Virginia Regulatory Town Hall View Comments

3/31/08 6:26 pm

Commenter: Lore DeAstra / Continental Appraisal

Protect the unbiased opinion

As an appraiser for +14 years, it is disheartening to see the drastic loss of integrity of those who receive our appraisal reports. In 2007, I received several calls by a major purchaser of loans to verify the estimated values in appraisal reports since my signature was removed and the data was manipulated. Since then, I refuse to utilize AI Ready Forms on Appraisal Port and have lost my biggest client - FNMA (which buys mortgages on the secondary market, pools them and sells them as mortgage-backed securities to investors on the open market).
How many other appraisal reports have been manipulated by changing comparable sales prices and estimated values? A new PDF software from Adobe does NOT allow a user to change the data. During 2008, the software is free. Further, the upcoming minimum cost is negligible. I believe the Commonwealth of Virginia should require every appraiser to utilize this software to protect themselves, the reputation of the Commonwealth of VA, the lender, and the investor.

Let's show the nation that we (appraisers in VA) are capable and willing to make positive decisions for the financial future of our citizens and those who invest in the Commonwealth.

CommentID: 1304

3/31/08 6:41 pm

Commenter: Richard Carmichael, RL Carmichael & Assoc Inc

Appraiser's Comment

As an appraiser, and appraiser instructor, I am concerned by the ability of lenders to force appraisers to utilize portal companies.

First, there is a concerted effort to force appraisers to use the "AI Ready" format, which takes data from the appraisal report and sends just the data. This data is then reassembled and redistrubited to the lender. One of the problems with this is that I as an appraiser have my signature applied to a document which I have lost control. I know for a fact that not every field and and not every form transfers to this format. I had a lender call me demanding that I provided information that was already provided. It wasn't on her copy because the field is omitted. This field was missing was the closing cost concesssions paid by the seller. This is a material omission. It can adversely affect not only the outcome of the loan underwriting, but the evaluation of me professionally because it make it look like I have forgotten to provide REQUIRED information.

My concern is that I am responsible for this document when I really have no way to control what is or is not omitted. It is very possible that some of the omissions could seriously mislead a read a user of the report.

Secondly, I have concerns that confidential and copywrited information is being used to build AVM computer data bases. AVMs are being used in place of appraisals in some cases, and some have even been marketed as appraisals. Only a licensed appraiser may complete an appraisal report by law.

Third, some appraisal management companies are HEAVILY marketing Broker Price Opinions as appraisals, and these are being completed by agents who are receiving compensation for these when they are not the listing agents on the property. This is also a violation of the law here in Virginia as recently noted but the Virginia Real Estate Board in their newsletter.

We are once again at a real estate crisis, some of which is being blamed on "faulty appraisals." The S&L bailout of the late 1980s brought us licensing and reforms.

Allowing 3rd party companies to strip data from reports, market BPOs, and allowing the use of AVMs has taken away the power of most of these reforms.

CommentID: 1305

3/31/08 10:31 pm

Commenter: Celerity Appraisals, Inc.

Appraiser Comment

First of all, there is no reason we, as appraisers, should be subjected to sending appraisal reports through such portals as Appraisal Port or even Lighthouse. I know for a fact that my signature has been removed on more than one occassion. In each case the lender has contacted me to clarify and re-varify the information provided. In one case the individual who had removed my signature had actually put in 2 different value amounts in the report, to which neither were accurate. When the lender called they were furious that this had happened. If we, as appraisers, have to be subjected to such stringent laws and regulations, then why are the 3rd party companies allowed to change our information and put my license at risk. They should be held to as high of standards as we are or should not be in business at all.

CommentID: 1306

4/1/08 6:20 pm

Commenter: Sam Bartlett Inc

Comment about proposed rule

I have been in business 28 years and I see absolutely no reason why appraisers should be forced to use a delivery method that is open to manipulation and omissions and where your signature is not affixed to a report but is instead 'stored' in a seperate file.

In the past I have refused to deliver my reports in this method and will continue to do so. There is no good reason not to be able to deliver confidential reports in a secure adobe pdf format with a signature actually AFFIXED to a report that is readily viewable by any intended user.

If in fact lenders are 'concerned' about emailed reports being intercepted (although I've never heard of an actual incident when this happened) then it's a very easy and inexpensive thing to obtain a digital ID and encrypt report contents.

