Featured news — posted December 8, 2005

Our constitutional system leaves many — most — things to the states to regulate. Even USPAP and appraiser regulations are state-level laws. Congress has no constitutional authority to regulate the practice of real estate appraisal. So what FIRREA did was to provide that if banks wanted federal entities like Fannie Mae or FHA to buy or insure loans, or if the banks themselves were federally chartered, they had to use real estate appraisers who had minimum qualifications.

Because so much of residential mortgage finance involved national banks, Fannie and Freddie or the FHA, this made it necessary for states to enact these standards as state law. But the point is that the federal government can't always reach real estate or commercial activity confined to a single state.

As mortgage fraud becomes a hotter and hotter topic, though, there is an increasing clamor for uniform federal regulations. Recently hearings were held in the House of Representatives to consider whether a national registry of mortgage brokers would be appropriate — the kind that keeps track of appraisers authorized to work "federally related transactions."

A review of recent state efforts to rein in mortgage fraud shows the kind of jumble banks which do business across state lines and national advocates have to keep up with.

Last week in Chicago, Illinois legislators announced the creation of a mortgage fraud task force. New bills were promised to help crack down on fraud, including a bill that would make it easier and quicker to discipline appraisers who go along with the schemes.

Ohio is dealing with being the number one foreclosure state in the union with a lame duck governor and a legislature that has considered measures inthe recent past but never acted on them. Gov. Taft recently urged state lawmakers to consider, among other fraud fighting measures, mandatory licensing of appraisers. At the same time, the U.S. Attorney's office in Cincinnati created a task force to work with the state to curb fraud.

This fall a bill was introduced in Utah that would allow prosecutors to charge participants in mortgage fraud with racketeering. The same bill would ask the state Attorney General to hire a special prosecutor to concentrate only on mortgage fraud cases. The FBI in Salt Lake City said it had more than 250 mortgage fraud-related cases pending in the state.

Colorado is among states considering licensing mortgage brokers. Its top regulatory agency recommends brokers undergo criminal and regulatory background checks and post $100,000 bond. The same agency rejected calls for a licensing scheme in 2001. Maryland had a broker licensing law go into effect October 1.

Fannie Mae and Freddie Mac are among the most strident advocates for uniform federal predatory lending and mortgage fraud laws. The cost of compliance with 50 different state laws as well as laws and regulations unique to large urban areas would be drastically cut if there were one law for the whole country.

As the historic mortgage boom of the first half of this decade recedes, the call for uniform laws will reach a fever pitch. Among the topics we'll cover in our second annual Winter Convention in Las Vegas next month is how best to promote and guarantee appraisers' rights in inevitable discussions about how to curb mortgage fraud nationally.

Among the concerns we hear from appraisers warming up to the idea of registering their intellectual property — that is, their appraisal reports — with the U.S. Copyright Office is that $30 a pop is too prohibitively expensive. Critics of the idea who want AVM companies to continue to have free reign to copy and reuse your work have warned that you just aren't getting enough for your money.

What it's important to understand is something we emphasize every time we talk to appraisers about copyrighting: You own the copyright to your work whether you register it or not. Some think you can only put a copyright notice on your reports (which Aurora lets you do automatically if you tell it to) if you've paid to register. Not true! Since you own your work and only give your clients the limited right to use it for purposes of evaluating their collateral for a mortgage loan, you should display a copyright notice whether you register that report or not.

And therein lies the key to how often you should register. When we urge you to note your copyright rights on your reports, we also tell you that whether you register a specific report or not is completely up to you. We tell appraisers that a diligent course of action for protecting their rights includes noting their copyright on each report and registering a certain number of them with the U.S. Copyright Office. Not all! You could, for example, register every fifth report you do, or every tenth. Or, if you have reason to be concerned that a particular client is illegally reusing your work, every report you prepare for that client, but not others.

This same principle explains why even 10 percent of appraisers registering 10 percent of their reports will cause the theft of data to stop: The well will be poisoned, so that companies will never know whether the report they want to illegally re-use is registered or not — and there will be too much at stake for them to guess.

The copyrighting regimen that's right for your business depends on what you get out of registering. Here's the deal. If someone misappropriates a report of yours, by reusing the data in a "derivative work" (i.e., AVM database intended to replace you), or sells your report to a data reporting company for that purpose, if you sue and win you will have to prove how much damage that misappropriation did your business.

Registering your report makes it unnecessary to prove damages. If your client is found to have illegally used your work, and the report was registered, federal law entitles you to what's called "statutory damages." Without proving the monetary value of your work, you will be entitled to up to $150,000 per illegal use of your work. ($150,000 is the high end, for "willful" misuse. There are other, lower figures as the culpability of the other party decreases, but the point is the figures are provided by law. All you have to do is show your work was improperly used.)

You're not trying to make money by suing people, of course. You're trying to ensure that your work isn't used other than the way you bargained for. Registering, say, every tenth report you produce and including a copyright notice on every report makes your client and their data business partners aware that you protect your rights. They don't want to take a chance that the report they're plugging in to their AVM database doesn't happen to be one you've registered. (Because remember, even if they "guess right," you can still sue them for copyright infringement and win.)

Including your copyright notice on every report and registering some of them should be an adequate deterrent to the misuse of your work. Then, if you choose to license your report data to be used in a competing database — for a higher fee — you'll be able to do that.

Attendees at our second annual Winter Convention in Las Vegas next month will learn more about their copyright rights. Tim Vining, the Washington state appraiser who sued and won for copyright infringement, will be a featured speaker at a lunchtime panel January 17.