BILL ANALYSIS
SB 237
Page 1
SENATE THIRD READING
SB 237 (Ron Calderon)
As Amended June 17, 2009
Majority vote
SENATE VOTE :35-0
BUSINESS & PROFESSIONS 9-0 APPROPRIATIONS 13-0
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|Ayes:|Hayashi, Conway, Eng, |Ayes:|De Leon, Nielsen, |
| |Hernandez, Nava, John A. | |Ammiano, |
| |Perez, Ruskin, Smyth, | |Charles Calderon, Coto, |
| |Hill | |Davis, Duvall, Fuentes, |
| | | |Hall, Harkey, |
| | | |John A. Perez, Skinner, |
| | | |Torlakson |
|-----+--------------------------+-----+--------------------------|
| | | | |
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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
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state who orders an appraisal in connection on behalf of a
client.
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
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 Uniform Standards of
Professional Appraisal Practice (USPAP); and,
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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.
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
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 ensure they are
sufficiently trained and tested to ensure competency and
independent judgment according to USPAP.
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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.
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)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.
4)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 BOE, that he or she shall
follow the standards established by the BOE when fulfilling
his or her responsibilities for assessment purposes.
5)Prohibits any person with an interest in a real estate
transaction involving an appraisal from improperly influencing
or attempting to improperly influence through coercion,
extortion, or bribery, the development, reporting, result, or
review of a real estate appraisal sought in connection with a
mortgage loan.
FISCAL EFFECT : According to Assembly Appropriations Committee
analysis:
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1)One-time special fund costs of approximately $60,000 in
addition to absorbable costs for promulgating regulation
changes, updating the existing database, developing
application and complaint forms, and staff training.
2)On-going special fund costs of approximately $120,000 which
under the provisions of the bill will be fully offset by fee
revenue.
3)Cost estimates are based on the assumption that 150 appraisal
management companies may be required to register, resulting in
annual fees of about $800 per AMC to cover all costs.
COMMENTS : 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."
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
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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
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.
Analysis Prepared by : Ross Warren / B. & P. / (916) 319-3301
FN: 0001809