BILL ANALYSIS
SB 237
Page A
Date of Hearing: June 16, 2009
ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS
Mary Hayashi, Chair
SB 237 (Calderon) - As Amended: June 3, 2009
SENATE VOTE : 35-0
SUBJECT : Real estate appraisers.
SUMMARY : Creates a registration program for appraisal
management companies (AMCs) within the Office of Real Estate
Appraisers (OREA). Specifically, this bill :
1)Prohibits any person or entity from acting in the capacity of
an AMC without first obtaining a certificate for registration
from the OREA.
2)Defines "AMC" as any person or entity that employs 11 or more
appraisers, or administers networks of 11 or more independent
contractor appraisers, to perform appraisals for clients;
receives requests for appraisals from one or more clients and,
for a fee paid by a client, employs or enters into an
agreement with one or more independent appraisers to complete
the appraisals contained in the request, or otherwise serves
as a third-party broker of appraisals between clients and
appraisers.
3)Specifies under what circumstances or conditions a person or
entity is not an AMC when they contract with an independent
appraiser. This includes a bank, credit union, trust company,
savings and loan association, etc., or a licensed finance
lender or residential mortgage lender, or a licensed real
estate broker, or any person licensed to practice law in this
state who orders an appraisal in connection with a bona fide
client relationship.
4)Defines a "controlling person" as one or more of the
following:
a) An officer or director of an AMC, or a person with a 10%
ownership interest in an AMC;
b) An individual employed, appointed, or authorized by an
AMC who has the authority to enter into a contractual
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relationship with clients for the performance of appraisal
services and who has the authority to enter into agreements
with independent appraisers for the completion of
appraisals; and,
c) An individual who possesses, directly or indirectly, the
power to direct or cause the direction of the management or
policies of an AMC.
5)Authorizes OREA to impose administrative fines of up to
$10,000 per violation and establishes related appeals
processes.
6)Requires AMCs to identify "controlling persons," as defined,
and prohibits certain persons from serving as controlling
persons (generally persons who have been convicted of
specified crimes or had their appraisal licenses revoked).
7)Requires OREA to adopt regulations governing the process and
procedure of applying for registration as an AMC and to
provide information as specified.
8)Requires an applicant for an AMC certificate of registration
to demonstrate that its contracts include the following
provisions:
a) Any independent contractor appraisers possess all
required licenses and certificates from OREA;
b) The work of independent contractor appraisers are
performed in compliance with USPAP; and,
c) The AMC maintains a detailed record of each service
request and the independent contractor appraiser selected
for the assignment.
9)Prohibits any person or entity acting in the capacity of an
AMC from improperly influencing or attempting to improperly
influence the development, reporting, result, or review of any
appraisal.
10)Prohibits any person or entity from structuring an appraisal
assignment or a contract with an independent appraiser for the
purpose of evading the law relating to AMCs.
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11)Prohibits an AMC from altering, modifying, or otherwise
changing a completed appraisal report submitted by an
independent appraiser.
12)Repeals the provisions of this bill 60 days after the
effective date of a federal law that mandates registration or
licensing of AMCs.
13)Requires OREA to establish the fees to be paid by AMCs and
that are sufficient to cover the costs incurred by the OREA.
EXISTING FEDERAL LAW :
1)Requires under the Federal Financial Institution Reform,
Recovery and Enforcement Act of 1989 that all appraisals
prepared for federally related transactions be conducted by a
state licensed or certified appraiser in accordance with the
Uniform Standards of Professional Appraisal Practice (USPAP).
2)Designates the Appraisal Foundation as the entity with the
authority and responsibility to establish qualification
criteria for state licensing, certification and
recertification of appraisers, and the authority to establish
and enforce rules for developing an appraisal, and reporting
its results in conformance with the USPAP.
3)Establishes the Appraisal Subcommittee within the Appraisal
Foundation to monitor individual states' licensing and
certification of real estate appraisers to assure they are
sufficiently trained and tested to assure competency and
independent judgment according to the USPAP.
4)Prohibits creditors and mortgage brokers from coercing,
influencing, or otherwise encouraging an appraiser to misstate
the value of a dwelling, and prohibits creditors from
extending credit when they know or have reason to know, at or
before loan consummation, that an appraiser has misstated a
dwelling's value, as promulgated in Regulation Z by the Board
of Governors of the Federal Reserve System, to implement the
federal Truth in Lending Act
EXISTING STATE LAW :
1)Provides for the licensure and regulation of real estate
appraisers by the OREA.
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2)Defines "appraisal" as a written statement independently and
impartially prepared by a qualified appraiser setting forth an
opinion in a federally related transaction as to the market
value of an adequately described property as of a specific
date, supported by the presentation and analysis of relevant
market information.
3)Specifies that no person may assume or use the title "state
licensed" or "certified real estate appraiser," or perform,
make, approve, or sign an appraisal unless that person holds a
current valid license issued by the OREA.
4)Requires OREA to adopt regulations governing the licensing and
certification of real estate appraisers which must include
background checks, fingerprinting, experience, education,
continuing education, equivalency, and minimum requirements of
the Appraisal Foundation and federal law.
5)Permits OREA to issue citations, assess fines, and take other
administrative or disciplinary actions as necessary to enforce
the real estate appraisers law.
6)Authorizes OREA to prescribe fees lower than the maximum fees
specified to offset the administrative costs.
7)Requires the OREA to transmit annually to the Appraiser
Subcommittee a roster of persons licensed or certified in
California.