CommentID: 1328

4/4/08 1:12 pm

Commenter: Woody Fincham, FM & Associates Appraisal Services, INC

Appraiser's Comment

I can attest in all honesty that lighthouse changes my report from what I intend to send to what is converted. ACI’s Lighthouse can not convert other forms packages 100%. I receive constant calls from Underwriters and processor’s asking for pictures that get omitted, maps that are omitted, scanned in pages added as addenda (which often times contains very important data). It will move additional comments and bury things I want to stand out in a narrative box to the back of the report.

FNC and the other portals out there should be required to deliver the exact copy of the report fully as intended by the preparer. I understand that some review is needed and merited by these types of companies, however the data pulled form there should be used for only that. Compiling that information beyond cursory review functions such as retaining for valuation modeling, market analysis, or comparable databases should be stopped and specifically prohibited.

I am not sure what the Appraisal Board can do besides make it illegal for appraisers to do business with them, as the board can only recommend to the AG or other regulatory boards to regulate based on the concerns we are all out lining. I would assume that it may be in the best interest of the board to seek legislation to require all portals, and AMC’s operating in the Commonwealth to have a dedicated Chief Appraiser, and licensed or certified staffers that act as compliance officers/departments. If a company is found in non-compliance the individuals are punished and if applicable the businesses they work for should be severely penalized. You hit the companies where their wallets are and they will comply.

I would think that the appraisal board would also benefit from having legislation drafted to require that lenders must be licensed, most especially the one’s involved with interacting with appraisers. If I need to have a number assigned to me that follows me the rest of my life as my license, then so too should the originators, underwriters and processing staff. We are asked to be held at special levels of knowledge, ethics and professionalism when any used car salesman can help a middle-class or low income family make financial decisions that will impact their ability to live within their means, or starve from being house poor.

What may or may not come in the form of the HVCC can not be a consideration for what Virginia does, as that is far from being a steadfast and permanent rule.

I am proud that what many of my peers have viewed as a stagnant board finally having the opportunity to not just follow what other more active state boards are doing, but to set precedent and lead Virginia into the future of what happens to my industry. If the board would see fit to set up a special task force to help these suggestion and some of the many I am sure you will hear, you can certainly count my name as a volunteer.

CommentID: 1354

4/8/08 12:50 pm

Commenter: Harry F. Hoffmann, Jr.

Electronic Portals

As appraiser in the Commonwealth of Virginia for over twenty years, I am concern with the use of electronic portals for the transmission of appraisal reports. It is my understanding transmission of appraisal reports are not being delivered in the original format, omission of portions of report and data in order the appraiser submitted.

Based on my understanding of USPAP Standard Rule 2-1. Standard 2-1 states " Written or oral real property report must clearly and accurately set forth the appraisal in a manner that will not be misleading; contain sufficient information to enable the intended users of appraisal to understand the report properly; and clearly and accurately disclose all assumptions, extraordinary assumptions, hypothetical conditions, and limiting conditions used in the assignment. ". If the report is not delivered to the client in the format, order of presentation of and/or omission of data and information provided by the appraiser, it can be a misleading report. The intended user (citizen of the commonwealth), has not been presented with the original report which maybe incomplete or misrepresented as the appraiser original work. The appraiser's integrity has been by jeopardized and the quality of his or her reporting. The intended user may now receive a report that is not creditable, misleading and incomplete due to the use of an electronic portal which alters the original report. The intended user has also mislead in believing the report they received is the complete report of appraiser. Furthermore, it is possible the altered report may not be in compliance with Standard 2-2, although prior to transmission by the electronic portal was in compliance.

In addition to the possible violations of USPAP, these electronic portals are in direct conflict with the Commonwealth of Virginia Regulations 18VAC-130-20-180 C-1 Standards of professional practice. This regulations state “the signing of the report or electronic transmittal of the report shall indicate the licensee has direction and complete control over the report. Therefore, the electronic portal which changes or alters appraisal reports has made the appraiser or licensee in direct violation of state regulations.

The use of these electronic portals is putting appraisers in the Commonwealth in violations of the regulations governing appraisers in the Country (USPAP) and in the Commonwealth of Virginia. They have put undue burden on the appraiser and the ability practice as an appraiser. Furthermore, they are putting the public at risk and undermine the public trust by altering original appraisal reports. I strongly urge The Board to require the providers of electronic portals to cease in this practice and to insure the unaltered transmission of appraisal report to protect appraisers and the public in the Commonwealth of Virginia.

