Department of Labor and Revenue

Title - South Dakota Appraiser Certification Program

News Articles - June 2012

Appraiser Certification Program Mission, Purpose and Intent

Appraiser Certification Program Advisory Council

New Licensees - April - May 2012

Information Regarding Disciplinary Actions

Anonymous Complaints

Review of Cases - January 1, 2012 through June 5, 2012

Frequent Flyers

Full Court Pressure

Appraiser License Renewal

Appraisers, Real Estate Agents and Lenders: Did You Know?

Appraiser Certification Program Mission, Purpose and Intent

Program was implemented July 1, 1990, pursuant to enactment of Title XI of the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) by Congress. The mission of the Program is to certify, license and register appraisers to perform real estate appraisals in the state of South Dakota pursuant to Title XI (FIRREA). The purpose of the Program is to examine candidates, issue certificates, investigate and administer disciplinary actions to persons in violation of the rules, statutes and uniform standards, and approve qualifying and continuing education courses. Title XI intends that states supervise all of the activities and practices of persons who are certified or licensed to perform real estate appraisals through effective regulation, supervision and discipline to assure their professional competence.

Effective July 1, 2011, pursuant to the Dodd-Frank Wall Street Reform Act, the Program was granted legislative authority to register and supervise the activities of Appraisal Management Companies doing business in South Dakota.

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Appraiser Certification Program Advisory Council

Council members provide recommendations to the Secretary of the Department of Labor and Regulation in the areas of program administration in order to sustain a program that is consistent with Title XI. The Council meets quarterly in public forum. See our Advisory Council Web page for meeting information.

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New Licensees - April 2012/May 2012

Scott K. Falkum, State-Certified General - Minneapolis, MN
Robert A. Schreel, State-Certified Residential - San Diego, CA
Michael D. Craven, State-Registered - Rapid City, SD
Timothy J. McGuire, State-Certified General - Holstein, IA

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Information Regarding Disciplinary Actions

Public information regarding disciplinary action taken against an appraiser is available upon written request to:

Department of Labor and Regulation

Appraiser Certification Program

445 East Capitol Avenue

Pierre, SD 57501

or email

Include in the request for information the name of the appraiser and the appraiser's city and state of residence. (Disciplinary action may include denial, suspension, censure, reprimand, or revocation of a certificate by the department.) (Administrative Rule of South Dakota (ARSD) 20:14:11:03)

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Anonymous Complaints

ARSD 20:14:11:01.01. Anonymous complaints. Initiation of an investigation may be commenced upon receipt of an anonymous complaint if it meets the following criteria:

  1. The allegations of violations of any provision of this article are considered credible and based upon factual information which is independently verifiable.
  2. The complaint is accompanied by a copy of the appraisal report or other documents which contain clearly identifiable errors or violations of the provisions of this article.

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Review of Cases - January 1, 2012 through June 5, 2012

For the period January 1, 2012 through June 5, 2012, the Department received four upgrade applications and initiated six complaint investigations.

Upgrades - Four upgrades pending.
Complaints - Two complaint consent agreements executed and four complaints pending.

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Frequent Flyers

(Article published in the Illinois Appraiser Newsletter Volume 4, Issue 6 - June 2012. Reprinted here courtesy of the Illinois Department of Financial & Professional Regulation.)

Maybe last year or even a few months ago you were in for a settlement conference before a Board member and a Department attorney. You admitted to boiler plating huge sections of your report. You acknowledged rookie errors and crazy omissions. Sheepishly, you took your medicine about cutting corners and making a general mess of that last appraisal. The board members were convinced by your sincerity and offered you private remediation through additional course work instead of a public discipline such as a fine or suspension.

Now you're back. What to do with you now?

Appraiser regulators have what we euphemistically refer to as, frequent flyers. Frequent flyers are licensees whose names are well-known to the Department and especially the Board.

Why? Because they are the subject of multiple complaints that may span years.

How are frequent flyers born? Kenny began appraising in 2000. He's a Certified Residential appraiser out on his own. His first complaint came in 2003 and involved boilerplate errors and a flawed Cost Approach on a cookie-cutter house in a garden-variety subdivision. He was brought in for a settlement conference and was given an education sanction. No public discipline.

In 2005 another complaint comes in. This time, Kenny makes a mess of a condominium appraisal. More boilerplate. Wrong zoning. Missed sales. Unsupported adjustments.

He's brought in again. This time, the Board recommends an AWL (Administrative Warning Letter) with a fee of $500. Kenny agrees to the terms and promises never to be back before the Board. Again, not a public discipline.

In 2009, Kenny doesn't complete his 28 hours of CE. This time, he gets a fine and a brief suspension. He makes up the deficient courses and sits idle for seven weeks.

In 2011, a lender looking to fulfill their Dodd-Frank Mandatory Reporting obligations rolls in four reports. One is from 2008, one is from 2010 and two are from 2005.

