Here's a quick rundown of some recent legislative updates we've been tracking. This month we're focusing on legislation regarding the appraisal industry.
NJ Senate Approves Penalties for Discriminatory Appraisals
New Jersey Senate lawmakers recently approved a bill aimed at penalizing real estate appraisers who undervalue homes based on protected characteristics, such as race, sex, or gender. The bill, which needed 21 yes votes to clear the Senate, (it received 22 yes votes and 11 no votes) imposes fines on appraisers for discriminatory practices, with penalties from $10,000 for a first offense, $25,000 for a second, and $50,000 for a third. Violators would also be required to make restitution equal to the cost of the discriminatory appraisal and attend an anti-bias seminar.
A second offense would also result in a 30-day suspension of appraisal licenses, certificates, or registrations, while a third offense would lead to full revocation. Supporters argue that the legislation addresses systemic disparities in appraisals, particularly affecting Black and Latino families. The bill’s passage in the Senate sets the stage for further consideration in the Assembly. It remains to be seen if the bill will survive the legislative process and become law.
CFPB's Comments on State Legislation & Appraisal Bias
In a recent comment letter on the Illinois Proposed CRA Rules, the Consumer Financial Protection Bureau (CFPB) stated that “a lender violates both the FHA and ECOA if it relies on an appraisal that it knows or should know to be discriminatory…”. The CFPB also commented on a settlement between a lender and consumers in the Maryland appraisal bias case Nathan Connolly and Shani Mott, v. Shane Lanham, 20/20 Valuations, LLC and loanDepot.com, LLC. The settlement imposed several obligations on the lender and its AMCs, with significant focus on reconsiderations of value. The lender was also required to conduct statistical analysis tracking appraisal outcomes by protected class and neighborhood demographics. Prior to settlement, the CFPB argued that lenders could be held liable for the actions of an appraiser who is neither an employee nor agent of the lender (an appraiser on the AMC’s panel). The Mortgage Bankers Association weighed in requesting the Court to recognize that there is no existing legal authority to hold a lender liable for the alleged actions of an independent appraiser. The settlement did not address this point.
HUD recently issued a Press Release on May 1, 2024, detailing FHA’s new guidance to protect borrowers from appraisal bias. It states that “FHA’s new Reconsideration of Value policy requires lenders to provide a pathway for borrowers to request reviews of home appraisal valuations. The new rules are set forth in the attached Mortgagee Letter 2024-7.
Changing Appraisal Statutes of Limitation to Statutes of Repose
Appraisers have been lobbying state legislatures to change appraisal statutes of limitation (SOL) to statutes of repose (SOR). A 5-year SOL prohibits a claim against an appraiser beyond 5-years after the appraiser’s negligence is discovered. This “discovery” of negligence could occur many years after the appraisal was completed. As a result, appraisers conduct business under a continuous, never-ending cloud of litigation for past actions. A 5-year SOR would provide that a claim against an appraiser regarding a specific appraisal must be brought within 5-years after the date of that report.
The argument for changing to SORs is that this would allow appraisers to better manage risks via insurance coverage; standardize record retention (the current USPAP record retention policy is 5-years); and better protect retired appraisers. It would also make the appraisal profession more attractive to sorely needed new entrants.
Jerome founded Corporate Settlement Solutions (CSS) in 1992 and served as CEO and Founder until transitioning into the Chairman role.
Jerome assists with the strategic direction of the company and leverages 30+ of industry experience to lead revenue strategy and execution. He also oversees the legal and regulatory functions of the company.
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