Respectfully submitted,

CommentID: 1367

4/20/08 1:43 pm

Commenter: George W Dodd, SRA

(Part 1 of 2) Tampering with appraisal reports during the communication via electronic portals

There are entities that have positioned themselves between the appraiser and the end user – client, which have created electronic “portals” that appraisers are being required to use when transmitting, or communicating, the appraisal report. It has become common knowledge that by using these “portals” the content of the appraisal report is being alter, photographs and attachments are omitted, and the Appraiser’s signature is either removed and re-applied; or required to be sent as a separate attachment.

(REFER TO Attachment #1 and #2)

As you can see in Attachments #1 and #2, which are “disclosures” that alerts the Appraiser to the fact that the report is being altered in the delivery process. Please note, this disclosure is not provided by the intermediaries but by the appraisal report software company. The intermediaries do not and will not disclose to the Appraiser what is being changed. These attachments are just examples of what is commonly being done:

· Unlocking reports sent in Adobe PDF format for change prior to reaching client.

· The Appraiser’s Digital Signature being removed and re-applied or sent as a separate file.

· Appraisal reports being re-formatted and/or altered in manner that the Client does not receive what the Appraiser Created.

· The removal of forms and/or custom fonts not compatible with the portal’s software.

· That images, sketches, maps, etc that exceed the number and/or size of attachments imposed by the electronic portal are omitted from the file received by the Client.

It must be clearly stated and understood, that these types of changes are occurring during the transmission process which is distinctly different from, a client who, after receiving an appraisal report, either manually or automatically extracts information or data on their own.

The client would, after all, have received the complete report in the format as created by the Appraiser. And, the Appraiser would have no control over what the client does with the report.

This type of activity not only causes problems for Appraisers, BUT undermines the public’s trust. I am asking the Board to consider some of these issues today.

First: is the Appraiser retaining exclusive control over their signature when they are reasonable aware that their signature will be removed and re-applied prior to the Client receiving the report; and/or by attaching the digital signature as a separate file and not actually on the report?

And second, is whether the Appraiser by being an active participant in this type of electronic transmission process, in which they are reasonably aware that alterations and/or omission of data from the report will occur during the transmission process, violating the USPAP and the Rules and Regulations of this Board.

I believe the answers to these questions are already contained in the Code of Virginia, the Boards Rules & Regulations and USPAP, but we need the Board to provide clear guidance and direction to protect both the “public interest” and appraisers.

Signature Issue (Attachment #3)

The act of applying a signature to an appraisal report is probably the single most significant act for the Appraiser. It provides authentication and acceptance of the document and value opinion. And that is why it is listed in USPAP, the Board’s Rules & Regulations, and the Code of Virginia:

I USPAP: (in definitions) Defines Signature as:

(137-141)The Appraiser’s Signature is personalized evidence indicating authentication of the work performed by the Appraiser and the acceptance of the responsibility for content, analysis, and the conclusions in the report.

Comment: A signature can be represented by a handwritten mark, a digitized image controlled by a personal identification number, or other media, where the appraiser has sole personal control of affixing the signature.

II CODE OF VIRGINIA:

§ 54.1-2017. Use of terms "Licensed Residential Real Estate Appraiser," "Certified Residential Real Estate Appraiser," and "Certified General Real Estate Appraiser"; authentication of reports.

(paragraph 2)

Each licensed residential real estate appraiser, certified residential real estate appraiser, and certified general real estate appraiser shall comply with the standards of professional appraisal practice and code of ethics adopted by the Board and shall authenticate all written appraisal reports with his signature, license designation and license number.

III Appraiser Board’s Rules & Regulations:

18VAC130-20-180. Standards of professional practice.

C. Use of signature and electronic transmission of report.

1. The signing of an appraisal report or the transmittal of a report electronically shall indicate that the licensee has exercised complete direction and control over the appraisal. Therefore, no licensee shall sign or electronically transmit an appraisal which has been prepared by an unlicensed person unless such work was performed under the direction and supervision of the licensee in accordance with §54.1-2011 C of the Code of Virginia.

2. All original appraisal reports shall be signed by the licensed appraiser. For narrative and letter appraisals, the signature and final value conclusion shall appear on the letter of transmittal and certification page. For form appraisals, the signature shall appear on the page designated for the appraiser's signature and final estimate of value. All temporary licensed real estate appraisers shall

sign and affix their temporary license to the appraisal report or letter for which they obtained the license to authenticate such report or letter. Appraisal reports may be transmitted electronically .Reports prepared without the use of a seal shall contain the license number of the appraiser.

b. Application of the seal and signature or electronic transmission of the report indicates acceptance of responsibility for work shown thereon.