A quick look at the 2005 reports reveals that they were written after his first settlement conference and contained more boilerplate, wring zone, missed sales and unsupported adjustments. We have no choice but to close the 2005 cases as they have exceeded the five-year Illinois statute of limitations.

Kenny ends up suspended for a long stretch and has to pay a big fine in early 2012.

Out in the profession, appraisers grumble amongst themselves that the state should have gotten rid of Kenny back in 2005. They all seem to know that Kenny's reputation is to make numbers and to do a careless job.

So, was it a lenient Board that gave Kenny too many chances? Maybe it was the fault of the lender who was sitting on Kenny's bad appraisals for six years. Maybe there are other lenders who've been sitting on his reports for years but just decided that it was easier to blacklist him quietly.

Perhaps it was the fault of all those grumbling appraisers who've actually reviewed Kenny's work over the years ... but never saw fit to turn any of them into the state.

In any case, this is how a frequent flyer is born and is able to practice for years.

We don't like it any more than you. But think of it this way; If you had appeared before the Board back in 2005 based upon what was found in that single report, would you want a chance to become a better appraiser ... or should you have been fined, revoked or suspended?

If you do end up in a settlement conference before the Board, try to make certain that it's a one-way flight.

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Full Court Pressure

(Article by Peter Christensen in Valuation, Fourth Quarter. Reprinted with permission by the Appraisal Institute.)

Several recent lawsuits could significantly affect appraiser liability.

In recent years, Australian "valuers" have paid as much as 7 percent of their gross revenue for professional liability insurance - about 10 times higher than most U.S. appraisers pay. From this side of the equator, it appears their situation stems from appraisals essentially being treated as guarantees of value for lenders, mortgage insurers and borrowers. Fortunately, U.S. appraisers aren't facing that kind of crisis, but there are a number of cases working their way through the courts that warrant attention.

The cases discussed here highlight significant liability issues and potential financial ramifications that appraisers may have to cope with in the future.

Gibson, et al. v. Credit Suisse AG et al., U.S. District Court (D. Idaho), filed Jan. 3, 2010

This lawsuit is the biggest appraisal liability case in the U.S. in terms of alleged damages ($24 billion) and is at the extreme end of frivolity as to the connection - or lack thereof - of the unintended users of the appraisal. However, in terms of legal issues and parties involved, it is not unlike hundreds of similar cases filed by parties who are not the intended users of the appraisers' report and, in some cases, not even parties the appraisers could have imagined would receive the reports. In fact, a majority of legal claims against appraisers are filed by parties who are not the appraisers' clients or identified as intended users.

The case concerns loans and appraisals for loans to the developers of four luxury projects in Idaho, Montana, Nevada and the Bahamas. The plaintiffs aren't the appraisers' clients or anyone the appraisers might have imagined as report users, but rather an alleged class of approximately 3,000 individuals who purchased lots or homes in the resorts built by the developers to whom lender Credit Suisse loaned money.

The plaintiffs contend that Credit Suisse created what they label a "Loan-to-Own" scheme under which Credit Suisse, aided by inflated appraisals, loaned hundreds of millions of dollars intending that the developers would default and that Credit Suisse would then foreclose and obtain ownership at below market value. As ridiculous as it might sound, the appraisal firm - which is a division of a national brokerage and is named as a defendant - has had to defend itself against the plaintiffs' claims for more than a year at great expense.

The relevance of this case to appraisers is multifold. It calls attention to the fact that the concepts of intended use and user do not protect appraisers from litigation by third parties as strongly as most appraisers would like to believe. Despite the tenuous nature of their claims, the plaintiffs' case has so far survived two motions to dismiss. Appraisers must focus on tightening language in their reports to make claims by such parties less supportable.

The case also highlights the dangers of professional cannibalization. The appraisers at the defendant appraisal shop have discovered that their contemporaries, or rather competition, are ready and willing to testify against them and advocate for their liability to parties whom the appraisers never imagined as intended users and for purposes anathema to why they produced their reports. Recall that the appraisals were for loans to the developers and that the lots and homeowners were not parties to these loans. In fact, many purchased their properties before the loans were made.

Yet the plaintiffs' expert witness appraiser offered such conclusions as: "In my opinion, the procurement and use of the appraisals was designed to artificially inflate values so as to defraud developers, and others who had, and would, purchase lots or homes or otherwise invest in the resorts." Professional attacks such as these ensure that the relevance of intended use and user will continue to erode for all appraisers and interfere with their ability to serve actual clients and users.

Finally, the alleged damages at stake and cost of defending some of these unintended user cases are impacting the profession by highlighting the risk faced by large commercial appraiser operations. That risk, of course, also captures the attention of insurance carriers and, perhaps more significantly, may impact the sustainability of appraiser operations within large real estate service and brokerage companies.

