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HUD and FHA Guidelines for Valuation Analysis for Single Family and One to Four Unit Dwellings - Part 8

Purpose of this Section: The following section contains appraisal guidelines for HUD and FHA appraisals. I've included this section to be used as a reference for you. These guidelines can help further clarify the appraisal topics discussed in this book. The text is written in a very formal and technical style of writing since it is used by HUD and FHA for their appraisal procedures. You don't need to try and memorize everything right away since it will seem overwhelming if you try to do that. Just take your time so you can learn at your own pace and refer back to this book as needed, like a reference manual.

  • 7 REGULATORY ENVIRONMENT, ENFORCEMENT AND SANCTIONS

7-0 INTRODUCTION

This chapter describes the regulatory environment in which FHA single-family appraisals are performed and the enforcement and sanctions that are available to HUD and other government entities in that environment. Appraisers are subject to:

  • Federal laws and regulations
  • State licensing laws and regulations
  • The requirements associated with any professional appraisal designations

This chapter enumerates these requirements and explains their connection to HUD's enforcement and sanctions processes.

7-1 REGULATORY ENVIRONMENT

A. FINANCIAL INSTITUTIONS REFORM, RECOVERY, ENFORCEMENT ACT OF 1989 ( "FIRREA")

FIRREA instituted reform and regulation of real estate appraising through Title XI, the Real Estate Appraisal Reform Amendments. The amendments achieved the following:

  • Established the Appraisal Foundation, comprising the Appraiser Qualifications Board (AQB) and the Appraisal Standards Board (ASB):
  • The AQB determines the minimum education, examination and experience requirements for state-certified and state-licensed appraisers.
  • The ASB promulgates the Uniformed Standards of Professional Appraisal Practice (USPAP).
  • Required that only a state-certified or state-licensed appraiser may perform appraisals for federally related transactions
  • Established that an appraiser trainee can sign an appraisal if a state-certified or state-licensed appraiser closely supervises the trainee, signs the appraisal report and inspects the property
  • Established the definition of a "state-certified real estate appraiser" as someone who has satisfied the requirements in a state or territory whose criteria for certification meets the minimum criteria for certification by the Appraiser Qualification Board of the Appraisal Foundation
  • Established the state agencies to license, certify and supervise appraisers

All appraisers performing services for FHA-insured mortgages must comply with USPAP in developing and reporting appraisals. Key aspects of USPAP include:

Standard

Citation

Ethics Rule

Conduct management, confidentiality and recordkeeping

 

 

Competency Rule

Full responsibility of appraiser to have the knowledge and experience to complete the assignment competently or disclose any discrepancy before acceptance and take all necessary steps to correct

 

 

Departure Rule 1/

Permits limited departures from acceptable portions of USPAP reducing the reliability of the valuation

 

 

Jurisdictional Exception

Individual portions of USPAP can be superseded by law or public policy

 

 

Standard 1

In developing a real estate property appraisal, an appraiser must be aware of, understand and correctly employ the recognized methods and techniques that are necessary to produce a credible appraisal

 

 

Standard 2

In reporting the results of a real estate property appraisal, an appraiser must communicate each analysis, opinion and conclusion in a manner that is not misleading

In compliance with USPAP, unacceptable practices include:

  • Estimating a specified (predetermined) value determined by the lender
  • Fee splitting between lenders and appraisers
  • Other practices that do not comply with HUD's standards

Also, USPAP contains statements on appraisal standards that have the full weight of USPAP. These statements were issued to clarify the existing standards. The ASB has also issued advisory opinions that currently do not establish new standards but offer advice on complex technical issues.

B. FEDERAL FINANCIAL INSTITUTION REGULATORY AGENCIES

The Federal Financial Institution Regulatory Agencies issued a final rule on appraisals in June 1994. In general, the threshold for requiring state-certified appraisers to perform appraisals on federally related transactions was raised to Two Hundred Fifty Thousand Dollars ($250,000).

  • 1/ FHA does not permit departure from USPAP. However, FHA requires an appraisal for all applications for single-family mortgage insurance, regardless of transactional value.

C. FALSE, FICTITIOUS OR FRAUDULENT CLAIMS (18 U.S.C. *87, 1001) - CRIMINAL PENALTIES AND FINES

These statutes prescribe criminal penalties for any person who knowingly files a false claim on or against any department or agency of the United States Government.

D. FALSE, FICTITIOUS OR FRAUDULENT CLAIMS ON HUD (18 U.S.C. 1010, 1012)- CRIMINAL PENALTIES AND FINES

These statutes prescribe criminal penalties for any person who knowingly files a false claim on or against HUD.

E. FEDERAL FALSE CLAIMS ACT (31 U.S.C. 3729) - CIVIL FRAUD

The Federal False Claims Act defines the civil monetary damages imposed on any person who knowingly presents or files a false claim that was paid or approved by the United States Government.

F.24 CFR PART 28 - PROGRAM FRAUD CIVIL REMEDIES ACT (PFCRA)

These regulations define the administrative procedures for imposing civil penalties and assessments by HUD officials against any person who makes or submits false claims or false statements to Federal authorities or to their agents.

G. 24 CFR PART 30 - CIVIL MONEY PENALTIES

These regulations define the money penalties that HUD may levy for submission of a false certification by another person - for example, an appraiser who makes a false certification at the bottom of the USPAP appraisal form about the truth/correctness of the appraisal data.

H. 24 CFR PART 24 - ADMINISTRATIVE SANCTIONS

These regulations define the administrative sanctions available to HUD officials for any person determined to have violated HUD regulations and policies.

I. STATE LAWS AND PROFESSIONAL ORGANIZATIONS

The appraiser must adhere to all state and local laws relating to appraisal, licensing and certification requirements. Also, as a voluntary member of an appraiser's professional organization, the FHA appraiser should adhere to that organization's guidelines on appraiser conduct. However, HUD has no enforcement powers in private organizations.

1. State Certifications

Appraisers on the FHA Register must be licensed, certified-residential or certified-general appraisers. To perform appraisals for FHA, appraisers must maintain and be able to prove that they are so certified. While some states do not require an appraiser to be certified, they provide a licensing program so appraisers can meet federal guidelines. Appraisers must comply with the practices of their state unless the requirements of the state contradict those of the federal government; federal requirements preempt any and all state requirements. The appraiser must report to HUD any action or pending action that relates to appraisal reports prepared by the appraiser two years subsequent to the date on which the action was initiated. After disposition of any disciplinary action or adjudication of the action, the appraiser must provide HUD with the documentation and official findings within 14 days.

2. Professional Organizations

The appraiser may be a member or hold designations in professional organizations. Such involvement is encouraged, but not required. If the appraiser is a member, candidate or associate of any organization, the appraiser must report any adjudicated actions resulting in the suspension of the appraiser to HUD within 14 days of such action. On disposition of the-action or adjudication of the action, the appraiser must provide HUD with documentation and official findings. HUD reserves the right to suspend any appraiser found guilty of professional misconduct as adjudicated by the professional organization.

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