Ohio Commences Regulation of Appraisal Management Companies

An appraisal management company is a business that manages or coordinates appraisers and their provision of appraisal services to lender clients. Although the regulation of appraisal management companies is not new nationally, it is to Ohio. In 2015, various federal financial agencies enacted a final rule to implement state requirements for the registration and supervision of Appraisal Management Companies (AMCs). The rulemaking was prompted by a provision in the Dodd Frank Act, which was enacted in 2010 in response to the mortgage loan financial crisis.

The public policy behind the AMC is to provide a buffer between independent appraisers and lenders. The thought was lenders were putting undue pressure on appraisers to hit numbers or lose business. The AMC was intended to reduce the number of inflated appraisals but assuring true appraiser independence.

The federal rulemaking required states to initiate regulation of the AMCs or the AMCs would be prohibited from providing appraisal services in federally related transactions. The Appraisal Institute estimated that as of September 2016, forty states had enacted legislation to regulate AMCs. Last month, Ohio enacted emergency legislation to regulate AMCs, although a majority of the legislation will not be effective until December of 2018.

A portion of Ohio’s law did become effective on June 14, 2018. It requires the Ohio Real Estate Appraisal Board to do the following:

• Adopt rules regarding criminal records checks, AMC licensure, renewals, enforcement settlement agreements, reasonable fees paid to appraisers and service of process;
• Determine appropriate disciplinary sanctions against AMCs that engage in prohibited acts;
• Hear appeals of decisions of the Superintendent of Real Estate;
• Request the Superintendent of Real Estate initiate investigations of AMCs.

The act also adds an additional requirement for members comprising the Ohio Real Estate Appraiser Board. One of the four professional members of the Board must also be an owner of an AMC in good standing.

To obtain licensure the owner of the AMC must meet certain background check, education, and procedural requirements. Although the owner need not be a licensed or certified appraiser, they must have completed 15 hours of training in the Uniform Standards of Appraisal Practice and subsequently 7 hours of training every two years. The owner must agree to submit the AMC to audits and report any suspected violations of appraisal law. Last any owner of an AMC cannot have had an appraiser license, certificate or registration refused, denied, canceled, suspended or revoked for any reason.

Procedurally the AMC must assure that there is a process in place to review the work of appraisers that are performing services for the AMC and verify that the appraisers are licensed and in good standing. Additionally, an AMC is required to disclose to its clients (i.e. lenders) the fee it is paying its appraisers for the client’s assignments. AMCs are required to keep all records for at least five years and only enter into contractual agreements with licensed or certified appraisers.

The law also provides for criminal penalties for AMC misconduct. An AMC is prohibited from terminating an appraiser without first notifying the appraiser in writing of its decision and giving the appraiser the opportunity to respond- also in writing. Violation of this provision is a first-degree misdemeanor. An AMC that alters, modifies or changes an appraisal report could face a fifth-degree felony.

Recently the Superintendent of Real Estate acknowledged the benefits of reviewing the best practices and lessons from other state’s AMC regulatory programs. On July 18, 2018, the Ohio Real Estate Appraiser Board held a special meeting to discuss proposed rules, although it is unknown when the rules will be enacted, or the AMC regulatory program will be fully operational.