Maryland Rejects Foreclosure-Free Appraisals — What About Your State?

The Maryland House of Delegates has rejected proposed legislation that would have required appraisers to value real estate without using data from foreclosures or short sales.

If enacted, the legislation would have ended all mortgage lending in the state because the higher valuations shown in appraisal reports would not reflect marketplace realities. Moreover, the legislation would have required licensed appraisers to violate both professional standards and federal law.

Introduced by 13 members of the House of Delegates, the legislation, HB 1309, provided that “in appraising a residential property, the licensed real estate appraiser or certified real estate appraiser shall use comparable sales only for an arms–length transaction in which the buyer and seller are not related in any way and are not entering into the transaction under duress or unusual circumstances, such as a foreclosure sale or short sale.”

So what’s wrong with this? Two things:

First, by excluding short sales and foreclosures appraised values would suddenly increase. This may seem like good news for sellers, but if you were a buyer would you pay full price for a property with an inflated value, say a house with a foreclosure across the street? No less important, if you were a lender would you make a loan based on a souped-up appraisal?

Second, according to the Appraisal Institute, “if these bills were enacted into law, appraisers would be put in the difficult position of having to choose which law to violate. Appraisers are required to adhere to comply with the Uniform Standards of Professional Appraisal Practice in federally related transactions. The standard mandates that appraisers ‘must analyze such comparables sales as are available.’ Further, the standard cannot be voided by a state or local government.”

When presented to the Maryland House Economic Matters Committee the non-partisan vote was 21 against and none in favor — a vote which included three of the original sponsors.

Huh? Why would sponsors vote against their own proposed legislation?

It’s a common practice in legislatures — including on Capitol Hill — for bills to be introduced as a courtesy to constituents (and lobbyists). In theory this means that proposed laws get a chance for enactment, in practice such bills tend to quickly die.

As to Maryland, the House Economic Matters Committee rejected the appraisal proposal with an unfavorable report, a cute expression meaning not now, not ever. Given that similar legislation has been introduced in other states, one hopes that the fate of such proposed laws is equally quick, decisive and non-partisan.

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Posted in: Mortgages

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