NORTH DAKOTA REAL ESTATE APPRAISER QUALIFICATIONS AND ETHICS BOARD

PO BOX 1336 - BISMARCK - NORTH DAKOTA 58502 PHONE: (701) 222-1051 I FAX: (701) 222-1051

Website: www.ndappraiserboard.org Email: jcampbell@bis.midco.net

APPENDIX V

TESTIMONY TO: Administrative Rules Committee

SUBJECT: Title 101-05 Appraisal Management Company Rules and Regulations

TESTIMONY BY: Mr. Dave Lanpher Chairman of the ND Real Estate Appraiser Qualifications and Ethics Board

DATE: December 5, 2017

1. Whether the rules resulted from statutory changes made by the Legislative Assembly.

The proposed rules are a result of N.D.C.C. 45-23.5 Appraisal Management Companies.

2. Whether the rules are related to any federal statute or regulation.

The North Dakota Appraiser Board was established in 1991 as a result of Title XI of the Financial

Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA). FIRREA was established due to

the savings and loan financial meltdown of the 1980's. Title XI of FIRREA addressed the need and

process for regulation of real estate appraisers.

The Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law in 2010.

Section 1473 of Dodd Frank added Section 1124 to Title XI of FIRREA, requiring the Federal Financial

Institution Regulatory Agencies (OCC, Board, FDIC, DCUA, Bureau, and FHFA) to jointly issue rules for

State registration and supervision of appraisal management companies (AMCs).

The Agencies issued proposed AMC Rules on April 9, 2014 and published the final rule on June

9, 2015. The effective date of the final rule was August 10, 2015, with a compliance date of 12 months

from the effective date.

Provisions of the AMC final rule implemented:

1) the minimum requirements to be applied by participating States in the registration and

supervision of appraisal management companies (AMCs).

2) the minimum requirements in the Dodd-Frank Act for AMCs that are subsidiaries owned and

controlled by an insured depository institution and regulated by a Federal financial institutions

regulatory agency (Federally regulated AMCs). Federally regulated AMCs do not need to

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register with a State, but are subject to the same minimum requirements as State-regulated

AM Cs.

3) requirements for States to report to the Appraisal Subcommittee (ASC) of the Federal

Financial Institutions Examination Council (FFIEC) information required by the ASC to

administer the new national registry of AMCs (AMC National Registry).

"Pursuant to section 1124(f), beginning 36 months from the effective date of this final rule, an

AMC that meets the statutory size threshold may not provide services for a Federally related transaction

in a State unless the AMC is registered with the State or is subject to oversight by a Federal financial

institutions regulatory agency. This provision effectively allows each State up to three years to establish

registration and supervision systems that meet the requirements of the final rule ........ " The Appraisal

Subcommittee could extend the deadline another 12 months if the State has made substantial progress in

establishing a program for the registration and supervision of appraisal management companies.

The Final Rule to implement the collection and transmission of AMC national registry fees to the

Appraisal Subcommittee was not published in the Federal Registry until September 25, 2017, with an

effective date of November 24, 2017. The Appraisal Subcommittee will open the AMC National Registry

to States no later than June 4, 2018.

3. A description of the rulemaking procedure followed in adopting the rules, e.g., the type of public

notice given and the extent of public hearings held on the rules.

Staff researched and collected information from federal agencies, state agencies, and other state

appraiser regulatory agencies to assist in the drafting of Rules and Regulations relating to the registration

and supervision of Appraisal Management Companies (AMC's). In addition, the Board looked to

Appraisal Management Companies (large and small), as well as AMC trade associations for input. Legal

Counsel of the Office of Attorney General was consulted to assure that the North Dakota

guidelines/procedures for drafting rules and regulations were followed. These consultations, along with

numerous Appraiser Board meetings, facilitated in the final draft of the proposed AMC rules and

regulations, prior to the public hearing.

Notice of the public hearing was published in June 2017, in all North Dakota official county

newspapers, as required.

The public hearing was held on July 14, 2017. No oral comments were received at this hearing.

The public comment period for written comments was open through July 28, 2017. Written comments

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were received and discussed at subsequent meetings of the Board. With the assistance of Legal Counsel

the Rules were finalized and the Board adopted the Proposed Appraisal Management Company Rules

and Regulations on October 4, 2017. The rules were forwarded to the Attorney General's office for

review for legality and approved as such; and subsequently filed with the Legislative Counsel for

publication.

4. Whether any person has presented a written or oral concern, objection, or complaint for agency

consideration with regard to these rules.

