Here is what my E&O provider had to say about it  . . . I would think that these folks have a better grasp of what does and does not affect my coverage.

“However, our National Claims Counsel is not a huge fan of informal dispute resolution as this process has its own set of drawbacks; finding an experienced arbitrator with real estate background and knowledge may be difficult; also, many arbitrators are inclined to compromise, trying to appease all parties, even when it is not warranted. Many tout arbitration as being more cost-effective than litigation but our Claims Counsel has experience to the contrary.

Most importantly, by agreeing to informal dispute resolution you are waiving your right to a trial by jury. It is not always favorable to take a case to trial before a jury and in some circumstances our claims counsel will opt not to do so, for example, where she is a concerned about jury sympathy when the plaintiff is a borrower. However, in circumstances where it may favor your cause our claims counsel will opt for a jury trial. For instance, if the plaintiff is a lender, or sophisticated business person or organization, our claims counsel often finds that a jury will be more sympathetic to the appraiser and does not want to see the big business blame the appraiser for its own shortcomings. Our claims counsel tries to choose cases carefully and knows that some jurisdictions are better for jury trials than others. The point is simply that juries are not always as terrible as the press paints them, and our experience backs that up.

Exclusive Jurisdiction and Venue (Section 12) - You are agreeing that all arbitration proceedings, whether filed by you or against you, will be conducted in Lafayette County, State of Mississippi. This will have cost and time implications and you have also lost the benefit of a California jury of peers.

Governance Laws (Section 12) – Although your appraisal work is in the state of California, laws of Mississippi shall govern the Agreement. If there is a conflict between the laws of California and those of Mississippi, you are agreeing that the laws of Mississippi will apply”.

It is plain to my own view that Appraisal Port is in fact a management company. They run rule sets when under contract from lenders to do so. I have seen some of these agreements. Appraisal Port is free to be a management company. The biggest concern we all should have at this juncture is not just with FNC, but with all Appraisal management Companies.

These companies are completely unregulated. When bank and mortgage officials are around these companies become appraiser companies, when appraisal boards come around, they become a vendor to lenders. They perform their duties differently than what is typically seen as a management company’s role, such as approving appraisers. Many management companies do not approve appraisers either, they allow the lender to do that, but act as a liaison between the two parties.

Appraisal Port may not consider themselves to be an actual management company, but here is an interesting quote from FNC’s website:

“Documentation of the entire loan process is critical, as is evidence of appraiser independence, compliance to USPAP standards, and indications of appraisal or appraiser violations,” Rayburn said. “We provide clients with solutions for all of these issues.”

Regarding appraiser independence, the FNC platforms feature auto-assignment—functionality that ensures appraiser independence; the system automatically assigns orders randomly yet equally to appraisers on the lender’s approved vendor list. Likewise, FNC data and analytics give lenders the tools they need to have confidence in the appraisal at every step of the loan process”.

FNC has developed and written review software that they sell to lenders and AMCs. These programs supplant licensed appraisers in the review process. These programs are not licensed appraisers, but give lenders the illusion of confidence that only a living and breathing appraiser can give. The use of these tools would be good at assisting a licensed or certified appraiser, but not in the place of them.

FNC tries to escape being a management company by stating that they are the same as a software company. Most software companies do not deal with data basing proprietary information, establishing procedural and compliance rules for highly technical processes, nor do they typically act as the only link in the client to vendor chain.

It seems the last 3 questions are simple enough. It is clear that by repeating the arbitration language again, they are very intent on not only making it difficult for small business appraisers to do anything, they are hoping for geographic protection by keeping it in their back yard.

While I am sure Mr. Olson is a competent and well educated lawyer, I would advise any appraiser out there to seek counsel from his/her own attorney. Mr. Olson has also been of the opinion that appraisal data is not copyrightable. These are topics that are certainly left best with professionals who have a specific and thorough knowledge of the topic. Being general counsel for FNC means that his best interest is to see to FNC’s best interest, not to that of any appraiser out there.

Communicating with your liability company is also a prudent move. I have to give LIA a thank you for stepping forward to make appraisers aware of these concerns. In the end it is each appraiser’s responsibility to have thorough understanding of how one does business with FNC and the other web portal companies and AMCs out there.

I have one last question regarding this agreement. Several of us that are members of the Appraisal Institute are still patiently awaiting Wayne Pugh’s (AI President) promised response to this agreement. Will the AI actually weigh in on the issues and how they affect the appraisers brought into these agreements?

Considering that FNC claims to support the processing of 40% of all residential assignments in the country, the deadline is less than a week away for the agreement to take effect, where is the AI’s support for its residential members?

Since the Appraisal Institute’s name is part of the AI Ready platform that FNC owns the rights to, and my beloved AI’s logo and trademark is very conspicuous on the AI Ready site, one is left to wonder if the AI will respond before the 13th.

One is also left with the lingering question of what the AI will say when they do choose to move forward. They are after all who we look towards to help us out in these situations. It would seem their “name” is all over this one, so I am sure we will hear something.

Related Links:

• August 2008: Conference schedule, new business opportunities, and a new AP User Agreement

Author: Woody Fincham - http://www.fmava.com/ - Woody is one of the founders and managing appraiser for FM & Associates. He has recently become an instructor with a local real estate school, teaching broker pre-licensing and real estate agent pre-licensing.  Woody is a Certified Residential Appraiser in Virginia, as well as North Carolina.  Woody is also a Member of the a la mode labs project