Bill H.947

HOUSE DOCKET, NO. 583 FILED ON: 1/13/2015

HOUSE . . . . . . . . . . . . . . . No. 947

By Mr. Scibak of South Hadley, a petition (accompanied by bill, House, No. 947) of John W. Scibak and others for legislation to regulate real estate appraisal management companies. Financial Services.

[SIMILAR MATTER FILED IN PREVIOUS SESSION
SEE HOUSE, NO. 3849 OF 2013-2014.]

The Commonwealth of Massachusetts

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In the One Hundred and Eighty-Ninth General Court
(2015-2016)

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An Act to Regulate Appraisal Management Companies.

Be it enacted by the Senate and House of Representatives in General Court assembled, and by the authority of the same, as follows:

SECTION 1. Chapter 13 of the General Laws is hereby amended by striking out section 92 and inserting in place thereof the following section:-

Section 92. (a) There is hereby established a board of real estate appraisers which shall consist of 9 members to be appointed by the governor: 2 of whom shall be a member of the general public, in accordance with the provisions of section 9B; 1 of whom shall be a member of the banking industry; 1 of whom shall represent an appraisal management company; and 5 of whom shall be real estate appraisers. Each real estate appraiser who is a member of the board shall be licensed or certified pursuant to sections 173 to 195, inclusive, of chapter 112.

(b) The term of each appointed member shall be 3 years. Upon expiration of their terms, members of the board shall continue to hold office until the appointment and qualification of their successors. No person shall serve as a member of the board for more than 2 consecutive terms. The governor may remove a member for cause.

(d) The board shall annually elect a chairperson from among its members. The director of the department of professional licensure, with approval of the board, shall appoint an executive secretary to serve the board. The department of professional licensure shall employ such other clerical and technical assistants as may be necessary to discharge the official duties of the board.

(e) The board shall hold at least 6 meetings each year and may hold special meetings as required at a time and place determined by the board.

SECTION 2. Chapter 112 of the General Laws is hereby amended by inserting after section 263 the following 14 sections:-

Section 264. The following terms as used in sections 264 to 277, inclusive, shall have the following meanings, unless the context clearly requires otherwise:

“Analysis”, a study of real estate or real property other than estimating value.

“Applicant”, a person who applies to be registered as an appraisal management company in the commonwealth.

“Appraisal” or “real estate appraisal”, written analysis, opinion or conclusion prepared by a real estate appraiser relating to the nature, quality, value or utility of specified interests in, or aspects of, identified real estate; provided, that an “appraisal” may be classified as a valuation or an analysis, or both.

“Appraisal assignment”, an engagement for which an appraiser is employed or retained to act, or would be perceived by a third party or the public as acting, as a disinterested third party in rendering an unbiased analysis, opinion or conclusion relating to the value, nature, quality or utility of specified interests in, or aspects of, identified real estate.

“Appraisal management company”, in connection with valuing properties collateralizing mortgage loans or mortgages incorporated into a securitization, any external third party authorized either by a creditor of a consumer credit transaction secured by a consumer's principal dwelling, or by an underwriter of or other principal in the secondary mortgage markets, that oversees a network or panel of more than 15 certified or licensed appraisers in Massachusetts or 25 or more nationally, excluding those appraisers who do not provide appraisal services for covered transactions, within a given year to

(i) recruit, select, and retain appraisers;

(ii) contract with licensed and certified appraisers to perform appraisal assignments;

(iii) manage the process of having an appraisal performed, including providing administrative duties such as receiving appraisal orders and appraisal reports, submitting completed appraisal reports to creditors and underwriters, collecting fees from creditors and underwriters for services provided, and reimbursing appraisers for services performed; or

(iv) review and verify the work of appraisers.

Appraisal management company does not include any entity that employs real estate appraisers as employees for the performance of real estate appraisal services in a manner consistent with federal regulations promulgated in accordance with Section 1473 of the Dodd-Frank Wall Street Reform Act.

