PROPOSED RULEMAKING
STATE BOARD OF CERTIFIED REAL ESTATE APPRAISERS
[ 49 PA. CODE CH. 36 ]
Appraisal Management Companies
[45 Pa.B. 4385]
[Saturday, August 8, 2015]The State Board of Certified Real Estate Appraisers (Board) proposes the initial general rulemaking implementing the Appraisal Management Company Registration Act (act) (63 P. S. §§ 457.21—457.31). This proposed rulemaking amends Chapter 36 by deleting Subchapter D and replacing it by adding Subchapter E (relating to appraisal management companies) to read as set forth in Annex A.
Effective Date
The proposed rulemaking will be effective upon final-form publication in the Pennsylvania Bulletin.
Statutory Authority
Section 4(a) of the act (63 P. S. § 457.24(a)) authorizes the Board to implement, administer and enforce the act, including the power to adopt rules and regulations consistent with the act. Previously, the Board adopted temporary regulations in Subchapter D, which under section 4(b) of the act were not subject to sections 201—203 of the act of July 31, 1968 (P. L. 769, No. 240) (45 P. S. §§ 1201—1203), known as the Commonwealth Documents Law, or the Regulatory Review Act (71 P. S. §§ 745.1—745.12a). See 43 Pa.B. 3098 (June 8, 2013).
The Board is also authorized by 2 Pa.C.S. § 102 (relating to implementing regulations) to promulgate, amend and repeal reasonable regulations implementing 2 Pa.C.S. (relating to administrative law and procedure). Therefore, as it relates to procedures for processing applications, registering appraisal management companies (AMC), and obtaining security or satisfying claims, the Board also relies upon 2 Pa.C.S. §§ 501—508 and 701—704 (relating to Administrative Agency Law) for authority to promulgate regulations.
The act is the third professional licensing statute under the Board's jurisdiction, following the Real Estate Appraisers Certification Act (REACA) (63 P. S. §§ 457.1—457.19) and the Assessors Certification Act (ACA) (63 P. S. §§ 458.1—458.16). All three statutes relate to the valuation of real property in this Commonwealth. Therefore, the Board has undertaken to promulgate Subchapter E to be consistent with the statutes and regulations regarding the other laws under the Board's jurisdiction.
Background and Need for the Proposed Rulemaking
The temporary regulations pertaining to AMCs in Subchapter D expired on February 1, 2015. Upon expiration of the temporary regulations, there are no regulations implementing the act until an initial general rulemaking is adopted.
Legislative History
On February 2, 2012, Governor Corbett signed the act into law. The act is in response to National trends in the real estate appraisal and lending sectors. These trends had been developing for decades, but have accelerated in the last 5 to 10 years.
The earliest landmark in the emergence of these trends was the enactment of the Federal Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) (Pub. L. No. 101-73, 103 Stat. 183), which was enacted in the aftermath of the savings and loan financial crisis. With the passage of FIRREA, the United States Congress required each state to begin the regulation, oversight and licensure of real estate appraisers by an agency that was separate from agencies that had oversight of real estate sales or lending functions. See section 1118(b)(3) of FIRREA (12 U.S.C.A. § 3347(b)(3)). As the official United States Congressional report noted:
Paragraph (3) of subsection (b) requires the Appraisal Subcommittee to disapprove appraiser certifications or licenses from State agencies whose ''decisions concerning appraisal standards, appraiser qualifications, and supervision of appraiser practices are not made in a manner that carries out the purposes of this title.'' In this regard, it is the Committee's intention that these decisions be made by individuals whose responsibilities do not include the regulation or supervision of nonappraiser activities or conduct. Such independence is necessary to insure against conflicts of interest between the appraisal function and the functions of promoting or financing real estate related financial transactions.(Emphasis added.) H.R. REP. 101-54, 482-483, 1989 U.S.C.C.A.N. 86, 278—279.
Although the Federally-mandated separation of governmental regulatory functions succeeded in separating oversight and discipline of the appraisal profession from the real estate sales and lending industry, some practices within the industry undermined the objective of Federal and state laws. As the Federal Trade Commission wrote:
All parties to the loan transaction have some incentive to obtain an appraisal at the highest possible value. Borrowers want an appraisal valuation high enough that they can obtain a loan to purchase the property at the sales price. Lenders have a strong interest in ensuring that the property is accurately valued to assess whether it provides adequate security in the event of a foreclosure, but they also want the appraisal to meet the sales price amount so that the loan is made. Mortgage brokers have an incentive to obtain a sufficiently high appraisal because they only get paid if the loan is made, and their commissions usually are based on the loan amount.See the letter of the Office of Policy Planning and the Bureau of Economics of the Federal Trade Commission to the Federal Home Loan Mortgage Corporation (Freddie Mac) dated April 30, 2008, commenting on the proposed Home Valuation Code of Conduct. In particular, even after enactment of FIRREA, individuals employed within the real estate sales and mortgage origination functions continued to have a hand in selecting real estate appraisers for transactions and then evaluating the appraisal results, which had the effect of giving lenders and real estate brokers influence over the appraisal function.
In 2008, the New York State Attorney General pursued an investigation and lawsuit into systemic mortgage fraud, particularly by Washington Mutual, First American Corporation and its subsidiary eAppraiseIt, one of the largest real estate AMCs in the United States. The New York Attorney General found that Washington Mutual, First American and eAppraiseIt colluded to inflate the appraisal values of homes. Specifically, New York charged that ''. . . eAppraiseIT improperly allows WaMu's loan production staff to hand-pick appraisers who bring in appraisal values high enough to permit WaMu's loans to close, and improperly permits WaMu to pressure eAppraiseIT appraisers to change appraisal values that are too low to permit loans to close.'' The State of New York vs. First American Corporation and EAppraiseIt, Case No. 406796 of 2007, Complaint, ¶ 8. New York also found that the Federal National Mortgage Association (Fannie Mae) and Freddie Mac bought Washington Mutual securitized mortgages that were based upon fraudulent appraisals. The bundling of failed mortgages purchased by investors had the effect of exposing the entire banking system to the losses resulting from mortgage foreclosures.
At the time of the New York lawsuit, the president of The Appraisal Institute was quoted as follows:
I wish I could say I am shocked by the discoveries made by the Attorney General and his staff. Sadly, what allegedly happened between First American and Washington Mutual is not an isolated incident. Rather, it is symbolic of a problem that has plagued the appraisal industry for years. As the allegations against First American show, the mortgage industry's dirty secret has been that banks exert tremendous pressure to extort appraisers.See the press release of the New York State Office of Attorney General, November 7, 2007, http://www.ag.ny.gov/press-release/new-york-attorney-general-cuomo-sends-letters-notice-and-demand-freddie-mac-and-fannie.
As a result of these legal actions, the New York State Attorney General entered into a settlement agreement with Fannie Mae and Freddie Mac adopting what has been referred to as the Home Valuation Code of Conduct (HVCC). Although the jurisdiction of the New York State Attorney General extended only to the borders of New York, the adoption of the HVCC by the two largest National government sponsored enterprises in the residential mortgage marketplace created a de facto National standard widely adopted in all states and throughout the industry.
