Recent appraisal rules open door to shady middlemen

Blog Editor's Note: The following article is an excellent example of the law of unitended consequences. When the Feds decided to enact the HVCC, it allowed unscrupulous players to enter the appraisal mangagement arena, where some created a new revenue stream for themselves under the guise of managing their mortgage vendor's accounts. Thank you to Susan Taylor Martin for her in depth article.

By Susan Taylor Martin, St. Petersburg Times Senior Correspondent

Sunday, February 7, 2010

Last year, Global Appraisal Solutions of Clearwater hired appraiser John Viscusi to do property evaluations in the New York metro area.

But Viscusi says the company failed to pay him for 20 appraisals. And when he tried to contact the owner, Larry Holzer, he got no response.

Then Viscusi made an unsettling discovery.

An Internet search for Global immediately linked him to another company, Appraisal Mediation Solutions. Its phone number: The same as Larry Holzer's. Its address: a UPS store in Clearwater close to Holzer's condo.

"I'm down about $6,000,'' Viscusi says. He wonders if he will ever get his money because Global no longer appears to be in business even though Holzer still is.

Critics of recent changes in the way home appraisals are handled say Viscusi's situation illustrates a major problem with companies like Holzer's: They are totally unregulated in Florida and most other states.

The changes, which took effect in May, were designed to prevent the appraisal-related fraud that helped drive housing prices to unsustainable heights. The new Home Valuation Code of Conduct forbids banks, mortgage brokers and Realtors from working directly with appraisers.

Instead, they now go through "appraisal management companies'' like Holzer's — middlemen who hire the appraisers.

The code "has created this huge opportunity, and everybody and their brother is trying to take advantage of it, and a lot are unscrupulous,'' says Frank Gregoire, a St. Petersburg appraiser and former chairman of the Florida Real Estate Appraisal Board.

Gregoire and the board are backing a bill by state Rep. Matt Hudson, a Naples Republican, that would require owners of appraisal management companies to disclose criminal histories and license suspensions or revocations.

"My anticipation is that the board would not grant a license (for a management company) to someone who had a disciplinary record,'' Gregoire says.

That would eliminate companies owned by people like Holzer.

In 2007, Florida regulators permanently revoked Holzer's appraisal license because he had approved an error-filled appraisal done by a trainee under his supervision. The report didn't even have photos of the correct house.

The revocation barred Holzer himself from appraising property in Florida. But it didn't keep him from starting an appraisal management company, Global Appraisal Solutions, that could do business in Florida and every other state.

After the code of conduct took effect last spring, Global contracted with Lend America on Long Island to arrange appraisals for the company. Viscusi, who had worked directly with Lend America's loan officers, signed on with Global so he could continue doing appraisals, mostly for homeowners seeking to refinance or get equity lines.

Holzer and Global "would never let me know what they were charging (homeowners), whether it was $400 or $800,'' Viscusi says. But his own payments "were absolutely less'' than they used to be, reflecting a common complaint that injecting a middleman into the appraisal process has meant higher costs for consumers but less money for appraisers.

Viscusi says Global paid him $250 to $300 apiece for five appraisals in June, then stopped paying. He wasn't worried at first because Global boasted on its Web site in July that it was having its best month ever.

But as Viscusi did 20 more appraisals in July and August with no payment, he grew anxious. Holzer, who did not respond to his phone calls, sent out an e-mail in October claiming that lenders owed Global "a large outstanding balance for completed appraisals.''

Viscusi didn't believe the explanation, because the homeowners had paid Global, not the lenders.
Viscusi contacted appraisers in Texas, Chicago and the Washington, D.C., area who claimed they too had been stiffed by Global.

In December, Viscusi received a call from a woman who used to work for Global but had left to start her own appraisal management company.

"I pretty much told her that if she didn't give up information (on Holzer's whereabouts), she'd be held liable in any pending litigation,'' Viscusi says. "She said, 'If you click on his Web site, it will direct you to a new company.' '

That company, Appraisal Mediation Solutions, boasts that it "is one of the most trusted providers of real estate valuations in the nation.'' State records show it was incorporated in October but no officers were listed, which is unusual. The address is 140 Island Way, Clearwater No. 245 — a $15-a-month box at a UPS store near Holzer's waterfront condo.

When a reporter knocked on his door last week, Holzer cursed and ordered her off the property. The condo has been in foreclosure proceedings for two years, but Holzer staved off foreclosure by declaring bankruptcy in 2008 and 2009.

Though Global had appraisers working for it all over the United States, the spokesman for an organization that represents appraisal management companies says its problems were not typical.

"The appraisal management industry does 4 million appraisals a year, and I'll bet that the number done by that company down in Florida that has caused so much consternation is just minuscule,'' says Jeff Sherman of the Pennsylvania-based Title/Appraisal Vendor Management Association.

Any regulation of appraisal management companies should be done on the federal level, not by states with their varying requirements, Sherman says. Several states have passed laws, and a New Mexico bill would, controversially, cap companies' profits.

Viscusi, who has had no luck contacting Holzer and is now considering legal action, says companies like Global need to be regulated, regardless of whether Congress or the states do it.

"There should be a regulatory board that keeps an eye on these companies, because basically what they are is a shakedown middleman,'' he says. "All they do is collect a fee to channel an appraisal to an appraiser.''