP, or violate state licensing standards, he must order the appraiser to be reinstated.

The company cannot (1) refuse to assign requests or orders for appraisals or reduce the number of assignments to the reinstated appraiser or (2) penalize him or her.

6 — DCP INVESTIGATIONS AND PENALTIES

The bill authorizes the DCP commissioner to investigate an appraisal management company upon the verified written complaint of any person alleging a violation of the bill. If the commissioner determines that a company made any materially false, fictitious, or fraudulent statement or violated the bill, he may, after giving notice and an opportunity for hearing, (1) deny, refuse to renew, suspend, or revoke a certificate of registration and (2) impose a civil penalty of up to $ 25,000.

Any hearing held must conform to the Uniform Administrative Procedures Act (UAPA). Aggrieved individuals may appeal to Superior Court.

BACKGROUND

Legislative History

The Senate referred the bill (File 287) to the Judiciary Committee, which reported out a substitute bill. The substitute requires the DCP commissioner to hold hearings as permitted under 6 of the bill in accordance with the UAPA and affords aggrieved individuals a right to appeal to Superior Court.

COMMITTEE ACTION

Insurance and Real Estate Committee

Joint Favorable Substitute

Yea

19

Nay

0

(03/18/2010)

Judiciary Committee

Joint Favorable Substitute

Yea

39

Nay

0

(04/20/2010)