Following the adoption of the HVCC, the United States Congress wrestled with the same issues and abuses in adopting legislation in response to the 2008 financial collapse. The United States Congress found that AMCs were subject to little direct oversight, and that there had been instances when individuals who lost their appraisal licenses or certifications opened AMCs to manage the work of other appraisers. See H.R. Rep. No. 94, 111th Cong., 1st Sess. 2009, 2009 WL 1227832, p. 59.
The United States Congress also noted warnings that the growth of AMCs may lead to a decline in appraisal quality because many AMCs take as much as 60% of the fee charged to consumers as their ''management'' cost. Because appraisal fees are disclosed in a single line on closing documents, consumers and regulators do not know how much money is being paid for the appraisal itself, or whether they are paying mostly for appraisal management services. See H.R. Rep. No. 94, 111th Cong., 1st Sess. 2009, 2009 WL 1227832, ps. 59 and 60.
In addition, the National Community Reinvestment Coalition and The Appraisal Institute raised concerns about other methods for home valuation. For example, witnesses before the United States House of Representatives Committee on Financial Services questioned the reliability of and confidence in automated valuation models (AVM) often used to develop estimates of home values. They also raised questions about the quality of home value estimates developed by real estate brokers through broker price opinions (BPO), which are used for collateral purposes, particularly for purchase mortgages. See H.R. Rep. No. 94, 111th Cong., 1st Sess. 2009, 2009 WL 1227832, ps. 59 and 60.
As these events unfolded on the National level, the Pennsylvania General Assembly became one of the pioneers in enactment of legislation to register and oversee AMCs. On March 16, 2010, Representative Richard Stevenson introduced House Bill (HB) 2334, joined by 40 cosponsors from both caucuses. HB 2334 provided for the registration of AMCs and was promptly referred to the House Professional Licensure Committee (HPLC).
On June 16, 2010, the HPLC conducted a hearing on HB 2334. See http://www.legis.state.pa.us/cfdocs/legis/tr/transcripts/2010_0108T.pdf. The HPLC took extensive testimony from seven witnesses: Representative Stevenson, sponsor of HB 2334; Basil L. Merenda, Esq., Commissioner of Professional and Occupational Affairs; Daniel A. Bradley, Chairperson of the Board; Michelle C. Bradley, Chairperson of the Appraisal Management Company Task Force of the Pennsylvania Association of Realtors; Tim O'Brien, Senior Vice President of RELS Valuation, an AMC; and a panel from the Pennsylvania Chapters of The Appraisal Institute, including John Sozansky, Pittsburgh Metropolitan Chapter, and Louise M. Jeffers, Philadelphia Metropolitan Chapter.
Witnesses before the Committee identified several areas of concern. The witnesses referred to the use of coercive practices that impair the appraiser's independence and credibility. Examples of coercive practices cited by witnesses included: nonpayment, delayed payment or threat of withholding payment of appraisal fees; the increasing share of appraisal fees going to AMCs for management of the appraisal services and a diminishing share of fees going to appraisers; the lack of transparency to consumers and lenders of the fees going to AMCs; arbitrary or punitive removal of appraisers who do not produce opinions of value to support the mortgage underwriting requirements; and AMC alteration or revision of appraisal reports.
In addition to coercive practices, witnesses also testified to several instances in which individuals who, because of professional misfeasance, lost their appraisal certification, mortgage broker license or a license to practice another profession, or started an AMC since that industry was not subject to licensure or registration requirements.
The witnesses referenced provisions of HB 2334 that addressed these types of concerns. Furthermore, Commissioner Merenda and Chairperson Bradley recommended amendments to strengthen the consumer protection objectives of the legislation and promote administrative efficiency.
While the General Assembly undertook consideration of HB 2334, the United States Congress continued work on Federal legislation in response to the financial crisis. Almost 5 weeks after the public hearing on HB 2334, the United States Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) (Pub. L. No. 111-203, 124 Stat. 1376). For the text of the enrolled bill, see http://www.cftc.gov/ucm/groups/public/@swaps/documents/file/hr4173_enrolledbill.pdf.
On July 21, 2010, Dodd-Frank was signed into law by President Obama. Dodd-Frank included several provisions relevant to the Board's jurisdiction, including changes to oversight and certification of the profession of certified real estate appraisers, as well as a mandate for state appraiser regulatory boards to register certain AMCs and to enforce Federal standards. The relevant provisions are in Title XIV of Dodd-Frank, known as the Mortgage Reform and Anti-Predatory Lending Act, in particular, Subtitle F (relating to appraisal activities).
On December 2, 2010, the Office of the Comptroller of the Currency, Federal Reserve Board, Federal Deposit Insurance Corporation, Office of Thrift Supervision and National Credit Union Association issued Interagency Appraisal and Evaluation Guidelines (Interagency Guidelines). See 75 FR 77449 (December 10, 2010). The Interagency Guidelines offered a temporary elaboration upon some of the appraisal requirements in Dodd-Frank. These same agencies already promulgated regulations that relate to appraisal and evaluation requirements, minimum appraisal standards, appraiser independence and other subjects. The Interagency Guidelines serve to amplify some of the rules in the regulations. At the time of publication of the Interagency Guidelines, these agencies announced that they would begin drafting permanent regulations to be promulgated at a later date.
Although HB 2334 was not passed by the General Assembly during the 2009-2010 legislative session, on February 2, 2011, Representative Stevenson again introduced HB 398, with more than 40 cosponsors, seeking to regulate AMCs. HB 398 was based upon the prior bill, but also incorporated virtually all of the amendments recommended by the Board. In the House of Representatives, Representative Stevenson explained that ''[a]lthough situations with less than forthright appraisal management companies may be infrequent, State law must not allow these companies to fall through the cracks or go unnoticed. To ensure the integrity of the appraisal process, we must have the tools in place to require accountability and to appropriately respond to unlawful activity.'' See House Journal, May 2, 2011, p. 806.
Highlighting several provisions of HB 398, Representative Stevenson noted that AMCs would be required to register with the Board but, in accord with Federal law, AMCs that were subsidiaries of Federally regulated financial institutions would be exempt from registration. Representative Stevenson also noted that ''[u]nder the bill, all AMCs must have a system in place to ensure that all appraisals on property located in the Commonwealth are performed by certified appraisers in good standing with the board and that the appraisal reviews are conducted by a certified or licensed appraiser.'' See House Journal, May 2, 2011, p. 806.
After HB 398 passed in the House of Representatives, it was referred to the Senate Consumer Protection and Professional Licensure Committee (SCP/PLC), which made several technical amendments and also amended HB 398 to permit an AMC to use a letter of credit as security, rather than a surety bond. As amended, HB 398 was passed unanimously on January 18, 2012, and returned to the House of Representatives which concurred in the amendments on January 23, 2012. See Remarks of Representative Stevenson, House Journal, January 23, 2012, p. 58. Following passage in the General Assembly, HB 398 was signed by Governor Tom Corbett as the act of February 2, 2012 (P. L. 30, No. 4).
Regulatory History
Section 4(b) of the act authorized the Board to promulgate temporary regulations to facilitate the prompt implementation of the act. Section 4 of the act was based upon a similar provision in section 6(h) of the Real Estate Appraisers Certification Act (63 P. S. § 457.6(h)) (repealed). Temporary regulations serve two purposes. First, they greatly reduce the time and expense of promulgating initial regulations. Second, they permit a proving ground to test the procedures and requirements in the temporary regulations as a forerunner to a permanent regulations.
