AMC Indemnification: Bill Introduced to Limit Use in Florida

Over the past six months, Appraiser Active has posted several times about the use of indemnification clauses in Appraisal Management Company agreements with their panel appraisers. NAR has called for a ban on such agreements, particularly those that indemnify and hold harmless the AMC against any suit, threat, or claim on any work product or service provided as part of the contract agreement.

The 2012 Florida Senate and House have stepped up to the plate with the introduction of SB 1252 and H 887. The bills are virtually identical. Both include this language: (proposed amended/added text is underlined)

475.6245 Discipline of appraisal management companies.—


(1) The board may deny an application for registration of an appraisal management company; may investigate the actions of any appraisal management company registered under this part; may  reprimand or impose an administrative fine not to exceed $5,000 for each count or separate offense against any such appraisal management company; and may revoke or suspend, for a period not to exceed 10 years, the registration of any such appraisal management company, or place any such appraisal management company on probation, if the board finds that the appraisal management company or any person listed in s. 475.6235(2)(f):


(v) Has required or attempted to require an appraiser to sign any indemnification agreement that would require the appraiser to hold harmless the appraisal management company or its owners, agents, employees, or independent contractors from any liability, damage, loss, or claim arising from the services performed by the appraisal management company or its owners, agents, employees, or independent contractors and not the services performed by the appraiser.

It's a start. Next on the list of things to do is propose some amendments to pare the size of the FREAB back down to 7 members, and limit the guaranteed AMC representation down to 1 member.

In the meantime, let Senator Dennis Jones and Representative Clay Ingram know you of your appreciation and support.

Happy New Year. Stay tuned.

Valuation Support Services (VSS) - Appraiser Panel Agreement

As long as we're talking about AMC Appraiser Indemnification, here is a copy of the Valuation Support Services (VSS) Standards & Approval Documentation Requirements and their Appraiser Panel Agreement. This gem has some interesting twists and language. The full copy is available after the jump, but here are a couple of clauses I find interesting:

Page 4:

The intent of this Agreement between Valuation Support Services (VSS) and Appraiser is to outline the roles, responsibilities, commitments and escalations of the parties.

Conviction of Crimes: VSS is unable to enter into associations with individuals, who have been convicted of or plead guilty to any crime involving dishonesty or breach of trust, or have been convicted of or plead guilty to any felony or misdemeanor. Appraiser warrants he/she has truthfully and accurately answered the "Additional Information" questions on the VSS Appraiser Application, has provided full disclosure through letter(s) of explanation for all questions answered affirmatively. Appraiser acknowledges and agrees he/she will be directly involved in providing services in accordance with this Agreement and has met this standard.

Fees: VSS Reserves the right to charge fees for appraisal panel services rendered to Appraiser, such as systems access, technology and website applications utilized by Appraiser, and/or allocate the cost of state or federal appraiser/panel registration and similar fees. Advance notice, as practical, shall be provided to Appraiser along with a description of the fees to be charged. Appraiser agrees to pay VSS promptly per the payment terms specified in the notice provided. (Red Added for Emphasis) (It's RED in their agreement)

Page 6:

3. Appraiser will not accept orders directly from VSS' clients. Appraiser agrees that all orders must be received from Valuation Support Services (VSS) electronically.

4. VSS clients Appraiser may service include, but are not limited to: CoreLogic Appraisal Services, Prime Valuation Services, and RelsValuation.

Page 7:

17. Revisions to Sales Contracts: Appraiser acknowledges that in connection with his/her appraisals, he/she may receive revised sales contracts that change the purchase price due to alterations of the improvements. Upon receipt of a revised sales contract that modifies the purchase price due to alterations of the improvements, Appraiser will analyze the change(s) and make appropriate revisions to the appraisal report. The revisions to the report include changing the terms of the contract for sale in the contract section, adjusting the comparable sales as needed, and if the opinion of value is changed, providing a detailed explanation for the change in value.

(Hmmm. I wonder what a state regulatory board would have to say about this provision?)

Of course, on Page 9:

Indemnification: Appraiser will indemnify and hold harmless VSS, a division of RELS, LLC, and each VSS entity for any liability arising out of Appraiser's work product or for the release of any appraisals without VSS' permission. Appraiser is liable for payment of any legal fees, claims, damages, losses and liabilities resulting from Appraiser's work product or non-performance of the duties and obligations identified herein.

One of the best, however, is the requirement on Page 2:

Appraiser (signature)(Requires Digital Signature to be uploaded.):

All very interesting. Also interesting is the number of Florida Appraisers asked to send in a copy of a digital signature to OK this agreement, given the fact that VSS is NOT currently registered as an Appraisal Management Company with the Division of Real Estate or the Florida Real Estate Appraisal Board. The MyFloridaLicense site does not show an application in process either. Does this outfit look like a Management Company for Appraisal Management Companies?

Agreement in full is after the jump.

