On August 9, 2019, Governor Charlie Baker signed into law a bill to license and regulate appraisal management companies (AMC) in Massachusetts. The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Bureau Act required states to establish a system to license AMCs, which previously did not operate under any government supervision. Dodd-Frank set forth the following minimum requirements that must be implemented regarding licensing and supervision of AMCs:
- Only qualified appraisers should be used for federally related transactions
- Appraisals must comply with Uniform Standards of Professional Appraisal Practices
- Appraisals should be conducted independently from influence
Each state was required to establish licensing and regulatory requirements by August 10, 2019. Massachusetts is the last state to enact such a regulation.
The governor will hold the responsibility of appointing nine members to the Board of Real Estate Appraisers, including one representing the banking industry. Board members will directly oversee compliance with the regulatory requirements. Under the law, an appraisal management company is defined as an entity authorized by a creditor or a secondary mortgage participant of a consumer credit transaction secured by a consumer principal dwelling that oversees a network or panel of 15 or more certified or licensed appraisers in two or more states. A residential dwelling is a residential structure containing 1-4 units and includes condominiums, cooperative units, mobile homes, and trailers. An AMC does not include a department or division of an entity that provides appraisal management services only to that entity. The Board is authorized to adopt rules and regulations in order to implement, administer, and enforce sections of the law.
Any entity desiring to be an AMC must submit an application to the Board for review and approval. The Board will make a determination whether each person who owns 10% of an AMC is of good moral character. The applicant must certify the following requirements:
- There is a system and process in place that a person added to the appraiser panel for appraisal assignments holds an appraiser license or certification of good standing
- A review occurs on all real estate appraisers’ work periodically to ensure they are following the Uniform Standards of Professional Appraisal Practices
- Maintains a detailed record of each request for appraisal services it receives, the name of the appraiser, and a complete digital copy of every version of each appraisal report
Under the new law, no AMC or third-party acting as a joint venture partner or independent contractor of an AMC, shall use coercion, extortion, collusion, compensation, inducement, intimidation, bribery, or any other form of threatening to influence the outcome of an appraisal. Furthermore, an employer and/or manager, should they notice any violation of any applicable law, has a fiduciary obligation to file a complaint within 45 days of identifying the wrongful conduct or behavior.
Fees for registration as an AMC include:
• Application fee
• Initial registration fee
• Change in controller or employee charge fee
• Annual renewal fee
• Late renewal fee
The applicant will also be responsible for maintaining a surety bond in an amount set by the Board. The bond will be held as collateral in the event that the registrant does not meet the obligations outlined in the law.
The leading paragraph of the law declared that this is an emergency law, necessary for the immediate preservation of the public convenience. Due to the timeline set forth in Dodd-Frank, any delay beyond August 10 could result in delays to home purchases and refinances because AMCs would not be able to operate in Massachusetts. A copy of the AMC Registration Application is available on the Board of Registration of Real Estate Appraisers website. There is also an updated list of approved and registered AMCs that you can find here.
With the passing of this law, it is critical that each institution compare its list of AMCs that it utilizes with the approved list on the website. Any institution that uses an AMC for an appraisal for a property located in Massachusetts must use one that is properly licensed in the state. In order to ensure ongoing compliance with regulations, it is advised to work with those in your organization who are responsible for any third-party risk management program to ensure this new criteria is included in any vendor due diligence and monitoring program.
Passage of the law is not the last of the new rules regarding appraisal management companies in Massachusetts. It is expected that the Board of Real Estate Appraisers will create regulations to implement the law. Wolf will provide this information as new rules become effective. To read a copy of the law, please click here.
Wolf’s Regulatory Compliance team reviewed the latest rules and updated its audit programs to ensure your institution remains in compliance.