The Board initiated the process of drafting the temporary regulations on December 22, 2011, in anticipation of the passage of HB 398. The temporary regulations were the subject of discussion in public meetings beginning on January 12, 2012. Actual drafting of temporary regulations began at the Board's meeting on February 9, 2012. In addition to the act itself, the Board also considered the requirements of Dodd-Frank and the Interagency Guidelines to make the temporary regulations consistent with the most recent developments and requirements at the Federal level.
Although not required by the act, the Board solicited and received extensive input from a broad cross-section of interested persons, including the Pennsylvania Bankers Association, the Pennsylvania Association of Realtors, the Title Appraisal Vendor Management Association, certified appraisers and representatives of AMCs. The input included a series of drafting sessions at public meetings. On May 10, 2012, the Board issued an exposure draft to stakeholders. Thereafter, the Board conducted a series of online drafting webinars, which were open to members of the public and included active participation by a number of stakeholders, including representatives of the regulated community of firms in the appraisal management services industry.
The Board met in public session to review the comments and suggestions made in its extensive public participation campaign, which involved the active participation of representatives of thousands of individuals involved real estate appraisal, mortgage and appraisal management services industry. Based upon commentary and recommendations of the participants, the Board adopted a temporary general rulemaking, which it submitted for review and approval under Executive Order 1996-1, ''Regulatory Review and Promulgation.'' Following a rigorous and thorough review by the Office of General Counsel, the Governor's Budget Office, the Governor's Policy Office and the Office of Attorney General, the temporary regulations were published at 43 Pa.B. 3098 and became effective June 8, 2013. The Board issued its first AMC registration on August 20, 2013, and by December 31, 2013, had registered 100 AMCs. After 1 year, the Board registered 141 AMCs. Of those registered AMCs, 139 remain active as of the 1-year anniversary date. Despite the influx of applications and the extensive information required by the application process, the typical processing time for issuance of registration was completed within 3 weeks to 6 weeks of the filing of the application. Thus, the criteria and procedures established by the temporary rulemaking proved highly successful and efficient.
During the first year of registration of AMCs, the Board did not encounter significant problems or issues. There is no evidence of confusion or uncertainty among the regulated community. Other affected individuals, such as banks, certified appraisers and consumers, have not submitted a significant number of complaints alleging violations by AMCs, or that the act or the temporary regulations do not adequately protect the public interest. The Board believes that the small number of complaints received, the rapid and timely disposition of those complaints, and the apparent absence of chronic or systemic issues in the first year suggests that the temporary regulations have struck the proper balance of restraint, flexibility and public protection in service to compelling public interests, and yield appropriate benefits that exceed the cost of regulations. These principles should be the touchstone of an agency's regulations. See Executive Order 1996-1.
Upon implementation of the temporary rulemaking, the Board began drafting this permanent initial general rulemaking. Because the experience of the temporary regulations has proven the validity of the choices made by the Board, the temporary regulations served as a starting point for drafting these permanent regulations.
The Board conducted a series of drafting sessions and received additional comment from the original stakeholders and new participants. Following those drafting sessions, on April 9, 2014, the Office of the Comptroller of the Currency, Federal Reserve Board, Federal Deposit Insurance Corporation, National Credit Union Association, Bureau of Consumer Financial Protection and Federal Housing Finance Agency (Federal financial institution regulatory agencies) published a joint notice of proposed rulemaking (JNPR) at 79 FR 19521 (April 9, 2014) to implement the minimum requirements of section 1473 of Dodd-Frank (section 1124 of FIRREA) (12 U.S.C.A. § 3353) to be applied by states in the registration and supervision of AMCs. The comment period on the JNPR closed on June 9, 2014. The JNPR was published as a final-form rulemaking at 80 FR 32658 (June 9, 2015), effective August 10, 2015. The JNPR would also implement the requirements of Dodd-Frank for states to report to the Appraisal Subcommittee of the Federal Financial Institutions Examination Council the information required for the new National registry of AMCs.
Following the close of the JNPR comment period, the Board undertook some revisions of this proposed rulemaking, which have been incorporated Annex A. The revisions took into account the most recent developments and comments on the subject of AMC regulation and appraiser independence. Several of the individuals who commented on the JNPR also commented on the Board's exposure draft and participated in the drafting of the proposed rulemaking. In addition to the overlapping commentators, several topics in the comments to the JNPR echo issues or comments raised before the Board, especially regarding the application and relevance of the Truth in Lending Act (TILA) (15 U.S.C.A. §§ 1601—1667f) to appraiser independence requirements.
Description of the Proposed Rulemaking
General provisions
Definitions
Section 36.401 (relating to definitions) sets forth definitions for terms used in Subchapter E. Several of the terms are standard provisions common to regulations promulgated by administrative agencies. The following terms are defined as in section 2 of the act (63 P. S. § 457.22): ''compliance person,'' ''exempt company'' and ''key person.'' In addition to incorporating statutory definitions, to avoid confusion or doubt, the Board added that ''exempt company'' is synonymous with the term ''Federally regulated AMC'' which is the term used in the JNPR to refer to AMCs that are exempt from registration with state agencies under section 1124(c) of FIRREA.
The definition of ''owner'' as has been derived from section 5(b)(3) of the act (63 P. S. § 457.25(b)(3)), which requires an application to include the name, street address, telephone number and other contact information of a person who owns 10% or more of the applicant. This definition is consistent with the recently proposed joint Federal regulations prohibiting the registration of an AMC if a person who owns more than 10% lacks good moral character or fails to submit to a background investigation.
The Board has defined other terms in its regulations promulgated under REACA in § 36.1 (relating to definitions), including ''AQB,'' ''Bureau,'' ''FIRREA,'' ''Federally-related transaction,'' ''non-Federally related transaction'' and ''real estate-related financial transaction.'' These definitions are included in § 36.401 in the interest of maintaining uniformity across the various individuals and firms under its jurisdiction.
The proposed definitions of ''AMCRA'' and ''Department'' are standard definitions commonly adopted by administrative agencies in the Bureau of Professional and Occupational Affairs. ''CHRIA'' is used in the regulations to refer to 18 Pa.C.S. Chapter 91 (relating to Criminal History Record Information Act). ''NRSRO'' is an acronym used in the regulations of other Commonwealth agencies, for example, 34 Pa. Code § 125.2 (relating to definitions), and is based upon section 15E of the Securities Exchange Act of 1934 (15 U.S.C.A. § 78o-7) for the registration of Nationally-recognized statistical rating organizations.
''The Appraisal Foundation'' is recognized by Federal law as the authority to promulgate standards of appraisal practice (Uniform Standards of Professional Appraisal Practice (USPAP)) under section 1110 of FIRREA (12 U.S.C.A. § 3339) and minimum qualifications for real estate appraisers under section 1116 of FIRREA (12 U.S.C.A. § 3345). ''REARA—Real Estate Appraisal Reform Amendments'' and ''TILA'' are acronyms of Federal statutes that relate to real estate appraising and appraisal management services, among other subjects.
