If you are an appraiser and an unregistered AMC calls with an assignment, what are you required to do under the law? What is the lender's responsibility in vetting the state licensing of their appraisal provider? How will the state regulators keep up with registrations and complaints?
In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act introduced the most significant changes to U.S. financial regulation since the Great Depression. Since then, as required, half of the states have passed AMC registration legislation in some form. As Dodd-Frank failed to present strict guidelines, costs and complexity can vary widely from state to state. For example, the AMC registration fee in Vermont is $125 for a two-year registration while an initial one-year Minnesota registration costs $5,150 and then renews for $2,650. One state has recently proposed that each AMC post a surety bond of $40,000 to register therein. Oregon ORS 674.990 imposes a criminal penalty for unregistered appraisal activity and is a Class A misdemeanor with a potential jail term of up to 1 year and $6,250 in fines. The largest civil penalty imposed by Oregon for unlicensed activity was $250,000. Needless to say, there is not the time or the space to cover each state's requirements here today. It is enough to realize that each state's requirements are complex and diverse enough to make nationwide compliance difficult at best. Texas recently enforced a deadline of July 5th on registration of all AMCs conducting business in the state. Those not registered are no longer allowed to do business in Texas. Looking over the list of registered AMCs, it is apparent that several major players missed the boat.
The overall cost for an AMC to enroll in all jurisdictions remains to be seen but it is estimated to be approximately $400,000. What affect will that have on AMCs? What impact will that have on appraisers? Are the fees intended to be punitive or are they necessary to regulate AMCs? How exactly will the state regulators monitor the activities of AMCs?
Clearbox.com's AREA 56 provides regular updates to each state's new and suggested legislation to help ensure compliance. (In the interest of full disclosure, Clearbox.com is only available to paid subscribers and I do much of the research found there.) For those AMCs and lenders who do not wish to subscribe, the other option would be to hire one or more compliance specialists devoted strictly to tracking state laws. As such, most AMCs are often forced to find their own way with no help in sight. TAVMA (Title/Appraisal Vendor Management Association), the trade organization for the appraisal management industry states on its website:
"TAVMA has neither the financial nor human resources needed to compile and publish comprehensive reports on each state's AMC registration efforts. Therefore, we recommend that our member companies designate someone (or more than one) to track proposed and enacted legislation, and proposed and enacted agency regulations pertaining to AMC registration."
If a national trade organization can't track all of the current and suggested legislation, what hope does the average AMC have to do so?
Currently 30 states have enacted AMC legislation with several others working to do so. 24 of these states currently require AMC registration in order to do business in that state. Yet looking over a compilation of registered AMCs gathered from each state's website, only about 5% have registered in more than 20 states. That's pretty surprising – especially since there are 493 companies which have registered in at least one state. Clearly there are a lot of AMCs who are playing by the rules and are properly registered, but how many aren't?
Furthermore what should appraisers do in response? Appraisers would be best served to not accept orders from an unregistered AMC. The appraiser may go to each individual state appraisal board website or if they are registered in Clearbox they will find the AMC roster on their dashboard. The AMC registration legislation in most states provides for some level of penalties for operating without the proper licensure. The appraiser could be subject to penalties and/or held responsible for doing business with an unlicensed AMC. Some unlicensed AMCs have even gone so far as to given the registration number of another registered AMC to skirt the issue. There are a number of risks involved in doing business with a company that isn't properly registered in your state, one of which is whether or not you will be paid for your effort. The best course of action would be to decline the assignment and only deal with registered AMCs. Some appraisers may decide to notify the state board of the unlicensed activity to protect themselves from future legal action. If an AMC wants to correct their error, they can register and avoid state inquiries into unlicensed activity. But the AMCs that do not register will continue to seek out appraisers who don't ask too many questions or close their doors when the bills come due.
Lenders should also be aware of an AMCs licensure status to ensure their business partners are legally conducting business. With increased scrutiny on every facet of the lending cycle, lenders must remain vigilant of their partners' business practices. If an AMC fails to pay invoices is the lender liable for payment to the appraiser? Although it has not been challenged in court, most believe that the lender is morally and financially on the hook to pay the appraiser.
AMC registration processes are extremely complex. Compliance, even for those with the best of intentions, will be challenging. Be careful out there.
Here is a list of the 24 states with AMC registration requirements and legislation. Alabama, Arizona, Arkansas, California, Connecticut, Florida, Georgia, Indiana, Kentucky, Louisiana, Minnesota, Montana, Nebraska, Nevada, New Mexico, North Carolina, Oklahoma, Oregon, South Dakota, Tennessee, Texas, Utah, Vermont, and Washington. 6 more states Illinois, Maryland, Mississippi, Missouri, Pennsylvania, and Virginia have enacted AMC legislation but have not declared requirements for AMC registration as of this date. There are several more states with legislation pending for AMC regulation as well. For more information check your clearbox SELECT profile or contact your state appraisal board.