“Appraisal practice”, valuation services performed by an individual acting as an appraiser, including, but not limited to, appraisal, appraisal review or appraisal consulting.

“Appraisal report”, a written report of an appraisal.

“Appraisal review”, the act or process of developing and communicating an opinion about the quality of another appraiser’s work that was performed as part of an appraisal assignment related to the appraiser’s data collection, analysis, opinions, conclusions, opinion of value or compliance with the Uniform Standards of Professional Appraisal Practice; provided however, that “appraisal review” shall not include: (i) a general examination for grammatical, typographical or similar errors or (ii) a general examination for completeness including regulatory or client requirements as specified in an agreement that does not communicate an opinion of value.

“Appraisal services'', the services required to perform an appraisal, including defining the scope of work, inspecting the property, reviewing necessary and appropriate public and private data sources including, but not limited to, multiple listing services, tax assessment records and public land records, developing and rendering an opinion of value and preparing and submitting the appraisal report.

“Appraiser” or “real estate appraiser”, a person who develops and communicates real estate appraisals and who holds a current, valid certificate as a state-certified general real estate appraiser, state-certified residential real estate appraiser or state-licensed real estate appraiser pursuant to section 178. An appraiser shall be exempt from section 148B of chapter 149, “Board”, the board of registration of real estate appraisers established by section 92 of chapter 13.

“Controlling person”, (1) an officer or director of an appraisal management company or an individual who holds a 10 per cent or greater ownership interest in an appraisal management company; (2) an individual employed, appointed or authorized by an appraisal management company 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; or (3) an individual who possesses the power to direct or cause the direction of the management or policies or procedures of an appraisal management company.

“Covered transaction'', an extension of consumer credit that is or will be secured by the consumer's principal dwelling.

“Dwelling”, a residential structure that contains 1 to 4 units, whether or not that structure is attached to real property, an individual condominium unit, cooperative unit, mobile home or trailer, if it is used as the consumer’s principal residence.

“Employee in charge”, a designated employee of the appraisal management company, who is a certified residential or certified general real estate appraiser in the commonwealth, with the responsibilities and obligations to the board as set forth in section 269.

“Person”, an individual, sole proprietorship, partnership, limited liability company, limited partnership, corporation, association or other group engaged in joint business activities, however organized.

“Real estate”, an identified parcel or tract of land including improvements, if any.

“Real property”, 1 or more defined interests, benefits and rights inherent in the ownership of real estate.

“Registrant”, a real estate appraisal management company registered pursuant to sections 264 to 277, inclusive.

“Uniform Standards of Professional Appraisal Practice” or “USPAP” – the entire uniform appraisal standards document titled Uniform Standards of Professional Appraisal Practice (USPAP)

“Valuation”, an estimate of the value of real estate or real property.

“Valuation Services”, services pertaining to all aspects of property value.

Section 265. (a) It shall be unlawful for a person to directly or indirectly engage, or attempt to engage, in business as an appraisal management company, to directly or indirectly engage or attempt to perform appraisal management services or to advertise or hold itself out as engaging in or conducting business as an appraisal management company without first being registered by the board under the provisions of sections 264 to 277, regardless of the person’s use of the term “appraisal management company”, “mortgage technology company”, or any other name.

(b) The provisions of sections 264 to 277 shall not apply to:

(i) An agency of the federal government or any state or municipal government;

(ii) An appraisal management company that is a subsidiary owned and controlled by a financial institution regulated by a federal financial institution regulatory agency provided the appraisal management company is in compliance with section 1124 of the Federal Financial Institutions Reform, Recovery and Enforcement Act of 1989 and any rules promulgated pursuant to the authority granted in said section 1124; or

(iii) A licensed real estate broker performing activities in accordance with section 174B; provided, however, that an exempt person does not include a real estate broker who receives compensation of any kind in connection with the referral or placement of an appraisal assignment.

(c) An appraiser may not perform appraisal services for real property located in the commonwealth for an appraisal management company that is not registered under sections 264 to 277 unless exempt from licensing as provided for in this section. An appraiser, who relies upon the written assurance of the appraisal management company regarding its registration status, shall not be subject to disciplinary action by the Board.