In addition to these familiar or standard terms, the Board proposes to introduce several terms that are new to the Board's jurisdiction. In choosing to add these terms, the Board intends to adopt terms that are necessary for clear understanding of the requirements and prohibitions governing AMCs. In defining these words and phrases, the Board preferred to rely upon definitions that have been well-established by Federal or State statutes, other regulations or by case law.
''AMC National Registry'' was used in the JNPR. Since this is a term employed by Federal agencies and relates to the requirements applicable to registration of AMCs, the Board proposes to use the JNPR definition. The Board also proposes to use the JNPR definition of ''appraiser panel.''
The definition of ''assignment'' is derived from USPAP. See USPAP, Definitions, p. U-1, lines 33-34 (USPAP 2014-2015 Edition).
''AVM—automated valuation model'' is defined in accordance with section 1125(d) of FIRREA (12 U.S.C.A. § 3354(d)). Significantly, the Federal definition of AVM is distinct from the definition of ''appraisal'' in REACA. In section 2 of REACA (63 P. S. § 457.2), an ''appraisal'' is ''a written analysis, opinion or conclusion relating to the nature, quality, value or utility of specified interests in, or aspects of, identified real property. . . .'' By comparison, in section 1125(d) of FIRREA an AVM is a ''computerized model used by mortgage originators and secondary market issuers to determine collateral worth of a mortgage secured by a consumer's principal dwelling.''
The differences between these two definitions are subtle, but significant. First, an appraisal is a written analysis, opinion or conclusion, but an AVM is a computerized model. Computers do not have analyses, opinions or conclusions. A computer holds data and algorithms. The computer's circuits process the data and generate a result determined by the algorithm that has been programmed into the computer. This differs from an appraisal because an appraisal represents the thinking of a human being.
Second, an AVM is used by mortgage originators and secondary market issuers. It is true that an AVM could be used by persons other than mortgage originators and secondary market issuers. However, for purposes of Dodd-Frank and regulation of the appraisal profession and AMCs in this Commonwealth, this definition of ''AVM'' only applies when used by mortgage originators and secondary market issuers. A computerized model when used by other persons is not subject to this definition.
Finally, under this definition, an AVM is used specifically for the purpose of determining collateral worth of a mortgage secured by a consumer's principal dwelling. ''Collateral worth'' is not defined by statute or regulation. ''Consumer'' and ''dwelling'' are not defined by FIRREA, but are defined in section 103 of TILA (15 U.S.C.A. § 1602), along with ''residential mortgage transaction.'' This definition of ''AVM'' makes it clear that the use of this term applies to the mortgage underwriting function performed by financial institutions. It is not a term that defines the scope of practice for certified appraisers or the jurisdiction of State agencies such as the Board to regulate appraisal activities. The importance of this distinction will be discussed in greater detail with respect to proposed §§ 36.431, 36.441 and 36.442 (relating to compliance with USPAP; prohibited acts; and improper influence and other prohibited practices).
''BPO—broker price opinion'' is defined as the term is defined in section 1126(b) of FIRREA (12 U.S.C.A. § 3355(b)). As discussed regarding § 36.434 (relating to broker price opinions and evaluations), Federal law includes a general prohibition against the use of BPOs by financial institutions in conjunction with the purchase ofa consumer's principal dwelling as the primary basis to determine the value of a piece of property. BPO is distinguished from comparative market analysis (CMA). ''Comparative market analysis'' is defined by the Board in this proposed rulemaking consistent with section 201 of the Real Estate Licensing and Registration Act (RELRA) (63 P. S. § 455.201).
The definition of ''conviction'' mirrors the term as used in section 5(b)(7) of the act and section 10(a)(5) of the act (63 P. S. § 457.30(a)(5)) and makes it clear that a disposition other than a conviction is not a disqualifying or disabling condition.
The language used in this definition was extracted from several authorities. Commonwealth v. Hughes, 581 Pa. 274, 865 A.2d 761 (2004) and Commonwealth v. Kimmel, 523 Pa. 107, 111, 565 A.2d 426, 428 (1989) are the source of the initial clause defining conviction as an ascertainment of guilt and judgment thereon. Section 9102 of 18 Pa.C.S. (relating to definitions) defines ''disposition.'' ''Guilty but mentally ill'' is defined in 18 Pa.C.S. § 314 (relating to guilty but mentally ill). Adjudications of delinquency are not to be considered convictions under 42 Pa.C.S. § 6354(a) (relating to effect of adjudication).
''Evaluation'' is defined according to usage of regulations promulgated by the Office of the Comptroller of the Currency, the Federal Reserve Board, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision and the National Credit Union Administration. Each agency has promulgated a set of uniform regulations covering financial institutions under the agency's jurisdiction. See 12 CFR 34.41—34.47, 1 225.61—225.67, 323.1—323.7, 564.1—564.8 and 722.1—722.7.
For purposes of this discussion of regulation of certified real estate appraisers and AMCs, there are several key features of these Federal appraisal regulations. First, as a general rule, an appraisal must be performed by a certified or licensed real estate appraiser for real estate-related financial transactions. Second, there are 12 enumerated exceptions to the general requirement of an appraisal. Third, for 3 of the 12 exceptions an ''evaluation'' is required. Those three exceptions include the appraisal threshold exemption, the business transaction exemption and the subsequent transaction exemption. See 12 CFR 34.43(a)(1), (5) and (7), 225.63(a)(1), (5) and (7), 323.3(a)(1), (5) and (7), 564.3(a)(1), (5) and (7) and 722.3(a)(1) and (5). The National Credit Union Administration does not have a business transaction exemption.
The regulations of the Federal financial institution regulatory agencies do not define ''evaluation.'' However, what Federal regulations and guidelines refer to as an ''evaluation'' falls within the definition of an ''appraisal'' under REACA. As will be discussed in greater detail regarding § 36.434, this conjunction of terminology has been a source of confusion and uncertainty which the Board intends to clarify and resolve through this proposed rulemaking.
The phrase ''in good standing'' was not part of the temporary rulemaking. It is proposed to be added at the request of several stakeholders who asked for clarification and specificity regarding the various statuses of certification and licensure. In particular, stakeholders asked whether a license or certificate subject to probation would be considered to be ''in good standing'' as used in § 36.404(b)(2) (relating to content of application). This definition clarifies that an appraiser on probation is in good standing.
''Appraiser panel,'' ''order,'' ''order solicitation,'' ''panel solicitation,'' ''solicit or solicitation'' and ''supervisor'' are introduced for purposes of Subchapter E to define particular aspects of appraisal management and appraisal practice. These terms have been developed after consultation with stakeholders and deliberation by the Board.
One significant change from the temporary regulations for this set of terms is the replacement of ''panel'' with ''appraiser panel.'' There were two reasons for this change. First, stakeholders requested a revision of the definition for ''panel'' because they believed it needed to be more specific in distinguishing appraisers who are employees of the AMC from those appraisers who are independent contractors. Second, the JNPR uses ''appraiser panel.'' Therefore, for clarity and consistency with Federal terminology, Subchapter E uses the terminology and definition used in Federal regulations.
