When a lending institution loses confidence in an appraiser’s work, the bank or AMC will put them on a “do not use” list, also known as a blacklist.
In some cases, this means an appraiser has made a costly mistake. However, some banks are taking blacklisting to an extreme by treating appraisers as guilty until proven innocent without cause or reason why.
If unchallenged, this practice can be devastating because being blacklisted even once can have permanent detrimental effects on an appraiser's career, income, and reputation.
By engaging in blacklisting lenders are trying to insulate themselves from future risks when doing business with Fannie Mae and Freddie Mac. However, there is no formal review process in place to ensure these “do not use” decisions are justified. In an attempt to prove accountability to these government-sponsored enterprises (GSEs) big banks in particular are demonstrating a repeated and ongoing lack of accountability to the appraisal profession.
FREA is a membership organization that provides its Professional level members with risk management advice and has a track record of taking on issues impacting the whole real estate profession like FDIC litigation against appraisers and wrongful claim filings against home inspectors and real estate brokers and agents.
Recently, after studying the blacklisting issue and its impact on the appraisal profession, FREA began working with blacklisted appraisers who were FREA members who were trying to regain their eligible status. Aware of the many reported cases of abuse, FREA sought to find a blacklisting case involving a FREA member where ample evidence proved the appraiser was truly not at fault. When such a case came to light, FREA decided to pick up the torch for its member and the whole appraisal profession to force the bank involved to take action to correct the erroneous “do not use” decision.
The Case of Joe Appraiser
In September of 2013, Joe Appraiser (not his real name) was notified by one of the big banks that he had been placed on ineligible status due to an "Administrative Observation." Immediately, Joe contacted the bank regarding his placement on the “do not use” list believing this was all a simple mistake. In hopes of reversing his eligibility status, Joe submitted a detailed rebuttal where he provided a line-by-line response to each alleged deficiency the reviewer found in his appraisal report.
When the bank acknowledged Joe’s “appeal”, it also notified Joe that a status review could take up to one year. At this point, Joe reached out to Brian L. Trotier, FREA's Executive Vice President and COO, for assistance in expediting his review. Joe sent Trotier a copy of the bank’s initial notification of his new “do not use” status as well as the rebuttal correspondence Joe already sent to the bank asking for his reinstatement
"This particular bank is one of the biggest offenders of blacklisting," Trotier said. "We were waiting for a case where we had specific facts to review and analyze. This was that case."
After reviewing and assessing Joe's situation, Trotier believed him to be a competent appraiser with a valid rebuttal. He also concluded the bank never read Joe's rebuttal and, based on the one year time frame for doing so, was unlikely to reinstate Joe before his business would be permanently damaged. FREA then emailed its due process concerns about the lack of a timely review to the bank and received a form reply thanking FREA for its interest.
At this point, FREA called in attorney Todd F. Stevens who works with appraisers to enforce their appeal rights when they are blacklisted. “The bank agreed to review Joe’s appeal, but the bank indicated that it would not be something they could and/or would address right away,” Stevens said. “A timely appeal process is crucial with blacklisting because it negatively and permanently impacts an appraiser’s livelihood.”
Later in November, Trotier emailed another representative at the bank citing the severe economic consequences Joe’s business had suffered and requested a formal review of Joe’s case be granted within 30 days. The following day FREA was directed to resubmit another copy of the request to the appraisal review department, which Trotier did immediately.
Two weeks later, yet another bank representative emailed Trotier and indicated the request for expedited review of Joe’s case was being delivered to the company’s chief appraiser for a decision. After two more days, Trotier received an email from the bank, informing him that a decision on Joe’s appeal would be made within one week.
After the week passed without any decision and after submitting repeated requests to the bank about the promised review and decision, neither Joe nor FREA had received word about Joe’s change appeal. When yet another week passed and the bank had yet to deliver a resolution, Trotier took the initiative and sent one final email to the bank, indicating Joe’s intent to sue the bank for the damage to his business and professional reputation. Miraculously, the bank woke up and quickly and removed Joe from the “do not use” list.
Blacklisting is a continuing and growing problem
There are potentially thousands of appraisers who already are in the same boat Joe found himself in as a result of a bank’s failure to provide a timely, fair, and objective review of a blacklisting decision. With recent changes in quality management regulations impacting Fannie Mae and Freddie Mac directly, the number of appraisers who will end up on “do not use” lists will continue to grow unabated unless a system for a review of the decision is implemented. Since roughly 95% of all real estate appraisal business is done in conjunction with mortgage lending, there is a high cost of being blacklisted.
Now it's your turn
We all know at least one person who has been blacklisted and refused a timely appeal. What do you think it will take for banks to treat suspected appraisers as innocent until proven guilty – instead of the other way around?
(We’ll be discussing this more in Part 2 of this two part series on blacklisting.)
Leave a comment below and weigh in on this issue or email us direct with your story at email@example.com and let us know how we can help.