Question 1: Can the Appraiser’s signature be attached as a separate file to the report without it being applied directly to the Appraiser’s Certification, Limiting Conditions, and Value Conclusion?

Question 2: If an intermediary removes, alters the document but does not disclose the alterations to the Appraiser, and then reapplies the Appraiser’s Signature, and the Appraiser is aware this process; has the Appraiser retained necessary control of their signature?

I respectfully submit that the answer to these questions is NO.

Second Question (See Attachments 1, 2, 4, and 5)

It has become common knowledge that appraisal reports transmitted through electronic portals are being altered prior to reaching the end user Client.

This effectively makes the Appraiser an active participant in a transmission process, in which they are reasonably aware, that alterations and/or omission of data from the report will occur prior to the report reaching the end user –Client.

I USPAP: (Attachment #6)

1. Ethics Rule:

a. (224-226) An Appraiser must not communicate assignment results in a misleading or fraudulent manner. An Appraiser must not use or communicate a misleading or fraudulent report or knowingly permit an employee or other person to communicate a misleading or fraudulent report.

2. Scope of Work Rule:

a. (410-411) An Appraiser must not allow assignment conditions to limit the scope of work to such a degree that the assignments results are not credible in the context of the intended use.

b. (419-420) An Appraiser must not allow the intended use of an assignment or a client’s objectives to cause the assignment results to be biased.

3. Disclosure Obligations:

a. (422-423) The report must contain sufficient information to allow intended users to understand the scope of work performed.

4. Standards Rule 1-1:

a. (472-473) not commit a substantial error of omission or commission that significantly affects an appraisal;

5. Standards Rule 2: Real Property Appraisal, Reporting: (612-613). In reporting the results of a real property appraisal, an Appraiser must communicate each analysis, opinion, and conclusion in a manner that is not misleading.

Standards Rule 2-1: (620-625)

(a) clearly and accurately set forth the appraisal in a manner that will not be misleading;

(b) contain sufficient information to enable the intended users of the appraisal to understand the report propertly; and

(c) clearly and accurately disclose all assumptions, extraordinary assumptions, hypothetical conditions, and limiting conditions used in the assignment.

II Appraiser Board’s Rules & Regulations (still Attachment 6)

18VAC130-20-180. Standards of professional practice.

C. Use of signature and electronic transmission of report.

1. The signing of an appraisal report or the transmittal of a report electronically shall indicate that the licensee has exercised complete direction and control over the appraisal. Therefore, no licensee shall sign or electronically transmit an appraisal which has been prepared by an unlicensed person unless such work was performed under the direction and supervision of the licensee in accordance with §54.1-2011 C of the Code of Virginia.

K. Unworthiness.

1. A licensee shall act as a certified general real estate appraiser, certified residential real estate appraiser or licensed residential real estate appraiser in such a manner as to safeguard the interests of the public, and shall not engage in improper, fraudulent, or dishonest conduct.

Conclusion

This Board was created to protect the public trust. And at the same time to provide guidance to those it regulates. I believe the Board has an obligation to both to provide a clear and definitive statement that any Virginia Appraiser using such a transmission “portal” would be in violation of the Board and subject to fine, suspension, and/or revocation of licensure.

The Board has this authority under: (see Attachment #7)

18VAC130-20-160. Grounds for disciplinary action.

The board has the power to fine any licensee, registrant or certificate holder, to place any licensee, registrant or certificate holder on probation, and to suspend or revoke any license, registration or certification issued under the provisions of Chapter 20.1 of Title 54.1 of the Code of Virginia and the regulations of the board, in accordance with §§54.1-201(7), 54.1-202 and the provisions of the Administrative Process Act,

Chapter 1.1:1 of Title 9 of the Code of Virginia:

when any licensee, registrant or certificate holder has been found to have violated or cooperated with others in violating any provision of Chapter 20.1 of Title 54.1 of the Code of Virginia, any relevant provision of the Uniform Standards of Professional Appraisal Practice as developed by the Appraisal Standards Board of the Appraisal Foundation, or any regulation of the board.

List of Portal type Providers (See Attachment 8)

There are readily available alternatives to these “portals” that allow for the safe and secure transmission of the unaltered appraisal report. One such method is Adobe Document Center. Most, if not all, appraisers are already using some form of Adobe PDF and transition to the Document Center is simple and inexpensive.

The Adobe Document Center Protects and control access to the documents and if the recipients can copy, print, or make comments.

The Adobe Document Center Controls the document by “turning off” access to the document, including copies on anyone’s desktop.