Written comments were received from: REVAA; Real Estate Valuation Advocacy Association (a trade

association representing a number of AMC's); the Appraisal Subcommittee of the Federal Financial

Institutions, and Surety and Fidelity Association of America.

REVAA commented: "Overall, REVAA is supportive of the proposed AMC rules." However various

recommendations were submitted, and are as follows:

101-05-01-02. Registration application requirements.

101-05-01-02.1.g. Insert verbiage: "unless such license or certificate was not declined, revoked or

suspended, for a substantive cause and has been reinstated by the state or states in which the individual

was licensed or certified, substantive cause to be determine by the board."

Revise 101-05-01-02.1.h. to read: "Certification that the appraisal management company is not owned

in whole or in part, directly or indirectly, by an individual who has had an appraiser license or certificate

denied, revoked or suspended subject to a disciplinary proceeding in any state."

101-05-01-04. Surety Bond.

Revise 101-05-01-04.1c. to read:"Amounts owed to the board for national registry fees, initial registration

and annual renewal fees, late filing fees, and change of information fees."

Revise 101-05-01-04.3. to read: "The surety bond required by this section shall be continuously on file

with the board in the amount of twenty-five thousand dollars and is for the exclusive purpose of payment

of the obligations listed in paragraph 1 of this section. Upon termination or cancellation of the bond or

reduction of the bond amount to less than twenty-five thousand dollars, a registered appraisal

management company shall, alternatively:

a. File a replacement bond within the time period established by the board by rule; or

b. Surrender the company's registration to the board and cease operating as an appraisal

management company."

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101-05-01-07. Notice of change of designated office. To align with §101-05-01-15.6. Revise "five-day

notice" to read "fifteen-day notice".

101-05-01-09. Denial of registration.

Remove the following redundant verbiage: "If an application for registration is denied, the board will

notify the applicant of the denial and specify the basis for the denial."

101-05-01-10. Registration renewal.

Revise 101-05-01-10.1 to reduce the renewal application timeframe from 90 days to a 60-day timeframe.

To clarify requirements, revise 101-05-01-10.3, 101-05-01-10.4 and 101-05-01-10.5:

"101-05-01-10.3. Failure to renew a registration prior to expiration will result in the loss of

authority to operate as an appraisal management company in North Dakota until a request for

reinstatement has been approved by the board. A late filing fee will be assessed for each month, or

portion thereof, that elapses between expiration and reinstatement. Late filing fees and any national

registry fee assessed by the board must be paid prior to reinstatement in addition to the annual renewal

fees."

"101-05-01-10.4. A registered appraisal management company may renew an expired

registration at any time prior to three."

"101-05-01-10-5. Payment of annual renewal or late filing fees; does not excuse a registrant from

disciplinary or criminal penalties for operating in violation of North Dakota Century Code 43-23.5"

101-05-01-12. Filing Fees. Revise 101-05-01-12.2 to allow the Board to collect information and National

Registry Fees from AMC's:

"101-05-01-12.2 Unless prohibited by state or federal law, the board may collect the following

fees, as well as any information the state is required to collect and submit to the appraisal subcommittee,

from each appraisal management company that is exempt from registration under North Dakota Century

Code chapter 43-23.5."

101-05-01-15. Responsibilities and duties.

Revise 101-05-01-15.4 to provide clarification: "Have a system in place to verify that any

employee or independent contractor the appraisal management company utilizes to perform an appraisal

review on a completed appraisal on property located in North Dakota, be licensed or certified with the

same qualifications required of the appraisal and in good standing in North Dakota."

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Revise 101-05-01-15.4 to provide clarification: "Disclose its registration number within its

engagement document with each utilized appraiser."

101-05-01-16: Retention of records.

Revise 101-05-01-16.1.e. to provide clarification: "Records related to the review of the

requested appraisal, if applicable, including the original review report, any and all correspondence sent to

and received from the utilized reviewing appraiser, and each subsequent revised review report."

Remove101~5~1~62

Revise 101-05-0.1-16.3 verbiage for consistency with USPAP and other states:

101-05-0.1-16.3. "Records must be retained for a minimum of five years, or at least two years after the

final disposition of any investigation, litigation, or state or federal review, involving the appraisal

management company that materially relies upon such records, whichever period expires last. Records

may be retained as a photocopy or electronic copy type of media."

The Appraisal Subcommittee submitted the following comments:

101-05-01-05. Roster of appraisal management companies. The Rules, as proposed, do not

give the Board the authority or require the Board to report investigations or disciplinary actions to the

Appraisal Subcommittee as required in Sections 1109 and 34.213 of the Final Rule.