FDIC v. CoreLogic Appraisal Services, LLC, f/k/a eAppraiseIT, LLC, et al., and FDIC v. LSI Appraisal, LLC, et al., U.S. District Court (C.D. Cal.), Filed May 9, 2011

The Federal Deposit Insurance Company filed suit in May against two national appraisal management companies, and those suits are not only the FDIC's first large-scale appraisal liability cases but also the largest cases filed against any AMCs by anyone. The FDIC alleges that the AMCs supplied hundreds of "grossly negligent" appraisals to Washington Mutual from 2005 through 2007. Approximately 200 appraisals were involved in each case, and the FDIC is seeking more than $100 million in alleged damages against each AMC.

While the cases will have company-specific financial impact, both cases also could have significant impact on residential appraising in general. They present the issue of whether an AMC can be found directly liable for faulty appraisal work by their "independent contractor" appraisers. The FDIC has recently made the argument that fee panel appraisers are the legal agents of AMCs and that AMCs are thus liable for all appraiser negligence on that basis.

The FDIC's two cases also highlight the potential industry-wide impact that FDIC litigation may have. While these two cases are by far the FDIC's largest appraisal-related matters, it has filed many smaller liability cases over the last four years against more than 100 individual appraisers and appraisal firms. To date, these cases have focused on the residential sector, but actions against commercial appraisers are anticipated.

How is the FDIC able to sue over appraisals delivered years ago? Appraisers should understand that the statutes of limitation pertaining to professional liability have nothing to do with USPAP's five-year recordkeeping requirement - in most states, appraisers are routinely sued about appraisals dating back to the real estate bubble. Also, the FDIC itself receives an extension of any statutes of limitation - up to three additional years for tort claims (e.g., negligence). Regardless of USPAP's minimum, appraisers are strongly urged to retain their work files for at least eight years - preferably longer - because a strong work file is the appraiser's best defense.

O'Brien v. Quicken Loans, Inc., et al., Circuit Court of Ohio County, WV, Filed Oct. 29, 2009

This case is tiny in comparison to the others, but it is one of the first in which an AMC has sought to enforce an indemnification clause in an AMC contractor agreement. While it's extremely rare for AMCs to try to enforce those clauses and sue appraisers, this is one of those exceptions.

After being sued by a borrower, the AMC filed a cross-complaint against an appraiser for indemnification under the contractor agreement - the appraisal at issue was for a loan in 2007 by the AMC's affiliated lender. It passed through the AMC's quality controls. Two years earlier, the appraiser had signed the AMC's agreement containing a one-sided indemnification clause. The appraiser promised he would indemnify the AMC for all damages, losses, penalties and fines that the AMC might incur "in any way related to … any appraisal report submitted to (the AMC)." This appraiser was not in any economic position to decline work and was in bankruptcy when he signed the contractor agreement.

The AMC demands under the indemnification clause that the court enter a judgment against the appraiser for any damages that the AMC is found liable for to the borrower. That cross-complaint is not likely to produce results, however, because the appraiser is again in bankruptcy and his insurance coverage appears to have been exhausted by defending other claims, including claims about appraisals he delivered to the same lender through the same AMC.

Regardless of whether this particular appraiser produced shoddy work, the bigger legal issue is whether this case and the handful like it are predictors of future widespread indemnification actions by AMCs. If so, U.S. residential appraisers will feel more kinship with their Australian counterparts and their professional liability insurance crisis.

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Appraiser License Renewal

The 2012 appraiser renewal applications will be mailed the first week in July. In order to renew your certificate for state-certified general, state-certified residential, state-licensed and state-registered appraiser, you must submit the completed application and applicable renewal fees by August 17, 2012. The National Registry fee has been increased to $40.

2013 renewal - Appraisers are required to complete the 2012-2013 Edition of the 7-hour National Uniform Standards of Professional Appraisal Practice (USPAP) Update Course during the period of January 1, 2012 through June 30, 2012. The certificate of completion is to be submitted with your 2013 renewal application. Do not submit verification of completion of the course during this renewal period. If the course is not completed by June 30, 2012 the applicant for the 2013 renewal period will be assessed a $100 administrative penalty fee.

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Appraisers, Real Estate Agents and Lenders:
Did You Know?

No person violates state statute solely by asking a real estate appraiser to consider additional, appropriate property information, or to provide further detail, substantiation, or explanation for the appraiser's value conclusion, or to correct errors in the appraisal report, or by withholding payment of an appraisal fee based on a bona fide dispute regarding the appraiser's compliance with the appraisal standards adopted by the Department of Labor and Regulation. A person does not violate state statute solely by retaining a real estate appraiser from panels or lists on a rotating basis, or by supplying an appraiser with information the appraiser is required to analyze under the appraisal standards adopted by the department, such as agreements of sale, options, or listings of the property to be valued. [See South Dakota Codified Law (SDCL) 36-21B-11 and 36-21B-12]

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Marcia Hultman, Secretary
123 W. Missouri Ave.
Pierre, SD 57501-4505
Tel. 605.773.3101
Fax. 605.773.6184