The Adobe Document Center Tracks specifically who has done what to your document in real time.

The Cost for this is $19.99/month or $199/year.

It provides unlimited number of files and unlimited file size.

See Attachment #9: Adobe Document Center.

CommentID: 1410

4/21/08 11:35 am

Commenter: Pollard Appraisals

Report Ownership/Compensation & Financial Disclosure

I am very proud of the professionals who have given their opinion in this forum and I think that they have made it clear that appraisers and the board should control the appraisal reports, their signatures and how the information is presented to its end users. I also think that at the heart of the matter is who owns the data/report. If appraisers had been properly represented in the real estate industry the AVM's would not exist because their whole being is dependent on our work. I would like to present this example even though it appears in another industry.

In the Music and Entertainment industry, if someone "samples" an artists work that artist is compensated by the user because he created that work or he has the right to sue for compensation because the other party"without permission or compensation" used that artists work. Same thing with actors, when they create a sitcom or movie, they are still compensated for their work in the DVD and rerun market because they help to create the original work that the producers(or banks in our case) help sponsor. This would also apply to people in the insurance industry that use our work.

It is also incumbent on our industry apply pressure for disclosure when financial opinions of real estate value are exclusive to licensed appraisers or to clearly state that those opinions(BPO's) did not come from appraisers and therefore should not be insured or sold on the secondary market to Fannie Mae or Freddie Mac because it was not done by a professional nor subject to the normal review and inspection process by the underwriters and appraisers. This also brings up the point of their review process and if the information given in their reports is old information or relevant. we do not know if they are taking the appraisals of several different homes none of which have sold but been appraised and are then combined.

There should be an audit team of appraisers established by the Appraisal boards , banking and mortgage industry, whose purpsoe is to review these violations and monitor the AVMs' and their reports distributed for violations of the "Appraisers" code of ethics since they want to generate appraisal reports/opinons that are contray to the original appraiser's opinoins and disclosures.

Nelson Pollard, Owner

Pollard Appraisals

CommentID: 1418

5/11/08 10:52 am

Commenter: Cynthia Davis, Davis Appraisals

Portal Usage

I have only used AppraisalPort one time, and, to date, have not received any complaints that have been listed by other appraisers. I whole-heartedly agree that any report delivery system which changes or alters an appraisal report should be stopped. I am not a legal expert, but, it seems to me that knowingly using a report that has been altered constitutes fraud. Why don't we stop blaming the appraisers, and start holding the lenders accountable. If more lenders were prosecuted for fraud and related offenses, then wouldn't that clear up some of these issues?

CommentID: 1480

5/11/08 6:35 pm

Commenter: James Helm

Open Seat

Ms. Kathryn DeFilippo Paxton, Secretary of the Commonwealth,

I respectfully request that Mr. H. Glenn James, MAI be appointed to fill the current vacancy on the Real Estate Appraiser Board. Mr. James, MAI is located in th! e same geographical area as Mr. Harry, who is leaving the Board. He is a member of the Appraisal Institute and has been an active Appraiser for many years. He has been active in the community and will be a valuable member of the Board.

The Petition is still open for public comment until May 19, 2008. This is an opportunity for everyone to support the need to stop others from tampering with your appraisal reports.

Don't worry if you don't have a lot to say, just say that you support the petition. I also encourage anyone who experienced problems with AMCs or Lenders about having to use their "electronic portal" to send that information to the Board.

CommentID: 1481

5/12/08 7:43 am

Commenter: J. Mark White, RAA

Petition for restricting the use of Electronic Portals

I support the petition restricting the use of electronic portals required by AMC's to deliver appraisal products to the Lender/Client. I am now required to use these portals to deliver my completed reports to my clients by AMC's under direct written threats of NO FUTHER BUSINESS!! I am aware that my reports are being altered from the format origninally created and not all the information contained within my reports are being trasmitted to my clients and intended users. The information being omitted directly affects the credibility of my reports and increases the opportunity for fraud to be committed as my signature is being lifted from my reports.

This has a direct affect on the citizens of the Commonwealth which I serve and you are obligated to protect.

Please pass petition as submitted.

Sincerely,

J. Mark Whtie, RAA

Certified Residential Appraiser

CommentID: 1482

5/12/08 9:11 am

Commenter: Raja Raza, Discovery Appraisals, Inc.

Level playing field

We as appraisers are not asking for favors, all we are asking for is level playing field. There should be same rules for everyone. AVM, BPO’s and CMA should not be marketed as appraisals.