Prior to the promulgation of the temporary regulations, some stakeholders questioned whether a ''relocation company'' is an AMC as defined by the act. As stated in the preamble to the temporary regulations, the Board is incorporating an explanation into this preamble in response to that inquiry. Because stakeholders no longer express a need for clarification, the Board concludes that the statutory and regulatory definitions sufficiently distinguish relocation services from appraisal management services, and that the Board's decision to provide an explanation in the preamble is a better option for clarifying this point.
A ''relocation company'' is generally defined as one which contracts with other firms to arrange the relocation of employees from one city to another. The service generally handles the sale of the employee's home and purchase of a new home.
Section 2 of the act defines an AMC as ''a person that provides appraisal management services and acts as a third-party intermediary between a person seeking a valuation of real estate located in this Commonwealth and an appraiser or firm of appraisers.'' ''Appraisal management services'' is defined in section 2 of the act to include recruiting appraisers, contracting with appraisers to perform appraisals, negotiating fees with appraisers, receiving appraisal orders and appraisals, submitting appraisals received from appraisers to the client, and providing related administrative and clerical duties.
Although an AMC may also offer relocation services, it is not necessarily true that a relocation company is an AMC. While a relocation company may, in fact, recruit appraisers and order appraisals, in a typical relocation company transaction, the relocation company purchases an employee's home and resells the home. Therefore, in this typical type of relocation transaction, the relocation company may engage the services of an appraiser, but it is seeking an appraisal for its own benefit and not for a third party. The purpose of an appraisal in this scenario is to assist the relocation company in determining how much it will pay for the employee's house and how much it may expect to recover upon resale. Therefore, the ''third-party intermediary'' element of the definition of an AMC is not satisfied.
Procedural rules
Section 36.402 (relating to applicability of general rules) makes clear that individuals and other persons may avail themselves of the applicable remedies and procedures available under 1 Pa. Code Part II (relating to General Rules of Administrative Practice and Procedure).
Applications
Section 36.404 and §§ 36.403 and 36.405 (relating to application procedure; and fees) provide the procedures for registering AMCs. Section 36.403 memorializes current practices for processing applications used by the Board. Upon consideration of comments from stakeholders, the Board made one minor change to subsection (e) from the temporary regulation by enumerating the grounds on which the Board may provisionally deny an application, that is, the application is incomplete, information is believed to be not true and correct, or the applicant is believed to be not qualified for registration for some other reason. This does not reflect a change in Board procedures or policies. It clarifies why an application may be provisionally denied.
Section 36.404 provides for the content of applications, including the information provided in section 5(b) of the act. There is no longer a procedure for expedited review as provided in the temporary regulations because an AMC that has an existing practice in this Commonwealth should already be registered with the Board and therefore there is not a prospect of an interruption of business in this Commonwealth while an application is pending. At the suggestion of several stakeholders, the Board made several clarifying changes to subsection (b). First, the Board specifies certified residential and certified general appraisers in paragraph (1). Second, several stakeholders commented that the Board should be more specific about a client's requests for appraisal reviews to make it clear that an AMC is not obligated to perform uncompensated appraisal reviews at the whim of a client. Since the Board originally intended in its temporary regulations to express both of these points, the Board included changes as suggested by stakeholders.
Section 36.405 provides for the initial registration fee, biennial renewal fee and fees for notice of change of corporate organization, letter of good standing, notification of change of key person or compliance person, and late fee for reinstatement. The fee for biennial renewal of registration is based upon the costs associated with staff who process the renewal of registrations and the anticipated additional costs of administering the act.
Registration
Qualifications of AMCs, owners, key persons and compliance persons
To perform appraisal management services, a company that is not otherwise exempt under the act shall be registered as an AMC. Registration is conditioned upon the company satisfying certain requirements in § 36.411 (relating to qualifications for registration as appraisal management company), including the designation of a compliance person, the establishment of policies that are reasonably designed to prevent conduct or practices that compromise appraiser independence, verify appraiser certification and qualifications, and review appraisal services for USPAP compliance. These requirements are essential standards that shall be met under Dodd-Frank. The Board has not prescribed particular procedures or systems to satisfy these requirements and, therefore, AMCs have latitude to design and implement policies, so long as the policies are reasonably calculated to meet the required Dodd-Frank standards.
In addition, AMCs shall have processes for resolution of consumer complaints and appraiser complaints. The Board intends that resolution of consumer and appraiser complaints does not mean that every complaint must be resolved to the satisfaction of the complainant. However, the process must be reasonable and afford the complainant the opportunity to have the AMC respond to complaints in a prompt fashion.
Section 36.412 (relating to qualifications of owners and key persons) clarifies provisions of section 8 of the act (63 P. S. § 457.28) and section 10 of the act as they apply to owners and key persons. Section 8(d) of the act provides that individuals who are disqualified from being real estate appraisers may not be owners, key persons or compliance persons. The regulations clarify that individuals who have been disqualified from certification as real estate appraisers due to disciplinary violations are disqualified from being owners or key persons of an AMC. The absence of requisite education or experience for real estate appraisers is not grounds for disqualification as an owner or key person of an AMC. In addition, under section 10(a)(3) and (4) of the act, persons are disqualified from being owners or key persons if they have been disciplined by the State Real Estate Commission or by the Department of Banking and Securities.
As a condition of doing business, an AMC shall have a compliance person, that is, a person who has been designated with the responsibility to assure that the AMC adheres to the requirements of the act and the Board's regulations. See section 7(c)(1) of the act (63 P. S. § 457.27(c)(1)). Section 36.413 (relating to qualifications of compliance person) provides for the qualifications of compliance persons. In addition to meeting the requirements for a key person or owner, a compliance person shall also be authorized by the AMC to bind the AMC and submit reports or filings required under the act or applicable Federal consumer protection laws.
Some stakeholders expressed concern regarding § 36.413(b)(1) which would require a compliance person to possess authority to bind the AMC to comply with requirements of, among others, Title XI of FIRREA (12 U.S.C.A. §§ 3331—3355), known as the Real Estate Appraisal Reform Amendments, and TILA. Those stakeholders argue that the Board does not have authority to enforce these Federal statutes. Stakeholders point to section 130 of TILA (15 U.S.C.A. § 1640), specifically subsection (e). Section 130(e) of TILA authorizes state attorneys general to begin actions in Federal or state courts to enforce the provisions of TILA, including sections 129E and 129H (15 U.S.C.A. §§ 1639e and 1639h).
The Board undertook thorough consideration of this group of comments and determined that they are erroneous for several reasons. First, section 130(b) of TILA is not an exclusive remedy for violations of TILA. As noted in In re First Alliance Mortg. Co., 280 B.R. 240, 244 (U.S.D.C., C.D. California 2002), section 130(e) of TILA only expands the scope of potential TILA plaintiffs in a civil action to recover damages. The statutory language does not limit the authority of regulatory agencies to enforce standards of practice within a profession. In fact, section 1473(a)(4) of FIRREA requires that the Board enforce appraisal independence standards in TILA. Specifically, the Federal financial institution regulatory agencies establish minimum requirements to be applied by a state in the registration of AMCs, including a requirement ''. . . that appraisals are conducted independently and free from inappropriate influence and coercion . . . .'' Notably, this requirement, as well as the other threerequirements of section 1473(a) of FIRREA, apply to exempt AMCs. See section 1473(c) of FIRREA. Finally, section 1473(b) of FIRREA provides ''[n]othing in this section shall be construed to prevent States from establishing requirements in addition to any rules promulgated under subsection (a).''