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AMC Indemnification Clauses - Comments From Peter Christensen

Back in August, Appraiser Active posted about NAR President, Ron Phipps'  letter to the heads of the Department of Housing and Urban Development, Federal Financial Institutions Examination Council, Veteran's Administration and the Federal Housing Finance Agency encouraging the bar of indemnification clauses used by Appraisal Management Companies (AMCs).  Robert  Freedman provided some context in a later post on the Speaking of Real Estate blog.

Needless to say, the issue is has not yet been resolved. In the November issue of REALTOR Magazine, there is a piece written by Peter Christensen about indemnification clauses. Follow this link to his post on the Appraiser Law Blog. Peter links to the REALTOR Magazine article too.

Among many other things, indemnification clauses and appraiser independence are on the agenda for the NAR Appraisal Committee meeting next week during the NAR Annual Conference in Anaheim, California. The NAR Appraisal Committee meets Friday, November 11, 2011 from 2:00 - 4:00 P.M. at the Anaheim Marriott Hotel in Grand Ballroom F. See you there!

Indemnification Clauses - UPDATE

A few days ago Appraiser Active posted about a from NAR President, Ron Phipps, to federal agency heads encouraging the bar of indemnification clauses used by Appraisal Management Companies (AMCs). Brian Davis, from Appraisal Scoop, was kind enough to spread the word, and many others read the letter on the NAR Appraisal Insight blog.

Now, Peter Christensen, from the Appraiser Law blog, has a very informative new post: "What's Wrong with Most Indemnification Clauses in AMC Contractor Agreements?"

Peter echos several points that were expressed as concerns in the NAR letter. For example:

5. The clauses negatively affect the quality of an AMC's appraiser panel. All things being equal, a rational lender should have less interest in retaining an AMC that uses an unreasonable vendor agreement. I believe that unreasonable contract language results in an overall lowering of the quality of an AMC's appraiser panel because, on average, fewer appraisers who are better trained, economically stable, and careful about reading legal verbiage choose to work for AMCs with the worst agreements.

7.  The bottom line.  Perhaps the bottom line is that a $200-$400 appraisal can't and shouldn’t be relied on to guaranty repayment of a $1 million loan if someone later deems the appraisal “faulty.”  Every appraiser performing valuations will have appraisals that can be deemed "faulty."  Good appraisers should be selected and used because they are trusted as competent, reliable and honest and render opinions of value that are on average accurate and reliable and within a range of acceptable errors.  They should not be employed as financial guarantors of value -- unless AMCs or lenders are willing to pay for the price of shifting that risk.

 Head on over to the Appraiser Law blog to read the full post. Spread the word!

NAR Encourages Bar of AMC Indemnification Clauses - UPDATED

UPDATED - August 15, 2011

In a letter to the heads of the Department of Housing and Urban Development, Federal Financial Institutions Examination Council, Veteran's Administration and the Federal Housing Finance Agency, NAR President, Ron Phipps, encourages the bar of indemnification clauses used by Appraisal Management Companies (AMCs).

Appraiser Active last mentioned indemnification clauses in a post about the LandSafe Appraisal Services Agreement. The folks over at the Appraiser Law Blog have written extensively about the danger to appraisers stemming from agreeing to indemnification.

A pdf of the full NAR letter is posted after the jump, but here's a preview:

Appraisers provide an independent and impartial analysis of the market, and acredible opinion of the value of real property. This analysis is a critical component of the mortgage transaction and, in recent months, has become thesubject of unnecessary pressure. The mounting use of indemnification clauses by AMCs may be interfering with the appraiser’s independence and objectivity. In many cases, appraisers are asked to sign contracts that include language to indemnify and hold harmless the AMC against any suit, threat, or claim on any work product or service provided as part of the contract agreement. In some instances, the appraiser is even required to indemnify the lender and the AMC for amounts equal to their costs in repurchasing a mortgage loan, regardless of any proof of culpability on the part of the appraiser.

Let's see if these government agencies respond to the challenge.

UPDATE - August 15, 2011: The Appraiser Law Blog has a review of the LSI Appraisal Independent Contractor Agreement. Here's an excerpt.

"LSI’s agreement itself is only three pages and does not contain many of the unreasonable provisions found in other AMC contractor agreements. However, like most AMC agreements, it does contain an indemnification provision. While the indemnification clause is not as extreme as found in some other AMC agreements, the provision in LSI’s agreement is still. . ."


"Also, we do have concerns stemming from the FDIC’s civil complaint for negligence and breach contract against LSI Appraisal relating to appraisals performed for WaMu in 2006-2008. The FDIC has specifically alleged in that case that appraisals supplied by LSI from approximately 200 of its panel appraisers were deficient and has suggested that many additional appraisals beyond the ones specifically identified may become part of the lawsuit. We will update our appraisers here on readimember.org if we begin to see LSI attempt to shift liability to individual appraisers in that case."

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