I strongly support this petition and ask everyone in appraisal field to do so.

CommentID: 1483

5/12/08 12:05 pm

Commenter: Patty Pace

Petition

I support the petition!!

CommentID: 1485

5/13/08 8:34 am

Commenter: William (butch) G. Hicks, Jr.

Fairness

Unless and until all organizations can provide evidence that the appraiser's report is being transmitted/delivered in it's entireity, without revision, the current system is flawed.

CommentID: 1486

5/13/08 7:15 pm

Commenter: Trista Miller

I support the petition!

I support the petition!

CommentID: 1487

5/15/08 8:46 pm

Commenter: James W. Crawford SRA

Appraiser's comment

I applaud the current board's decision to take on this issue. Several years ago I contacted board staff about a similar problem and was told that the board was not concerned about the actions of other parties in the appraisal process. Their only job was to dicipline appraisers. I am glad to see that attitudes have changed.

This will certainly have national implications and it is the right thing to do.

Regards

CommentID: 1491

5/16/08 11:12 am

Commenter: Donald H. Kinum Jr., ATLANTIC Associates

Electronic portal transmission of appraisal reports.

Recent interaction with several banking clients indicates to me that the banking industry is in a state of denial regarding their responsibility for the credit crash brought on by their predatory lending practices. The interaction that I am seeing is one of continued haughty arrogance resulting in a "business as usual" attitude, particularly toward the appraiser.

It is quite clear, that the requirements of USPAP preclude the use of any means of removing signatures, doctoring or otherwise manipulating data, and re-affixing signatures as if nothing had happened in between. If this was done manually with white-out and typewriter or pen, there would be no question that a crime had been commited for personal gain. It would fall under the laws pertaining to fraud, forgery, grand larceny, embezlement, conspiracy to defraud and others. I'm sure a prosecuting attorney could think of a few more charges. I sometimes wonder if the banking lobby and the politicians they seduce could be prosecuted under the RICO statutes!

The requirements of USPAP and the use of electronic portal transmission of reports are mutually exclusive. They cannot co-exist as currently utilized. To rationalize such a situation is to make a mockery of the law and foster contempt for those in leadership positions who allow such nonsense.

Everybody says they want independent appraisers to provide unbiased estimates of value, but nobody is willing to stand up against the banking lobby give us independence. Because of the recent excesses in the lending industry, we have a window of opportunity to do something good. Windows of opportunity never stay open indefinitely. Please support the petition. Thank you.

CommentID: 1493

5/19/08 7:27 am

Commenter: Taffy Severs-Horner

AI Ready Forms

I am an appraiser and object to the use of AI Ready Forms and portals. I have experienced the unscrupulous removal of my signature and revaluation of appraisals that I have done. It is unfair for appraisers to continually be scrutinized as the culprit in the recent real estate fiasco when it is the multitude of predatory lenders who have created the problem. Although there are many reputable and fair lenders, there are also many who continue to create requirements and push for regulations for the appraiser . Many appraisers are finding if they adhere strictly to USPAP and appraiser guidelines, they cannot maintain relationsships with lenders and thus their livelihood suffers. These new requirements for AI Ready Forms is just another way for the dishonest to make their living at the appraisers expense. All reports should be secure from revaluation and removal of signatures for any reason.

CommentID: 1495

5/19/08 8:53 am

Commenter: Matt Barber, Lester, Barber, & Associates, Inc.

Top Marks for VA Board

I am pleased to learn that my Virginia Real Estate Appraisal Board is one of the most progressive in the US. Hearing this at a conference in Washington DC instilled confidence in me that the Board will support this petition and ensure the integrity of our appraisal reports.

Matt Barber

CommentID: 1496

5/19/08 11:21 am

Commenter: Nancy Ellmann, Metropolitan Appraisals

Support the petition

I appreciate the comments made and lend my support to this petition. I do not need to restate what others have so eloquently done.

CommentID: 1498

5/19/08 6:21 pm

Commenter: Neil Olson, Chief Legal Officer, FNC, Inc.

Response to petition regarding “Regulation to Limit the Use of Electronic Portals”

In reading the comments from appraisers related to this petition for proposed rulemaking, one can certainly sense their frustrations with the way that appraisals may be managed in the electronic age.

Some of that frustration has to do with how their clients handle their appraisals after the appraisal has been delivered, which is not related to the delivery process at all, but is certainly a source of concern. Some of it has to do with appraiser independence, certainly one of the top issues today for appraisers.