Section 266. The board shall have the authority to adopt rules and regulations that are reasonable and necessary to implement, administer, and enforce the provisions of sections 264 to 277.

Section 267. (a) A person desiring to be registered as an appraisal management company in the commonwealth shall make written application to the board on forms prescribed by the board setting forth the applicant's qualifications for registration. The application shall be accompanied by the applicable fee as determined annually by the secretary of administration and finance pursuant to section 3B of chapter 7 and any other information the board deems necessary pursuant to rules and regulations adopted by the board. Upon receipt of a completed application and set fee the board shall determine that each person who owns more than 10% of an applicant appraisal management company is of good moral character. The board shall then issue to the applicant a certificate of registration authorizing the applicant to act as a real estate appraisal management company in the commonwealth.

(b) An application for registration shall include the following certifications from the applicant:

(i) A certification that the applicant has a system and process in place to verify that a person being added to the appraiser panel of the appraisal management company for appraisal assignments on real property located in the commonwealth holds a license or certification in good standing in the commonwealth issued pursuant to this chapter;

(ii) A certification that the applicant has a system in place to review the work of all real estate appraisers that are performing real estate appraisal services for the appraisal management company on a periodic basis to confirm that the real estate appraisal services are being conducted in accordance with the Uniform Standards of Professional Appraisal Practice; and

(iii) A certification that the applicant maintains a detailed record of each service request that it receives, the name of the appraiser that performs the residential real estate appraisal services for the appraisal management company and a complete digital copy of every version of the appraisal report completed by the appraiser.

(c) A person who, directly or indirectly owns more than 10 per cent of an applicant for registration, or any officer, controlling person, employee in charge or managing principal of an applicant for registration, shall at a minimum, furnish to the Board information concerning the person’s identity, including fingerprints for submission to the Federal Bureau of Investigation, and any governmental agency or entity authorized to receive such information for a state, national and international criminal history background check. A person who, directly or indirectly owns more than 10 per cent of an applicant for registration, or any officer, controlling person, employee in charge or managing principal of an applicant for registration, who has had a license or certificate to act as an appraiser or to engage in any activity related to the transfer of real property refused, denied, canceled or revoked in the commonwealth or in any other state, whether on a temporary or permanent basis or, who is not of good moral character as determined by the board, shall not be eligible for registration.

(d) Each applicant for registration shall submit the name and address of the applicant's registered agent located in the commonwealth.

(e) A registrant having a good faith belief that a real estate appraiser licensed in the commonwealth has violated applicable law or the Uniform Standards of Professional Appraisal Practice or engaged in unethical conduct shall, within 45 days of identifying such violation, file a complaint with the board.

Section 268. An appraisal management company applying to the board for registration in the commonwealth shall designate 1 controlling person that shall be the main contact for all communication between the board and the appraisal management company. The controlling person may also be designated the employee in charge.

Section 269. In order to serve as the employee in charge for a registered appraisal management company, a designee shall, in addition to continually holding a valid license issued by a state appraiser licensing authority as a state certified appraiser:

(1) not have had a license to practice as an appraiser or to engage in any activity related to the transfer of real property refused, denied, canceled or revoked in the commonwealth or in any other state;

(2) be of good moral character;

(3) submit to a background investigation; and

(4) shall be responsible for:

(i) management of the process of selecting appraisers for the performance of real estate appraisal services;

(ii) management of the process of conducting appraisal reviews. An employee of an appraisal management company or a contractor working on behalf of such company who has any involvement in the performance of an appraisal review of completed appraisals of real property located in the commonwealth shall be licensed or certified in the commonwealth and in good standing pursuant to the provisions of sections 264 to 277; and.

(iii) maintaining required documentation as part of the board file.