101-05-01-15.2. Responsibilities and duties. The Rules, as proposed, do not require the

utilized appraiser who performs appraisals in this State be independent of the transaction.

43-23.5-01. Definitions.5.Appraiser panel. Does not define "independent contractor".

Surety and Fidelity Association of America recommended the Board include a provision that affirms

the surety's right to investigate a claim and the scope of its liability for a judgment, particularly in the case

of a default judgment.

Board member considered all written comments/recommendations:

Based on comments received from the Appraisal Subcommittee, the Board revised:

101-05-01-05 to include " ... The roster shall include investigations initiated and disciplinary actions taken."

and

101-05-01-15.2 to include " .. be independent of the transaction .. "

However, defining "independent contractor" in 43-23.5-01 will have to be addressed in Statute at

the next legislative session.

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Board members were in agreement with a majority of the recommendations submitted by REV AA

and incorporated these as part the proposed rules.

Board members were also in agreement with the Surety and Fidelity Association of America

recommendation and looked to Legal Counsel to draft the appropriate language to be included as part of

the proposed rules.

With the assistance of Legal Counsel additional changes were made to:

101-05-01-02. 1g. The Board added verbiage "substantive cause to be determined by the board'.

and

101-0-01-15. 4. Verbiage was added to help clarify that the appraiser reviewing the appraisal

must be certified in ND and be as qualified as the appraiser who completed the appraisal.

5. The approximate cost of giving public notice and holding any hearing on the rules and the

approximate cost (not including staff time) of developing and adopting the rules.

Legal Fees: $2000.00

Public Notice: $2052.84

6. An explanation of the subject matter of the rules and reasons for adopting those rules.

The final rule does not compel a State to establish an AMC registration and supervision program.

However, the North Dakota Appraiser Board elected to establish a program. The fundamental purpose

behind the Board's decision to supervise and regulate appraisal management companies (AMCs) is

essentially the same as that of licensure and certification of real estate appraisers. It is to protect the

public.

101-05-01-02 Registration application requirements. Details the information required as part

the application.

101-05-01-03 Term of registration. Establishes September 30 as the registration expiration

date.

101-05-01-04. Surety Bond. Requires a surety bond as a guaranty that the AMC will carry out

their performance and payment obligations according to their agreements.

101-05-01-05. Roster of appraisal management companies. Requires the Board to maintain a

roster of registered appraisal management companies. This section also provides the Board the authority

to transmit this roster to the Appraisal Subcommittee, as well as a roster of any disciplinary actions taken

against an appraisal management company.

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101-05-01-06. Notice of change of address.

101-05-01-07. Notice of change of designated officer.

101-05-01-08. Notice of change of controlling person.

Sections 101-05-01-06 through 08 require each registered appraisal management company to provide

the Board written notice of changes in address, designated officer or controlling person.

101-05-01-09. Denial of registration. Should an appraisal management company by denied

registration in ND, the Board is required to notify the appraisal management company in writing of the

denial and the reasons for the this denial.

101-05-01-10. Registration renewal. Addresses the annual renewal process required to

maintain a North Dakota registration.

101-05-01-11. Federal appraiser registry. Gives the Board the authority to collect and transmit

the ASC annual registry fees from State registered AMCs.

101-05-01-12. Filing fees.

101-05-01-13. Refund of fees.

101-05-01-14. Payment of fees.

Sections 101-05-01-12 through 101-05-01-14 outline the application fees, national registry fees

and the possible consequences should the Board receive a notice of nonsufficient funds.

Mr. Tim Zak, Director, Strategic Initiates Industry and Government Relations Valuation Solutions

Group, Corelogic provided the Board with a recap of AMC application fees. Board Staff also received a

more recent recap completed by Ms. Brandy March, Executive Office of the Iowa Real Estate Appraiser

Examination Board. A compilation of these figures is recapped below and continues on to the following

page. Based on these figures, State AMC registration fees appear to vary widely across the nation,

ranging from $350 (MO) to $4000 (CO), with an average fee of $1464 for initial application fees.