Still, even when the Board recognizes the concerns of the appraisal community, rulemaking is not something to be engaged casually. It is not something that should arise simply because something might be “common knowledge”. Rulemaking is a serious and important function that exists for the purpose of fostering the legislative charge of the regulatory agency, without creating an undue burden on the community it regulates or unleashing unintended consequences.

Let’s look at the different challenges presented by the petition.

What is an “electronic portal”?

Setting aside the question whether the Virginia Real Estate Appraiser Board has jurisdiction over any “electronic portal”, the first question is what is an electronic portal? There is no common agreement regarding what an electronic portal is. While no definition for electronic portal comes up in a routine Google search, the phrase “web portal” has an entry in Wikipedia.

A web portal is a site that provides a single function via a web page or site... Portals present information from diverse sources in an unified way. Aside from the search engine standard, web portals offer other services such as e-mail, news, stock prices, infotainment and various other features... An example of a web portal is Yahoo!

Thus, the notion of an electronic portal encompasses a large range of activities, including e-mail. Taken on its face, the petitioner is asking to regulate e-mail providers since e-mail is one common method for the electronic transmission of appraisals to clients. It is not clear how such an undertaking might be possible.

Obligation of the “portal” or of the appraiser?

It is important to recognize that the activity that appears to be under discussion really amounts to two different and quite distinct activities: 1) the preparation of the appraisal; and 2) the transmission of the appraisal.

Let’s start by describing the typical process an appraiser follows with respect to an appraisal in electronic form. (For simplicity, we will concentrate on residential appraisals and ignore appraisals delivered by fax or mail.)

· Appraiser completes and signs the appraisal using the means provided by the software package.

· This version is not the actual appraisal, since it is not the one delivered to the client.

· Since few clients accept appraisals in electronic form in the original appraisal software package format, the appraiser then converts the final appraisal file into one of the most commonly accepted formats: typically PDF, AI Ready or Lighthouse.

· The “converted” version is the actual appraisal, since it is the one that the appraiser delivers to his or her client.

· Appraiser then transmits the appraisal in its converted form to the client using one of the means designated by the client, either e-mail or one of the electronic networks.

· At this stage, the appraiser’s obligation is complete, and the appraisal is now in the client’s hand.

It should be clear that there are really two stages to this process

· the process by which the appraiser prepares the appraisal in a form acceptable to his or her client, and

· the process of transmission itself.

The process by which appraisers prepare appraisals according to the requirements of their clients (and of course in compliance with USPAP) is entirely within the appraiser’s control. The appraiser decides which format to use (one acceptable to the client) and performs the conversion.

It is only when the appraiser has completed the conversion that the appraiser engages the delivery means, which involves a third party.

Is this petition a request to regulate appraiser-client conduct instead?

The appraisal that the appraiser delivers to his or her client is the one converted into the acceptable format, not the near final draft version he or she prepared using the appraisal software package. This process is in the control of the appraiser, not in the “electronic portal”.

Many of the published comments to this petition have to do with the appraiser’s discomfort or frustration with what their clients are asking of them, which is unrelated to the transmission of the appraisal (and any of the means the appraiser uses to transmit appraisals).

But what about the “signature”?

The commenters make an important point about the signature. There is a lot of confusion about signatures, some of it fostered by those who have their own technology to sell.

First, remember the distinction between the final draft version of the appraisal that the appraiser prepared using an appraisal software package, and the final version of the appraisal delivered

Second, remember that the appraisal file transmitted to the client is not the same thing as what is presented on the screen (or what is printed) when that appraisal file (in whichever format) is opened. What is presented on the screen is the result of re-assembling the various elements of the appraisal stored in the appraisal file, the text (data), fonts, graphics and images (including the signature-- which is just another image), into something that we all recognize as an appraisal form report.

When the appraiser signs the appraisal in his or her appraisal software package, using whatever protections the software requires (including passwords), what is happening is that the image (yes, image) of that signature is then placed in the correct spot on the appraisal when the appraisal is viewed through the appraisal software package. The signature is still an image, and is the signature image that the appraiser most likely scanned as a JPG, BMP or TIFF file and uploaded to the appraisal software package.

But that is not the appraisal that the appraiser delivers. The appraisal the appraiser delivers is the one he or she converted. What happened to the signature during the conversion process?

