Massachusetts House passes Rep. Stanley’s Bill to Regulate Appraisal Management Companies

The Massachusetts House of Representatives passed State Representative Thomas Stanley’s (D-Waltham) bill intended to ensure accurate appraisals of Massachusetts homes. H.3849 (Formerly H.992 as filed by Rep. Stanley), An Act to regulate real estate management companies, seeks to establish the requirements for the registration and regulation of appraisal management companies which have long operated without substantial government oversight. H.3849 would allow Massachusetts to conform to the 2010 Dodd-Frank financial services law, which mandates all states to regulate appraisal management companies by 2014.

H.992 is a re-file of an amended bill Representative Stanley submitted in the 2011-2012 Legislative Session (H.124 which then became H.4117). The bill passed in the House then but failed to get enacted before the end of the session. Similar legislation four years ago moved quickly in the House and Senate before stalling over a technical disagreement relative to the language in the bill known as, “Customary and Reasonable Compensation.” To remedy this conflict, Consumer Protection and Professional Licensure added language that prohibits appraisal management from “knowingly” failing to pay appropriate fees to appraisers.

H.992 was reported out favorably by both the Joint Committee on Financial Services and the House Committee on Ways and Means. On the House Floor, two amendments, one made by Representative Costello and another by Representative Dempsey, were adopted to H.3849. The bill now goes to the Massachusetts Senate for approval.

“I am extremely happy that all the hard work my legislative colleagues and stakeholders have put into this bill, has finally paid off,” stated Representative Stanley. “Our nation’s ongoing foreclosure crisis is exacerbated by the inaccurate appraisals of homes. Appraisal management companies have offered to perform appraisals for significantly lower fees than experienced appraisers, resulting in lower quality work and consequences for consumers.”

Under this bill, an appraisal management company is defined as, “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 a state or 25 or more nationally.” For the purposes of this definition “oversees a network” includes recruiting appraisers, contracting with appraisers to perform appraisal assignments, negotiating fees with appraisers, providing administrative duties, such as receiving appraisal orders and appraisal reports, reviewing, and transmitting appraisal reports received from appraisers to the company’s clients.

The bill gives authority to the Board of Registration for Real Estate Appraisers to set regulations for the registration and performance of appraisal management companies, to determine a registrant’s qualifications for registration, and to investigate complaints and impose penalties for non-compliance. H.3849 would also prohibit real estate management companies from using coercion, extortion, collusion, compensation, inducement intimidation, bribery or any other form of threatening to influence the outcome of an appraisal. Additionally, the bill increases the number of seats on the Board of Registration for Real Estate Appraisers from 7 to 9 and allocates one seat to an appraisal management company representative. The initial fee and renewal fee for registration and other fees will be set by the commissioner of administration and finance.

Appraisal management companies have been operating in Massachusetts for more than 25 years and often receive outsourced work from lenders.