8)Requires licensees to report criminal convictions and any
other state license suspension or revocation to OREA within 30
days.
9)Specifies that the USPAP constitutes the minimum standard of
conduct and performance for a licensee in any work or service
performed that is addressed by those standards and that if a
licensee is also certified by the Board of Equalization (BOE),
that he or she shall follow the standards established by the
BOE when fulfilling his or her responsibilities for assessment
purposes.
10)Prohibits any person with an interest in a real estate
transaction involving an appraisal from improperly influencing
or attempting to improperly influence through coercion,
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extortion, or bribery, the development, reporting, result, or
review of a real estate appraisal sought in connection with a
mortgage loan.
FISCAL EFFECT : Unknown
COMMENTS :
Purpose of this bill . According to the author's office, "SB 237
protects the integrity of real property appraisals, by
regulating the practices of an entity called an appraisal
management company (AMC), whose role in the appraisal process
has expanded greatly in recent years. SB 237 requires any AMC
that does business in California to register with the Office of
Real Estate Appraisers, and prohibits AMCs from engaging in
certain unscrupulous practices that have become increasingly
common among these types of businesses."
Background . During the past two years, both California laws and
federal regulations were changed to prevent the improper
influence of appraisers and reduce the chances that appraisers
would be pressured to return pre-determined property values when
appraising real property. These changes were enacted in direct
response to evidence that significant appraiser fraud occurred
during the housing price run-up of the early 2000s. In this
real estate market, many market participants expected property
values to continue increasing indefinitely and appraisers were
pressured to return property values that were consistent with
that premise. Those fraudulent values helped cause the rapid
and dramatic increase in housing prices across California
earlier this decade.
The relationship between real estate brokers, lenders, and
appraisers has evolved since the enactment of state and federal
laws specifically established to prevent the improper influence
of appraisers. Specifically, lenders, real estate brokers,
mortgage brokers, and others seeking real property appraisals
are now relying on AMCs to serve as middle-men in the appraisal
process. Under a practice that is becoming increasingly common,
lenders and others seeking real property appraisals are
contracting with AMCs, which assemble panels of appraisers on
whom they can call when they receive an order for an appraisal.
The AMCs, in turn, assign the appraisals requested by lenders
and brokers to appraisers on their panels. When the appraisals
are completed, the AMCs deliver them to the lenders and brokers
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who ordered them.
The growth of AMCs has been driven, in part, by an agreement
reached between Fannie Mae, Freddie Mac, and New York State
Attorney General Anthony Cuomo establishing the Home Valuation
Code of Conduct (HVCC), which prohibits lenders and mortgage
brokers from being directly involved in the selection of an
appraiser on a loan in which they are involved, and requiring
the use of a third party to order their appraisals, or some
other method that isolates the process of selecting an appraiser
from the persons who are compensated based on whether a loan is
approved.
According to the author's office, the use of third parties and
AMCs can remove pressure on an appraiser by insulating the
appraiser from the person or entity who orders the appraisal
(typically the party with the most to gain or lose from the
appraised value). However, the author's office also asserts
that AMCs are increasingly contradicting recent state and
federal efforts specifically established to prevent the improper
influence of appraisers.
Suggested clarifying amendment . The author's office has
requested an amendment to clarify the provisions of the bill
that exempt attorney's working on behalf of a client from the
definition of an AMC. The proposed language reads:
On page 4, strike lines 27 and 28, and insert: (3) "Appraisal
management company" does not include any person licensed to
practice law in this state, who is working with or on behalf of
a client of that person in connection with one or more
appraisals for that client."
Recent federal regulation . Regulation Z, which becomes effective
October 1, 2009 (Federal Register Volume 73, No. 147, July 30,
2008, pp. 44522 - 44614), prohibits creditors and mortgage
brokers from coercing, influencing, or otherwise encouraging an
appraiser to misstate the value of a dwelling, and prohibits
creditors from extending credit when they know or have reason to
know, at or before loan consummation, that an appraiser has
misstated the value of a dwelling.
Previous legislation . SB 223 (Machado, Chapter 291, Statutes of
2007), an urgency statute enacted in October 2007, prohibited
any party with an interest in a real estate transaction from
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improperly influencing, or attempting to improperly influence an
appraiser, through coercion, extortion, or bribery.
Support . The sponsor of this bill, the California Government
Relations Subcommittee of the Appraisal Institute, writes:
"SB 237 is designed to respond to the growth of "appraisal
management companies" (AMCs) in real estate loan transactions.
As federal regulators have required greater separation of real
estate lenders and brokers from those who order appraisals, more
lenders have engaged the services of third-party AMCs to manage
the process of ordering and receiving appraisals. The problem
is that while lenders, brokers, and appraisers are all regulated
entities, no entity has any enforcement authority over the
activities of AMCs.
"SB 237 is narrowly tailored to fill this regulatory gap within
the existing structure of California's appraiser licensing and
certification law. The bill simply requires AMCs to register
with the Office of Real Estate Appraisers, identify owners and
controlling persons within the companies, and refrain from
specified acts designed to pressure appraisers into achieving
pre-determined values. The bill is actually narrower than bills
enacted recently in other states."
REGISTERED SUPPORT / OPPOSITION :
Support
California Government Relations Subcommittee of the Appraisal
Institute (sponsor)
Opposition
None on file.
Analysis Prepared by : Ross Warren / B. & P. / (916) 319-3301