If the file is converted into a PDF, the program that creates the PDF (the "PDF writer") gathers all of the text (data), fonts, graphics and images (including the signature-- another image) into an organized collection of information along with a "map" of where everything goes and stores it. When the PDF is opened, the PDF viewer re-assembles all that for viewing or printing with all of the text, fonts, graphics and images--including the signature--in the right place, and we see something that we all recognize as an appraisal form report. Even though one appraisal may look like another when printed, a PDF file created from one forms software package will not be identical to one created by another (because, among other things, different appraisal software packages organize their files in different ways).

While appraisers appear to be quite comfortable with the PDF format, since it is very much a “visual” format, the underlying elements in a PDF are no different than any other file an appraiser may use to deliver to his or her client. The PDF is not a photograph, but a very nicely organized process for storing and re-assembling the underlying elements in an appraisal.

(As a special note, there is nothing uniquely secure about a PDF. See, for example,

http://www.cs.cmu.edu/~dst/Adobe/Gallery/PDFsecurity.pdf)

Similar processes occur when an original format appraisal file is converted into Lighthouse or AI Ready. What is different with an AI Ready file is that the AI Ready standard is a data standard, so it does not preserve custom fonts or formatting (which does not affect USPAP compliance) and it uses XML.

In an AI Ready file, the text (data) and images are gathered into an organized XML file that identifies each of the elements, writing them down in a standard, organized manner--which allows them to be reassembled into something that we all recognize as an appraisal form report with the signature in place (much the same as the PDF process). It is the same signature that the appraiser “affixed”, and it still acts as “authentication of the work performed by the appraiser and the acceptance of the responsibility for content, analyses, and the conclusions in the report”.

Is Virginia REAB being asked to regulate the technology used?

In being asked to evaluate “evidence and documentation”, the regulator is suddenly jumping out of its role as a regulator concerned with “all things required or expected of a state appraiser certifying and licensing agency under Title 11 of the Financial Institutions Reform, Recovery and Enforcement Act of 1989” [Code of Virginia §54.1-2013] and into the role of the appraisers’ “Geek Squad”.

The Virginia REAB should very carefully consider whether it should take on this role due to its complexity. For example

· Who decides? Does the Virginia REAB make a finding? (What are the Virginia statutory requirements for this?)

· Who has the expertise to be able to evaluate?

· Who pays for the evaluation?

· How often would the evaluation need to occur? What if there is a change in the technology?

· How do the parties involved maintain confidentiality?

o Proprietary information, technology and processes

· Confidential appraisal information

o How would anyone obtain permission from all of the different parties (esp. lender clients and their affiliated appraisers) for any demonstration of any live data?

How does a web-based service “cease doing business in Virginia”?

How does a web-based service know whether its users are in or from Virginia? For example, how could Yahoo or Google cease doing business in Virginia? If a Virginia licensed or certified appraiser is connected to a web-based service while in Washington DC, is that considered doing business in Virginia?

Regulating the appraisal after it is delivered

Several of the commenters indicated circumstances that are clearly out of the control of the appraiser, and beyond the scope of USPAP, that is, what happens after the appraisal is delivered to the client? Several commenters complained about having their appraisals altered after delivery. This is certainly a frustrating experience and can be the source of misunderstanding and worse (where the appraiser may become the victim of fraud).

In those cases, however, that is beyond the control of the appraiser, and the Appraisal Standards Board has consistently held that the appraiser is only responsible up to the moment of delivery to the client (e.g., see USPAP FAQ, October 2007 http://www.appraisalfoundation.org/s_appraisal/sec.asp?CID=12&DID=12 ). After that, the client is free to deal with the appraisal as it sees fit. Of course no “portal”, from FedEx to e-mail to web-based, has control over the appraisal after the moment of delivery.

Unintended consequences

Every day, appraisers deliver tens of thousands of electronic appraisal reports to their clients.

Since nearly all of the appraisals in electronic form are delivered through some “portal” or other, then any interruption in service would have the effect of putting Virginia appraisers out of business until their “portal” of choice was certified. It is curious that someone would propose a regulation that would have that effect.

Summary

The original petition is based on “common knowledge” of certain facts. As we have discussed, some of the common knowledge about appraisals in the electronic age is based on some misconceptions about the role of the appraiser in the process of preparing and delivering appraisals in electronic form to their clients.

While appraisers are rightfully frustrated about many of the challenges they face in the marketplace for appraising, especially assaults on their independence, this petition for rulemaking and the proposed rule does not address those very real issues.

What the petition asks for does not address what appears to be the real issue, the discomfort that appraisers may feel with the choices that their clients have made regarding the form and format of the appraisals they expect to receive.

Thank you for your consideration.

CommentID: 1501