Legal Hottips - March 9, 2009
This Legal Hottips article may be reprinted only if it is reprinted in its entirety, including the disclaimers above and below the Hotline questions and answers. The Wisconsin REALTORS® Association Best of the Legal Hotline Service is an educational resource intended to keep the Association abreast of legal developments and concerns involving real estate practice in Wisconsin. We look forward to your input regarding the service, especially regarding the types of topics you would like covered.
The Home Valuation Code of Conduct
New York State Attorney General Andrew M. Cuomo, Fannie Mae and Freddie Mac (government sponsored enterprises) announced the final agreement of the Home Valuation Code of Conduct (HVCC) on December 23, 2009, to change appraiser selection criteria that will help eliminate conflicts of interest on mortgage appraisals. The agreement has the support of the Federal Housing Finance Administration (FHFA).
The requirements will have a significant impact on appraisal practices by lenders as they will have to comply with the new requirements agreed-to by the government sponsored enterprises (GSE) if the lenders sell mortgages to the GSEs. The GSEs have agreed to implement the HVCC beginning May 1, 2009. During 2008, the GSEs received comments from market participants.
The HVCC will be implemented establishing standards on solicitation, selection, compensation, conflicts of interest and appraiser independence. Mortgage brokers and real estate agents are prohibited from selecting appraisers. Lenders are permitted to use "in house" staff appraisers to conduct appraisals. However, the loan production staff is prohibited from (1) selecting, retaining, recommending, or influencing the selection of an appraiser for an appraisal assignment or for inclusion on an appraisal roster and (2) having any substantive conversation with an appraiser or appraisal management company regarding valuation, including ordering or managing an appraisal assignment. The code entitles the borrower to one copy of an appraisal report, free of charge, within 3 days of the closing of the loan.
The Independent Valuation Protection Institute (IVPI) will establish a telephone hotline and E-mail address to receive complaints from appraisers and users of appraisal services on the improper influence or attempted improper influence of appraisers. The Institute will publish and promote best practices for independent valuation. Lenders are prohibited from retaliating against any person or entity that makes a complaint to the IVPI.
Frequently Asked Questions
Does this agreement concern only mortgages in New York State?
No, this agreement applies to mortgages across the country. After January 1, 2009, the GSEs will not purchase single-family loans from mortgage originators in any state that do not agree to adopt the Home Valuation Protection Code.
Does this agreement apply to all lenders?
Lenders that do not intend to sell their loans to Fannie Mae or Freddie Mac are not obligated to adhere to the HVCC. GSEs may exclude lenders that meet the definition of "small bank" according to 12 USC§ 2908 and which the GSE determines would suffer hardships from provisions of the HVCC. However, excluded lenders must otherwise comply with the other provisions of the Code and meet appropriate standards of appraiser independence.
Who is responsible for applying the HVCC?
The GSEs will apply the new code to lenders selling mortgages on the secondary mortgage market.
What does this agreement mean for the independent appraiser?
Independent appraisers, appraisal companies, and appraisers managed by lenders or settlement companies must continue to meet appropriate standards of appraiser independence, including following Uniform Standards of Professional Appraisal Practice (USPAP) and maintaining relevant state licenses or certifications.
What does this agreement mean for REALTORS®?
Individual REALTORS® and licensed real estate agents cannot serve as a third party between a lender and appraiser. This includes selection, retention, and compensation of an appraiser. Broker REALTORS® that offer services as a lender or affiliated lender and appraiser services must comply fully with the HVCC if there is an expectation that their loans will be purchased by Fannie Mae or Freddie Mac after May 1, 2009.
Is this agreement federal law?
No. This is an agreement signed by two government-sponsored corporations, Fannie Mae and Freddie Mac, and the New York State Attorney General, Andrew Cuomo. The federal regulator of Fannie Mae and Freddie Mac, the Office of Federal Housing Enterprise Oversight (OFHEO) also signed the agreement. No legislation was passed or signed into law with respect to this agreement.
Are real estate agents prohibited from communicating with appraisers?
No. As mentioned above, individual REALTORS® and licensed real estate agents cannot serve as a third party between a lender and appraiser. This includes selection, retention, and compensation of an appraiser. A third party, including REALTORS® and real estate agents, can still ask appraisers for additional information, provide additional information to an appraiser, or ask for corrections of factual errors.
Can lenders work only through appraisal management companies?
No, lenders may order appraisals directly from an individual appraiser. Lenders that utilize in-house appraisers can still order appraisals as long as they are independent of the loan production staff and do not ultimately report to an officer who manages loan production.
Appraiser misconduct action will be conducted by state licensing agencies. What is new?
The code is primarily directed at regulating banks and other mortgage lenders and promoting appraisal independence.
Does the HVCC apply to FHA loans?
No. As of January 15, 2009, only Fannie Mae and Freddie Mac have agreed to adopt the code. The HVCC does not apply to FHA loans and the Federal Home Loan Banks are not participating.
Are lenders prohibited from requesting a second appraisal?
No, lenders are only prohibited from ordering a second appraisal if attempting to influence the outcome of the first appraisal. Section I.B.(9) of the HVCC addresses the issue of second appraisals.
Does the HVCC prohibit borrowers from providing payment directly to appraisers?
Yes, only the lender or a third party authorized to select and retain the appraiser can provide compensation to the appraiser.
Are settlement service firms permitted to order appraisals?