Section 270. An appraisal management company shall file a form, signed by the designated controlling person or employee in charge, with the board indicating the appraisal management company's designation of controlling person and employee in charge and the individual's acceptance of the responsibility. The board will establish a process, including appropriate timing, for administering any change in controlling person or employee in charge. An appraisal management company that does not comply with this section shall have the appraisal management company's registration suspended pursuant to section 274 until the appraisal management company complies with this section. An individual operating an appraisal management company as a sole proprietorship shall be a certified general or certified residential appraiser and shall be considered the controlling person for purposes of sections 264 to 277unless another controlling person is designated.

Section 271. The following fees shall be determined annually by the secretary of administration and finance under the provision of section 3B of chapter 7 and shall be collected by the board: (a) application fee; (b) initial registration fee; (c) annual renewal fee; (d) change in controlling person or employee in charge fee; and (e) late renewal fee.

Section 272. In addition to the filing fee, each applicant for registration shall post with the board and maintain a surety bond in an amount designated by the board. The bond shall: (i) be in the form prescribed by the board; and (ii) accrue to the commonwealth for the benefit of a claimant against the registrant to secure the faithful performance of the registrant’s obligations pursuant to sections 264 to 277, inclusive.

The aggregate liability of the surety shall not exceed the principal sum of the bond. A party having a claim against the registrant may bring suit directly on the surety bond, or the board may bring suit on behalf of the party having a claim against the registrant. A deposit of cash or security may be accepted in lieu of the surety bond. A claim reducing the face amount of the bond shall be annually restored upon renewal of the registrant’s registration.

Section 273. (a) No employee, director, officer, managing principal or agent of an appraisal management company or any other third party acting as joint venture partner or independent contractor shall influence or attempt to influence the development, reporting, result, or review of a real estate appraisal through coercion, extortion, collusion, compensation, inducement, intimidation, bribery, or in any other manner, including:

(1) withholding or threatening to withhold timely payment for a real estate appraisal report except in cases of breach of contract or substandard performance of services;

(2) withholding or threatening to withhold future business from a real estate appraiser or demoting or terminating or threatening to demote or terminate a real estate appraiser;

(3) expressly or impliedly promising future business, appraisal services, promotions, or increased compensation for a real estate appraiser;

(4) conditioning the ordering of a real estate appraisal report or the payment of a real estate appraisal fee, salary, or bonus on the opinion, conclusion, or valuation to be reached or on a preliminary estimate requested from a real estate appraiser;

(5) requesting that a real estate appraiser provide an estimated, predetermined, or desired valuation in a real estate appraisal report or provide estimated values or comparable sales at any time before the appraiser's completion of the appraisal report;

(6) providing to a real estate appraiser an anticipated, estimated, encouraged, or desired value for a subject property or a proposed or targeted amount to be loaned to the borrower; provided, however, a real estate appraiser should be provided with a copy of the sales contract for purchase transactions, if available;

(7) providing to a real estate appraiser, or any entity or person related to the appraiser, stock or other financial or non-financial benefits;

(8) allowing the removal of a real estate appraiser from a list of qualified appraisers used by any entity without prior written notice stating the reason for removal to the appraiser. The notice shall include written evidence if the appraiser is removed from the list for illegal conduct, substandard performance, or otherwise improper or unprofessional behavior or any violation of the Uniform Standards of Professional Appraisal Practice or licensing standards of the commonwealth;

(9) any other act or practice that impairs or attempts to impair a real estate appraiser's independence, objectivity, or impartiality; or

(10) requesting or requiring a real estate appraiser to collect a fee from, or be compensated by, the borrower, homeowner, real estate agent, mortgage broker or any other third party in the provision of real estate appraisal services.