Mississippi 1000 1000

Missouri 350 350 Alabama 3500 2000 Montana 3200 Arizona 2500 1250 Nebraska 2999 Arkansas 500 Nevada 500 California 1600 800

Colorado 4000 808 New Hampshire 900 800 Connecticut 1000 1000 New Mexico 1000 550

Delaware 1000 North Carolina 3500 2000

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Florlda 450 150 NORTH DAKOTA 2500 2000

Georgia 500 500 Oklahoma 1000 1000

Idaho 1500 1500 Oregon 2500 1500

Illinois 2500 2000 Pennsylvania 1000 Indiana 500 South Dakota 1000 750

Iowa 750 Tennessee 2000 1000

Kansas 1500 900 Texas 3300 1650

Kentucky 2000 2000 Utah 350 175

Louisiana 1500 1500 Vermont 500 Maryland 2500 2250 Virginia 490 150

Michigan 2000 1000 Washington 2400 1200

Minnesota 2500 2000 West Virginia 2500 1200

Wyoming 1800

101-05-01-15. Responsibilities and duties. This section requires all registered AMC's to:

1) have a system in place to verify that each appraiser utilized is licensed or certified and in good

standing in ND; is independent to the transaction and competent in the location and geographic area of

the assignment;

2) have a system in place to review work product for compliance with the Uniform Standards of

Professional Appraisal Practice and as well as system to report any violations of ND law, rules and

USPAP violations to the Board);

3) have system in place to verify that the appraiser reviewing the appraisal is certified in ND and

is as qualified as the appraiser who completed the appraisal;

4) maintain a registered agent for service of process and a designated officer responsible for

compliance with ND law and rules;

5) disclose to the client the fee paid to the appraiser separate from the appraisal management

fees or charges;

6) disclose the AMC registration number in various documents.

101-05-01-16. Retention of records. This section outlines the minimum records that an AMC must

retain for each service request:

1) per the utilized appraiser: letter of engagement, appraisal report, revised appraisal report,

addenda, and all correspondence related to the assignment;

2) per the reviewing appraiser: letter of engagement, records related to the review and all

correspondence related to the review, as well as any subsequent review, if required;

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3) per the client: all documents supplied to the client, as well as all correspondence to and from

the client; and

4) fees paid to the appraiser and fees received from the client.

101-05-01-17. Inspection and copying. Requires the AMC to make records pertinent to an

investigation/complaint available to the Board.

101-05-01-18. Complaints and Investigations. Gives the Board the authority to investigate an AMC

upon a written and signed complaint or referral, or upon its own motion.

7. Whether a regulatory analysis was required by North Dakota Century Code (NDCC Section 28-32-8

and whether that regulatory analysis was issued.

No regulatory analysis was requested or required as the proposed rules are not expected to have

an impact on the regulated community in excess of $50,000, and neither the Governor nor any member of

the Legislative Assembly requested a regulatory analysis.

8. Whether a regulatory analysis or economic impact statement of impact on small entities was

required by NDCC Section 28-32-08.1 and whether that regulatory analysis or impact statement

was issued.

No small entity economic impact statement was required because the agency is exempt from the

requirement to prepare one.

No small entity regulatory analysis was required because the agency is exempt from the

requirement to prepare one.

9. Whether these rules have a fiscal effect on state revenues and expenditures, including any effect

on funds controlled by your agency.

The North Dakota Appraiser Board is supported entirely from special funds through licensure and

other fees specified in state statute. The Board does not receive an appropriation from the general fund.

The proposed amendments charge an initial fee for an appraisal management company of

$2,500 and the national registry fee with an annual renewal fee of $2,000 and the national registry fee.

Federal law may require the Board to charge and forward the national registry fee to the federal

government under a proposed regulation. An appraisal management company would be required to pay

these national fees without regard to state action, and it is hoped that this proposed regulation may

reduce the regulatory burden on licensees. Licensed appraisal management companies also are

required to be bonded.

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At this time, the Board does not know whether any appraisal management companies will choose

to do business in North Dakota. Fees must be set to offset costs of operating the Board under N.D.C.C.

§ 43-23.5-19(1 ), and these fees are comparable to neighboring states.

Assuming 15 licenses, the Board expects that there will be an increase in Board revenue of

approximately $37,500 in the next biennium and $30,000 in the following biennium. Note that the national

registry fee would be passed on to the federal government and is not revenue for the state.

The Board anticipates that the proposed rule changes will increase expenditures for initial

licensure review and will result in an increase of regulatory complaints from the public. However, there is

no experience yet to draw upon in estimating these costs.

10. Whether a constitutional takings assessment was prepared as required by NDCC Sec. 28-32-09.

No takings assessment was prepared because the rules do not limit the use of real property.

11. If these rules were adopted as emergency (interim final) rules under

NDCC Section 28-32-03, provide the statutory grounds from that section for

declaring the rules to be an emergency and the facts that support that

declaration and provide a copy of the Governor's approval of the emergency

status of the rules. If these rules were adopted as emergency (interim

final) rules, what steps were taken to make the rules known to persons who

can reasonably be expected to have a substantial interest in the rules?

These rules were not adopted as emergency rules. Therefore, no approval of emergency status

was required.

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