Second, the JNPR makes it abundantly clear that the Board must enforce appraisal independence standards. Under the JNPR, the Board must ''discipline, suspend, terminate or deny renewal of the registration of an AMC that violates applicable appraisal-related laws, regulations, or orders . . . .'' See 12 CFR 34.213(a)(6) (relating to appraisal management company registration). Also, the Board must impose requirements on AMCs that are not exempt to ''establish and comply with processes and controls reasonably designed to ensure that the AMC conducts its appraisal management services in accordance with the requirements of section 129E(a) through (i) of the Truth in Lending Act, 15 U.S.C. 1639e(a) through (i).'' See 12 CFR 34.213(b)(5).
To the extent that stakeholders have contended that § 36.413 suggests that the Board claims jurisdiction over private causes of action under TILA, the Board states that this provision is not intended to make this claim. Furthermore, upon review of this section, the Board concludes that a reasonable interpretation of the language would not permit this interpretation. In the implementation of this section, the Board has never encountered a case or suggestion to the contrary. Accordingly, the Board declines to remove or change this section.
Reporting change of information
Section 36.414 (relating to reporting change of information) requires an AMC to report to the Board a change of information regarding ownership, key persons and other information regarding the business. This provision is consistent with section 7(c)(3) of the act, which requires reporting of a change in the compliance person within 30 days.
Requirements for exempt company
Section 36.415 (relating to requirements for exempt company) was not addressed in the temporary regulations. As previously discussed, exempt companies, or Federally regulated AMCs as they are called in the JNPR, are subject to the Board's enforcement powers for violations of appraisal independence standards and other appraisal-related laws and regulations. Subsection (a) memorializes this principle. In addition, in furtherance of the requirements of the JNPR regarding reporting information for the AMC National Registry, the Board incorporates that requirement by reference in subsection (b).
Renewal of registration
Expiration and renewal
Section 36.421 (relating to expiration of registration) provides for the expiration of AMC registration on the last day of June of each odd-numbered year. This expiration date coincides with the expiration dates for certifications issued by the Board for certified real estate appraisers and certified Pennsylvania evaluators.
Early termination of registration
Section 36.422 (relating to early termination of registration) provides for early termination of registration. An AMC that becomes an exempt company through acquisition by a bank or other financial institution, or that ceases business in this Commonwealth, may not want to continue obligations to report changes in personnel or other obligations under the act or the Board's regulations. Accordingly, this section provides for a procedure by which the AMC may terminate its registration before the expiration date. The information required under this section would assist in the protection of consumers and appraisers by recording information that will permit service of process on the AMC or its principals, and obtain payment for any damages or unpaid fees.
Section 36.423 (relating to duration and validity of registration) specifies that AMCs must register for each biennial period in accordance with section 6(c)(1) of the act (63 P. S. § 457.26(c)(1)). Subsection (b) clarifies that registration is valid throughout this Commonwealth for the entire biennial registration period, and registration is not assignable or transferable. Therefore, an AMC may not sell its registration to another company. A company acquiring a registered AMC will be required to be register, if it is not already registered in this Commonwealth.
Section 36.424 (relating to renewal of registration) is also a new provision. The Board's temporary regulations did not include this provision because it was not necessary at the time. This section specifies that renewal of registration is to be made on an application provided by the Board and include the fee prescribed in § 36.405.
Standards of practice
Sections 36.431—36.437 (relating to standards of practice) cover the standards of practice for appraisal management services under the act. As previously discussed, section 1473 of Dodd-Frank added section 1124 to FIRREA to provide for registration of AMCs. The new section provides that an AMC owned and controlled by a Federally-regulated financial institution is not required to register with states, but is otherwise subject to the enforcement of appraisal management service standards and regulations. Notably, Dodd-Frank provides that states may establish requirements in addition to rules promulgated under Dodd-Frank. See section 1124(b) of FIRREA.
USPAP compliance
Section 36.431 provides that AMCs shall require appraisals to be performed in compliance with USPAP. This provision is necessary because both State and Federal laws include this requirement. Section 5(1) of REACA (63 P. S. § 457.5(1)) directs the Board to adopt standards of professional appraisal practice. In accordance with this mandate, § 36.51 (relating to compliance with USPAP) requires appraisals performed by licensed real estate appraisers to be USPAP compliant. In addition to this State law, Dodd-Frank also requires USPAP compliance for all appraisals. See section 1124(a)(3) of FIRREA.
In furtherance of USPAP compliance, § 36.431(b) and (c) requires AMCs to establish systems for appraisal review to assure USPAP compliance and prohibit AMCs from using valuation services that violate applicable State and Federal laws. Because appraisal management services include, by definition, contracting for appraisal services and related services and duties, it is necessary that those services be provided in accordance with Federal and State law and in furtherance of the consumer protection objectives of Dodd-Frank, FIRREA, REACA and other laws.
Verification of certification; appraisal reviews
Section 36.432 (relating to verification of appraiser certification) is intended to require that AMCs are providing services that comply with Federal and State law. Asthe appointed intermediary for a lender, it is the function of the AMC to assure that the appraiser who performs the appraisal is competent and qualified for each particular assignment.
Appraisal reviews are a specific type of appraisal that is also covered by USPAP under Standard 3. Therefore, § 36.433 (relating to appraisal reviews) includes a requirement that appraisal reviews be performed in compliance with USPAP and reiterates the proviso of the act and Dodd-Frank that examination or review of an appraisal report for grammatical or typographical errors, or for completeness, is not an appraisal review for which USPAP compliance is required.
BPOs and evaluations
Section 36.434 pertains to the standards required for the use of BPOs. A BPO is a type of valuation service and has been defined by Dodd-Frank. The definition is in section 1126(b) of FIRREA. The Dodd-Frank definition is included in § 36.401 and is defined as an estimate prepared by a real estate broker, agent or sales person that details the probable selling price of a particular piece of real estate property and provides a varying level of detail about the property's condition, market and neighborhood, and information on comparable sales, but does not include an AVM, as defined in section 1125(c) of FIRREA. Significantly, Dodd-Frank prohibits the use of BPOs as the primary basis to determine the value of a piece of property for the purpose of a loan origination of a residential mortgage loan secured by the piece of property. See section 1126(a) of FIRREA. While this Federal prohibition is limited, it does not preclude states from adopting a higher standard.
BPOs are a type of valuation service that would be rendered by individuals licensed by the State Real Estate Commission. However, BPOs are not recognized by RELRA, and are not within the permissible scope of practice authorized by RELRA. Instead, RELRA authorizes a similar, but distinct, type of service which is termed CMA. A CMA is defined in section 201 of RELRA as:
A written analysis, opinion or conclusion by a contracted buyer's agent, transactional licensee, or an actual or potential seller's agent relating to the probable sale price of a specified piece of real estate in an identified real estate market at a specified time, offered either for the purpose of determining the asking/offering price for the property by a specific actual or potential consumer or for the purpose of securing a listing agreement with a seller.(Emphasis added.) The significant distinction between a BPO and a CMA is that a CMA may only be performed to determine an offering price by an actual or potential buyer, or to secure a listing with a seller.