Yes, settlement service firms may order appraisals assuming they comply with the HVCC.
(Materials prepared by NAR for REALTOR® members) See the Home Valuation Code of Conduct at http://www.orea.ca.gov/pdf/HVCCFinalCODE122308.pdf and Fannie Mae's Home Valuation Code of Conduct questions and answers at https://www.efanniemae.com/sf/guides/ssg/relatedsellinginfo/appcode/pdf/hvccfaqs.pdf.
What's Going on with Craigslist?
NAR recently learned that its name is being used as part of a property rental scam. In this scam, rental property is offered to consumers, who are led to believe that NAR is functioning as an intermediary to receive rental deposits from prospective tenants and, upon receipt of the deposit, to deliver the keys to the property to the tenant. The tenant is instructed to send money via Western Union to NAR's purported agent, in the United Kingdom. NAR is not involved in this business and believes it is a scam.
But that is not all that has been reported to be going on. A Madison TV station reported that a local REALTOR® discovered that the details of one of her rental property listings apparently had been lifted from her Web site and posted on Craigslist with a lower price and different contact information. Prospects reading the Craigslist entry were asked to wire money overseas. Glen Loyd, of the state Department of Agriculture, Trade and Consumer Protection, said, "Nothing really surprises us because remember that Craigslist and all the classified ads and newspapers right now are on the Internet. And people around the world, these criminals, can look into Madison every day." The REALTOR® remarked that she will regularly check Craigslist and see if my properties are out there. Madison police said investigators are working on numerous local fraud cases involving Craigslist.
A similar scam has been reported to the WRA from the LaCrosse area. A property that was apparently for sale was the target. The property information and pictures were lifted from Craigslist and recast into a rental listing with an overseas telephone number and an e-mail account created using a variation of the owner's name. The ad said to send $500 and get the keys.
If you have encountered these scams or something similar, you can file a complaint with the Internet Crime Complaint Center, sponsored by the Federal Bureau of Investigation and the National White Collar Crime Center. Visit its Web site for more information about how to file a complaint. Anyone who has been victim of a scam also can contact Wisconsin consumer protection at 1-800-422-7128.
REALTORS® should be cautious when if they use Craigslist. Maybe more importantly, REALTORS® who do not normally use Craigslist should routinely review Craigslist to make sure that none of your listed properties (sales and rentals) are being advertised by a scammer!
1.) General Real Estate - Foreclosure
QUESTION:
The property was scheduled for sheriff's sale on Tuesday, Feb. 24. The agent listed the apparent REO property with the bank on Friday, Feb. 27. The agent found out later that for some reason the property was not presented at the sheriff's sale on the 24th. The seller moved out. The bank has signed all the listing documents, but the seller is still the title holder of record. Does the broker need to cancel the listing until sheriff's sale is completed? Is the broker correct in thinking that anyone could list a home?
ANSWER:
The listing contract must be signed by someone agreeing to pay a commission. The law does not require that all the owners or persons with authority to act in the transaction sign a listing contract in order for the listing contract to be enforceable against the person who does sign. Therefore, technically anyone signing a listing would be liable for a commission to a broker who successfully procures a buyer, even if the signatory does not have actual authority to transfer the property.
In the real world though, a listing contract without the signature of all owners or those with proper authority to transfer the property is a disaster waiting to happen. Prior to accepting a listing signed by fewer than all sellers, legal counsel should be obtained regarding the myriad of potential problems. including the duty to
The broker should, at a minimum, disclose to prospective purchasers that the foreclosure process has not been completed and make the listing and any offers to purchase contingent upon the bank acquiring the property via sheriff's deed. Until the confirmation hearing confirms the highest bidder at the sheriff's sale, the seller is still the owner of the property and retains the legal right to redeem the property. It is also possible that someone other than the bank may end up as the highest bidder at the sheriff's sale.
2.) Listing Contracts - Miscellaneous Listing Issues
QUESTION:
If questioned by another brokerage, must a listing company disclose the expiration date of a listing contract?
ANSWER:
There is no legal requirement that a broker disclose that information to another broker. However, Standard of Practice 16-4 stands for the premise that if the listing broker refuses to disclose the expiration date and the nature of the listing, (i.e. exclusive, open or other form), then the inquiring REALTOR® may contact the owner to secure the information and discuss the terms upon which the REALTOR® might take a future listing, or enter into a listing to become effective upon the expiration of the current one.
3.) Office Management - General Office Management
QUESTION:
The broker just closed on a property with the buyers. Does the broker need to keep a copy of the inspection report in her file?
ANSWER:
Wis. Admin. Code § RL 15.04, "Retention of Records," states that a broker shall retain, for at least 3 years, exact and complete copies of all listing contracts, offers to purchase, leases, closing statements, deposit receipts, cancelled checks, trust account records and other documents or correspondence, including inspection reports, received or prepared by the broker in connection with any transaction. The retention period shall run from the transaction closing date or, if the transaction has not closed, from the date of the listing.
While § RL 15.04 requires brokers to retain records for at least 3 years, brokers often will keep records for at least 7 years for tax purposes. Please consult a tax advisor to help create a company policy for record retention for these purposes.
Debbi Conrad
Director of Legal Affairs
Wisconsin
REALTORS® Association
4801 Forest Run Road Suite 201
Madison, WI 53704
Phone: 608-241-2047; 800-279-1972
Fax: 608-242-2279
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