(b) No employee, director, officer, managing principal or agent of an appraisal management company or any other third party acting as joint venture partner or independent contractor shall:

(1) alter, modify, or otherwise change a completed appraisal report submitted by a real estate appraiser without the appraiser's written knowledge and consent;

(2) alter, modify, or otherwise change a completed appraisal report submitted by a real estate appraiser and shall, in all cases, transmit a "true and exact copy" to the client and any intended users;

(3) use an appraisal report submitted by an appraiser for any other transaction;

(4) require an appraiser to sign any indemnification agreement that would require the appraiser to defend and hold harmless the appraisal management company or any of its agents, employees, or independent contractors for any liability, damage, losses, or claims arising out of the services performed by the appraisal management company or its agents, employees, or independent contractors and not the services performed by the appraiser. Any indemnity clause not in conformance with this section, in effect as of the date of this Act, shall be null and void;

(5) require an appraiser to provide the company with the appraiser's digital signature or seal;

(6) prohibit an appraiser from recording the fee the real estate appraiser was paid for the performance of an appraisal assignment within the body of the appraisal report;

(7) require an appraiser to accept an appraisal assignment if the appraiser, in the appraiser’s own independent professional judgment believes, (i) the appraiser does not have the necessary expertise for the assignment or knowledge of the geographic area; or (ii) that the time frame does not allow the appraiser the ability to meet all of the appraiser’s relevant legal or professional obligations, and the appraiser has communicated such belief to the appraisal management company; and

(8) knowingly fail to compensate appraisers at a rate that is customary and reasonable for appraisal services in the market area of the property being appraised, consistent with section 129E of the Truth in Lending Act and regulations promulgated thereunder.

(c) Nothing in this section shall be construed as prohibiting an appraisal management company from requesting that an appraiser:

(1) consider additional appropriate material property information;

(2) provide further detail, substantiation, or explanation for the real estate appraiser's value conclusion; or

(3) correct errors in the real estate appraisal report.

(d) An appraisal management company shall not refuse to assign requests or orders for appraisals or reduce the number of assignments or otherwise penalize an appraiser who does not accept an assignment or order in accordance with clause (7) of subsection (b), except that nothing in this section shall require an appraisal management company to offer future appraisal assignments of a particular nature or type to an appraiser who previously indicated a lack of the necessary expertise or geographic knowledge for such assignments, except in the case where the appraiser subsequently demonstrates, to the satisfaction of the appraisal management company, that the appraiser has gained the required experience or geographic knowledge to competently complete the assignments.

Section 274. (a) The board may, by order, deny, suspend, revoke, or refuse to issue or renew a registration of an appraisal management company or may restrict or limit activities of a person who owns an interest in or participates in the business of an appraisal management company if the board determines that an applicant, registrant, or any partner, member, manager, officer, director, managing principal, or person occupying a similar status, performing similar functions, or directly or indirectly controlling the applicant or registrant has done any of the following:

(1) filed an application for registration that, as of its effective date or as of any date after filing, contained any statement that, in light of the circumstances under which it was made, is false or misleading with respect to any material fact;

(2) violated or failed to comply with any provision of sections 264 to 277 or any rules and regulations adopted by the board;

(3) been convicted of any felony or, within the past 5 years, been convicted of any misdemeanor involving any activity related to the transfer of real property, including, but not limited to, mortgage lending or real estate appraisal or any offense involving breach of trust, moral turpitude, or fraudulent or dishonest dealing;

(4) been permanently or temporarily enjoined by any court of competent jurisdiction from engaging in or continuing any conduct or practice involving any aspect of the real estate appraisal management business;

(5) been the subject of an order of the board or any other state appraiser regulatory agency denying, suspending, or revoking the person's license as a real estate appraiser;

(6) acted as an appraisal management company while not properly registered by the board;

(7) structured an appraisal assignment or a contract with an appraiser for the purpose of evading the provisions of sections 264 to 277t; or

(8) failed to pay the proper filing or renewal fee under sections 264 to 277.

(b) The board may, by order, impose a civil penalty upon a registrant or any partner, officer, director, managing principal, or other person occupying a similar status or performing similar functions on behalf of a registrant for any violation of sections 264 to 277. The civil penalty shall not exceed $10,000 for each violation.