Given this limitation on CMAs in this Commonwealth, an AMC may not lawfully order or use a BPO as a valuation service. Therefore, subsection (a) clarifies that an AMC may not use a BPO as an evaluation in a non-Federally related transaction.
As a result of the unreported judicial opinion in Fidelity National Information Solutions, Inc. (FNIS) v. Sinclair, 2004 WL 764834 (U.S.D.C. M.D. Pa. 2004), there has been some confusion regarding the legality of BPOs and other types of valuation services in Federally-related transactions in this Commonwealth. In FNIS, the District Court held that REACA is pre-empted by section 1112(b) of FIRREA (12 U.S.C.A. § 3341(b)), which authorizes Federal financial institution regulatory agencies to exempt some Federally-related transactions from the requirement that a financial institution obtain an appraisal.
The analysis of the District Court in FNIS, if not unique, was exceptional in that the District Court acknowledged that FIRREA did not occupy the field being regulated and thereby pre-empt all state regulation of the subject matter—real estate appraisals. The court determined that even though REACA's standards exceeded the minimum standards established by FIRREA, that the higher standards conflicted with FIRREA and therefore were pre-empted. The Board does not know of other cases in which a state law establishing a higher standard than Federal law was deemed to conflict with the National standard and therefore be pre-empted.
Still, section 1126(a) of FIRREA makes it clear that even in Federally-related transactions, a financial institution may not use a BPO as the primary basis to determine the value of a piece of property for the purpose of a loan origination of a residential loan secured by a piece of property. This language, however, implies that under Federal law a financial institution may use a BPO other than as a primary basis to determine the value of a piece of property or for a purpose other than loan origination of a residential mortgage loan secured by a piece of property.
Whatever may be permitted by Federal law as a standard for mortgage underwriting purposes, REACA's broad definition of an appraisal and the concomitant scope of practice of real estate appraising in this Commonwealth would include BPOs, as well as evaluations as used, but not defined, by Federal statute. See section 1112(c) of FIRREA. ''Evaluation'' is defined in the Interagency Guidelines as ''a valuation permitted by the Agencies' appraisal regulations for transactions that qualify for the appraisal threshold exemption, business loan exemption or subsequent transaction exemption.'' See Interagency Guidelines, Glossary, p. 41.
The Interagency Guidelines also specify the content of an evaluation. See Interagency Guidelines, page 13. This information must include the property's location, description, zoning, market, neighborhood and physical condition, as well as an account of the analytical methods used, supporting data and the work performed to complete the evaluation. Given those requirements, an evaluation would constitute an appraisal under REACA. Therefore, if REACA applies to a particular valuation assignment, clearly that function may only be performed by a certified real estate appraiser.
At the time it promulgated the temporary regulations, the Board operated on the understanding that the decision in FNIS remained a valid precedent. Several stakeholders have contended that Federal law continues to pre-empt REACA's requirement that appraisals be performed by a certified real estate appraiser in Federally-related transactions. However, since adoption of the temporary regulations, the Board scrutinized the voluminous provisions of Dodd-Frank, as well as the rules promulgated by Federal financial institution regulatory agencies.
The Board's detailed review of the applicable statutes and regulations led the Board to examine the statutory authority supporting the regulatory requirements for evaluations. See, for example, 12 CFR 34.43 (relating to appraisals required; transactions requiring a State certified or licensed appraiser). Among the provisions cited as authority for 12 CFR 34.43 were section 5136C of the Consumer Financial Protection Act of 2010 (12 U.S.C.A. § 25b) and section 6 of the Consumer Financial Protection Act of 2010 (12 U.S.C.A. § 1465). These provisions were added by Dodd-Frank and specifically relate to state law pre-emption standards for National banks and subsidiaries, and state law pre-emption standards for Federal savings associations, respectively.
The pre-emption standard expressed by Dodd-Frank is that a ''State consumer financial law'' is pre-empted only if the application of the state law would have a discriminatory effect on National banks in comparison with the effect of the law on a bank chartered by that state, if the state law prevents or significantly interferes with the exercise by the National bank of its powers or if the state law is pre-empted by a Federal law other than title 62 of the Revised Statutes.
According to section 5136C of the Consumer Financial Protection Act of 2010, a state consumer financial law is one which ''. . . does not directly or indirectly discriminate against national banks and that directly and specifically regulates the manner, content, or terms and conditions of any financial transaction . . . with respect to a consumer.'' In light of this definition, REACA, which was enacted explicitly for the purpose of carrying out the Commonwealth's obligations under FIRREA, regulates the manner, content, and terms and conditions of consumer financial transactions by defining ''appraisal'' to include a broad range of valuation services and requiring that appraisals be performed by a duly trained and qualified certified real estate appraiser.
Furthermore, because REACA applies equally to both Federally-regulated financial institutions as well as financial institutions that are not Federally-regulated, REACA does not have discriminatory effect on National banks or Federal savings associations. REACA also does nothing to interfere with or prevent National banks or other Federal financial institutions from exercising its powers, nor is REACA pre-empted by other provisions of Federal law. Therefore, under the pre-emption standard adopted by Dodd-Frank in 2010, the holding in FNIS has been abrogated and REACA may no longer be considered pre-empted by FIRREA. Based upon the foregoing analysis, the Board proposes § 36.434 with a clear statement that an AMC may not order or solicit BPOs or evaluations.
Recordkeeping
Section 36.435 (relating to recordkeeping) contains minimum recordkeeping requirements. This section is specifically authorized by section 7(b)(1)(ii) of the act. The recordkeeping requirements represent what is necessary for an AMC to fulfill its duties under the act and Dodd-Frank to review and verify the work of appraisers for compliance with USPAP and to assure appraisal independence.
Subsection (a)(1) sets forth the information that is to be in records regarding each assignment that is ordered. Subsection (a)(2) provides for recordkeeping relating to fee schedules. At the recommendation of stakeholders, the Board clarified the reference to TILA to specify the provisions that relate to appraisal standards or appraisal management services. Subsection (a)(3) provides for the recordkeeping relating to rosters or panels of appraisers. Also, at the suggestion of stakeholders, the Board clarified that the date on which an appraiser is removed from an appraiser panel is only required if the appraiser has, in fact, been removed.
Subsection (b) establishes a 5-year period for record retention beginning from the date of final action of the assignment or from the final disposition of a court proceeding, whichever is later. This provision is authorized by section 7(b)(2)(iii) of the act. In furtherance of the act's provision that the Board may inspect required records at any time, this section states that records be produced for inspection and copying within 30 days of a request.
Finally, subsection (c) is proposed to provide a specific time frame for the duty to open records for inspection as set forth in section 7(b)(3) of the act.
Solicitation or order of appraisals
Section 36.436 (relating to requirements for solicitation or order of appraisals) establishes minimum standards that an AMC shall meet when it solicits or orders appraisals. The purpose of this section is to ensure reasonable clarity of the terms and conditions of the appraiser's rights and duties for the assignment. These provisions are required to implement the provisions of Dodd-Frank regarding appraisal independence that prohibit withholding payments of fees, prohibit untimely payment of fees and require that appraisal fees be customary and reasonable under section 129E(b)(4) of TILA. An AMC may satisfy this requirement either by providing the required information with each assignment or in a written agreement when an AMC and an appraiser begin an ongoing relationship.
