Support Legislation for Civil Limitations
WHAT?: This legislation would establish a statutory limitation on the time in which litigation against real estate appraisers can be filed following the date the service was performed.
WHY?: Appraisers have been faced with lawsuits alleging defects in appraisals performed for mortgage transactions during the 2005-2008 “real estate bubble” that have now gone into default. Under current law, the filing limit doesn’t commence until the claimant discovers, or should have discovered, the alleged defect, resulting in an almost infinite statute of limitations for claims against appraisers! Some law firms have purchased the rights to sue appraisers for appraisals of subsequently defaulted mortgages - NOT the bad loans themselves, just the rights to sue!
The holders of the defaulted mortgage see this as a means to recover some of their losses with virtually no risk. But the Uniform Standards of Professional Appraisal Practice (USPAP) only require that an appraiser retain a work file for the later of five years after the appraisal was prepared or two years after final disposition of any judicial proceeding in which the appraiser provided testimony, whichever is longer. Because this work was sometimes performed many years ago, appraiser often cannot adequately defend themselves.
BENEFITS: Most appraisers are small businesses and these lawsuits can be devastating. A statute of limitations that is specific to claims against real estate appraisers will provide the certainty of knowing the time period during which a suit might be filed. Appraisers will be better able appropriately manage their risk, by obtaining insurance coverage and retaining needed records.
Often, the appraiser is the “last one standing” with any connection to these mortgage loans, if the original financial institution failed during the crisis - there is no one else left to sue other than the appraiser! An adequate appraisal review program within a financial institution should have detected any appraisal defects at the time it was originally performed, but many financial institutions neglected this responsibility during the run-up to the real estate price bubble.
In accordance with USPAP, appraisers often purge their files of information related to an appraisal older than five years, making it difficult to defend against litigation related to work performed 15+ years ago. Moreover, errors & omissions insurance coverage limits are often far below the damages being requested in the lawsuits, and defense costs erode an appraiser’s coverage very quickly.
Texas appraisers need the certainty that they won’t be subjected to improper litigation years or even decades after the fact. This legislation will align Texas statute to the existing USPAP requirements for real estate appraisers. Other states have enacted similar protections (Minnesota, Oregon, & Tennessee), and several more are presently considering similar legislation.
HOW YOU CAN HELP: Donate to our FACTPAC. FACTPAC enables Texas real estate appraisers to engage in Texas politics in an organized, informed and united way. Campaign professionals, candidates, and elected officials alike have come to realize that FACT is strong and FACTPAC is the political arm of Texas appraisers. It is critical for appraisers to invest in the future of their profession!
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