Wednesday, April 29, 2015

LenderVend Requirement For Appraisers to Upload Copies of Appraisal Workfiles

Update Note 8-1-15: The entry below was published in April 2015.  Subsequently, appraisers reported to us that LenderVend abandoned the workfile policy requirement it had announced.  

Many residential appraisers we insure and several appraiser organizations have contacted us in the last few days about an appraisal management company's new requirement that their panel appraisers upload a PDF copy of their appraisal workfile for each assignment they perform.  The AMC is LenderVend, LLC and, according to its website, it is affiliated with mortgage lender Provident Funding.

We understand that LenderVend’s requirement imposes an additional burden on appraisers.  We've also heard firsthand from appraisers about the anxiety the policy is creating because of the unknown uses to which the workfile may be put by the AMC.  As is the case with any peculiar requirements imposed by particular AMCs or lenders, we think that appraisers should weigh these issues in deciding whether they want to perform services for the AMC or lender and/or in deciding how much to charge for their services because of the extra work entailed. 

In general, there is no legal requirement for an appraiser to provide a workfile to a client or to the AMC of a client – unless the appraiser has agreed in a service agreement or as part of an assignment engagement that such materials will be provided.  Many appraisal service agreements with AMCs and lenders do contain a requirement that appraisers must supply workfiles upon request and/or state that workfiles become the property of the AMC or lender.

Our business is appraiser professional liability prevention and defense, however.  And, looking at this requirement from the sole perspective of an appraiser’s professional liability risk (and not the perspective of weighing the burden on the appraiser's workload), we do not see the submission of a workfile in this manner at the time of delivering the appraisal report as creating additional liability risk for the appraiser and, in fact, believe it may marginally decrease an appraiser’s potential liability risk.  It may reduce the appraiser's liability risk to the lender-client because submission of the workfile will be providing transparency for the support or lack of support for the appraisal before a loan is funded and provide disclosure as to what may or may not have been considered by the appraiser in the appraisal.  If the lender (or its agent the AMC) has received the workfile at the time of receiving the appraisal report, the lender would have a more difficult time claiming that it acted in ignorance of some alleged error by the appraiser that could reasonably have been discovered by reviewing the contents of the workfile.  The receipt of such information would marginally make it more difficult for the lender to establish certain legal claims because of the additional disclosure of information at the time the appraisal report is delivered.

Although we see the submission of a workfile at the time of delivering the appraisal report as likely -- but only slightly -- reducing an appraiser’s overall liability risk, we still do have concerns:

1.       We are concerned that appraisers, as a result of the policy of being required to upload a copy of the work file electronically, may not retain materials that we feel are very important to liability prevention, but which are not technically necessary for minimum USPAP work file contents – items such as extra photos not contained in the report, blue prints (when relevant to an assignment), and candid notes of communications with the AMC, lender, borrower, etc.  We advise our insured appraisers to continue retaining these additional materials, even if not required by or delivered to the AMC as part of the minimum contents expected by AMC for the work file.

2.       For those appraisers who do not maintain and submit a minimally compliant work file, it is conceivable that a state board complaint may be filed.

3.       Our concern about the specific requirement by this AMC also was heightened initially because LenderVend is affiliated with Provident Funding.  In 2014, Provident Funding submitted a relatively high number of demand letters to appraisers relating to mortgage repurchase losses that it alleged were incurred as the result of appraiser negligence.  We wrote an article about that trend entitled "Pirate Waters" in the 4th Quarter issue of Valuation magazine.  However, after considering the issues and as stated above, we believe that those types of claims would actually be harder to establish by a lender when either the lender or its AMC has received a workfile at the same time as receiving the appraisal report.  Thus, while Provident Funding’s prior frustrations with allegedly deficient appraisals might be one of the reasons leading LenderVend to seek to improve the review of appraisals by also receiving workfiles, we don’t see any logical relationship between the new requirement and future legal claims against appraisers relating to current appraisal work -- but we will be on the look out.