Duties of compliance person
Section 36.437 (relating to duties of compliance persons) defines and clarifies the responsibility of the compliance person, which is a position required under section 7(c) of the act. This section establishes that an AMC is responsible for the acts and omissions of its compliance person, provides for the general duty of a compliance person to comply with section 8 of the act, pertaining to prohibited activities, and, more specifically, requires a compliance person to report known or suspected violations of TILA, the act or the Board's regulations that relate to appraisal independence.
Disciplinary action
Section 36.441 provides that the Board may impose sanctions authorized by the act for violations of the act or this subchapter, violations of FIRREA or TILA, or a violation of AMC laws of another jurisdiction.
Section 36.442 provides greater detail and specificity regarding practices that violate appraiser independence. This section classifies improper influence or other prohibited practices into those that require proof of intent versus those practices that require no evidence of intent because they inherently compromise appraiser independence or are inherently coercive.
Subsection (a) lists practices that inherently compromise appraiser independence or are inherently coercive, or both. Subsection (b) lists practices that could be considered improper influence or coercive and which may compromise appraiser independence if those acts are committed with the intent of harassing, retaliating or influencing an appraiser's professional judgment.
Surety bonds and letters of credit
Section 6(b) of the act requires an AMC to post a surety bond or letter of credit in an amount no less than $20,000. The security, whether a surety bond or letter of credit, is to accrue or be made payable to the Commonwealth for the benefit of a person suffering damages for a failure of the AMC to perform obligations under the act or an appraiser who has performed an appraisal and has not been paid.
Section 36.451 (relating to requirements for surety bond or letter of credit) contains the standards for the security that have been previously adopted by other state agencies to assure that the financial institution or bond company is credit worthy. Subsection (d) includes definitions of ''claimant'' and ''faithful performance of the registrant's obligations under AMCRA.''
The definition of ''claimant'' clarifies that this may include the Commonwealth or a person who has a right to receive compensation under the act. Persons include consumers who have paid for an appraisal, a financial institution that has paid for appraisal management services or an appraiser who has performed an appraisal but who has not been paid. The definition of ''faithful performance of the registrant's obligations under AMCRA'' clarifies that the posted security may be used for payment of a civil penalty, restitution or costs of investigation under the act, or similar amounts levied under the act of July 2, 1993 (P. L. 345, No. 48) (63 P. S. §§ 2201—2207). The security may be used to pay for the performance of a contractual obligation or satisfaction of a duty owed for conduct subject to the act.
Upon consideration, the Board determined at the time of adoption of the temporary regulations that the minimum amount of a surety bond or letter of credit should be $40,000, as stated in § 36.452 (relating to amount of surety bond or letter of credit), to ensure that security is sufficient to cover anticipated losses to consumers or appraisers and to ensure that civil penalties levied by the Board, which may be up to $10,000 per violation, will also be paid. Although this amount is greater than the statutory minimum, particularly in light of the relatively modest cost of a surety bond (typically approximately 2% of the secured amount) the difference between $20,000 and $40,000 is minimal compared to the benefit of ensuring that affected individuals can be made whole.
Some stakeholders questioned the necessity of raising the amount of security. Based upon the points that were made, the Board undertook further investigation of this issue. The Board concluded that there is ample evidence to support the Board's decision. In fact, a larger amount of security may be warranted, but the Board will reserve that judgment for the future. Specifically, the Board reviewed records filed in bankruptcy proceedings for ES Appraisal Services LLC, Case Number 3:13-bk-00447, U. S. District Court for the Middle District of Florida. In that bankruptcy proceeding, the debtor, ES Appraisal Services, which was an AMC, filed a list of creditors that included 88 individuals who are certified real estate appraisers in this Commonwealth and owed a total of $252,855 in unpaid appraisal fees. The median debt owed to Commonwealth appraisers was $1,388 and one appraisal firm was owed more than $30,000. The total amount of unpaid appraisal fees owed to appraisers across the United States exceeded $1.6 million.
Although ES Appraisal is an exceptional case, the Board is cognizant of the fact that a typical AMC is offering services in multiple states and engaging dozens, if not hundreds, of real estate appraisers. Therefore, a default by an AMC is likely to affect many individuals whose total amount of loss would exceed $20,000. Accordingly, balancing the additional cost of a higher amount of security against the need to protect the public, the Board reaffirms its decision to require $40,000 in security.
The Board relied upon provisions adopted by other agencies in defining the contents of the form of a surety bond or letter of credit in §§ 36.453 and 36.454 (relating to form of surety bond; and form of letter of credit). In addition, § 36.455 (relating to maintenance of surety bond or letter of credit) requires that a registrant maintain the amount of a surety bond or letter of credit in the event that a claim is made. Finally, the Board has provided for a procedure for making claims against a surety or obligor on a letter of credit in § 36.456 (relating to claims against surety or obligor). The procedures adopted by the Board allow for the Department, through the Prosecution Division of the Bureau of Professional and Occupational Affairs, to make claims on behalf of consumers or unpaid appraisers, prior to a final adjudication of a violation of the act or the Board's regulations.
Fiscal Impact and Paperwork Requirements
The proposed rulemaking should not have adverse fiscal impact on the Commonwealth or its political subdivisions. In general, the proposed rulemaking provides fees that would offset negative fiscal impact upon the Commonwealth. The regulated community will incur costs associated with registration, including application fees and costs of posting a surety bond or letter of credit. Registered AMCs will also incur costs regarding recordkeeping. The paperwork and application fees are a consequence of compliance with Federal mandates.
Sunset Date
The Board continuously monitors the cost effectiveness of its regulations. Therefore, a sunset date has not been assigned.
Regulatory Review
Under section 5(a) of the Regulatory Review Act (71 P. S. § 745.5(a)), on July 28, 2015, the Board submitted a copy of this proposed rulemaking and a copy of a Regulatory Analysis Form to the Independent Regulatory Review Commission (IRRC) and the Chairpersons of the HPLC and the SCP/PLC. A copy of this material is available to the public upon request.
Under section 5(g) of the Regulatory Review Act, IRRC may convey comments, recommendations or objections to the proposed rulemaking within 30 days of the close of the public comment period. The comments, recommendations or objections must specify the regulatory review criteria which have not been met. The Regulatory Review Act specifies detailed procedures for review, prior to final publication of the rulemaking, by the Board, the General Assembly and the Governor of comments, recommendations or objections raised.
Public Comment
Interested persons are invited to submit written comments, suggestions or objections regarding this proposed rulemaking to Jacqueline A. Wolfgang, Counsel, State Board of Certified Real Estate Appraisers, P. O. Box 69523, Harrisburg, PA 17106-9523, ra-stregulatorycounsel@pa.gov within 30 days following publication in the Pennsylvania Bulletin. Reference Regulation No. 16A-7021—Permanent General Rulemaking on comments.
D. THOMAS SMITH,
ChairpersonFiscal Note: 16A-7021. No fiscal impact; (8) recommends adoption.
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