(c) In addition to other powers under sections 264 to 277, upon finding that any action of a person is in violation of sections 264 to 277, the board may order the person to cease from the prohibited action. If the person subject to the order fails to appeal the order of the board or the person appeals the order and the appeal is denied or dismissed and the person continues to engage in the prohibited action in violation of the board's order, the person shall be subject to a civil penalty of not more than $25,000 for each violation of the order. The penalty provision of this section shall be in addition to and not in lieu of any other provision of law applicable to a registrant for the registrant's failure to comply with an order of the board.

(d) Unless otherwise provided, all actions and hearings under sections 264 to 277 shall be governed by chapter 30A.

(e) If the board has reasonable grounds to believe that an appraisal management company has violated the provisions of sections 264 to 277 or that facts exist that would be the basis for an order against an appraisal management company, the board may at any time, either personally or by a person duly designated by the board, investigate or examine the books, accounts, records, and files of any registrant or other person relating to the complaint or matter under investigation.

(f) The board shall have the power to issue subpoenas requiring the attendance of persons and the production of papers and records before the board in any hearing, investigation, inquiry, or other proceeding conducted by the board. Upon the production of any papers, records, or documents, the board shall have the power to authorize true copies of the papers, records, or documents to be substituted in the permanent record of the matter in which the papers, records, or documents shall have been introduced in evidence.

Section 275.

Every registered appraisal management company shall maintain the records related to services provided by the appraisal management company as prescribed in regulations adopted by the board. All records shall be preserved in accordance with the Record Keeping Rule of USPAP unless the board, by regulation, prescribes otherwise for particular types of records.

Section 276. The board may appear in its own name in superior court in actions for injunctive relief to prevent any person from violating the provisions of sections 264 to 277 or regulations adopted by the board. The superior court shall have the power to grant these injunctions whether criminal prosecution has been or may be instituted as a result of the violations or whether the person is the holder of a registration issued by the board under sections 264 to 277.

Section 277. (a) The board shall have the authority to conduct investigations and examinations for:

(1) purposes of initial registration, registration renewal, registration suspension, registration conditioning, registration revocation or termination, or general or specific inquiry or investigation to determine compliance with this chapter. The board shall have the authority to access, receive and use any books, accounts, records, files, documents, information or evidence including, but not limited to: (i) criminal, civil and administrative history information, including non-conviction data as specified in applicable provisions of the General Laws; and (ii) any other documents, information or evidence the board deems relevant to the inquiry or investigation regardless of the location, possession, control or custody of such documents, information or evidence; and

(2) the purposes of investigating violations or complaints arising under this chapter, or for the purposes of examination, the board may review, investigate, or examine any registrant, individual or person subject to this chapter, in order to carry out the purposes of this chapter.

(b) If an applicant, registrant or managing principal’s criminal history record check reveals 1 or more convictions, the conviction shall not automatically bar registration, provided the conviction is not related to the financing or transfer of real property. The board shall consider all of the following factors regarding the conviction:

(1) the level of seriousness of the crime;

(2) the date of the crime;

(3) the age of the person at the time of the conviction;

(4) the circumstances surrounding the commission of the crime, if known;

(5) the nexus between the criminal conduct of the person and the job duties of the position to be filled; and

(6) the person's prison, jail, probation, parole, rehabilitation, and employment records since the date the crime was committed.

This act shall take effect 180 days after its passage.

Name:	District/Address:	Date Added:
John W. Scibak	2nd Hampshire	1/13/2015
Bradford R. Hill	4th Essex	1/15/2015
David Paul Linsky	5th Middlesex	9/9/2019
Thomas J. Calter	12th Plymouth	9/9/2019
Jeffrey N. Roy	10th Norfolk	9/9/2019
Josh S. Cutler	6th Plymouth	9/9/2019
Sean Garballey	23rd Middlesex	9/9/2019
James Arciero	2nd Middlesex	9/9/2019
Thomas A. Golden, Jr.	16th Middlesex	9/9/2019
Sarah K. Peake	4th Barnstable	9/9/2019
Carole A. Fiola	6th Bristol	9/9/2019