Washington State Appraisers Beware!

(Updated February 13, 2007)

On January 24, 2007, we notified you that a new Washington law, effective January 1, 2007, under the Mortgage Broker Practices Act began requiring that all residential loan originators be licensed, unless employed by financial institutions or otherwise exempt. This new licensing requirement applies to both in-state and out-of-state loan originators. You may read more information about the law on the Washington State Department of Financial Institutions' ("DFI") website at www.dfi.wa.gov/cs/loan_originator_pending.htm, and may read DFI's rules implementing the law at http://apps.leg.wa.gov/WAC/default.aspx?cite=208-660.

We were subsequently advised by DFI that because it is receiving a large volume of applications and cannot timely process the applications, DFI will allow loan originators to continue originating loans after DFI has received a complete license application.

Our intent in making you aware of the new law was, and is, to help you avoid potential legal exposure and to protect your insurance coverage. Given the new law, an appraiser certainly should not accept a residential appraisal assignment in connection with a loan being originated by a person the appraiser knows or suspects is not properly licensed to originate loans or is not exempt from licensing requirements. Doing so would expose the appraiser to increased risk of a consumer action concerning the mortgage transaction and/or possible regulatory enforcement. In addition, it is possible that a claim concerning such an action or regulatory enforcement would not be covered by your E&O insurance policy.

What to Do:

When receiving a residential appraisal assignment, you should make a reasonable effort to determine if the loan originator is properly authorized to originate loans in Washington. If the loan originator is employed by a known bank, savings bank, savings and loan association or credit union, the person need not be licensed as a loan originator under the new law. If the loan originator, however, is not affiliated with such a financial institution, we suggest that you ask the originator: (1) if he or she is licensed as a loan originator; (2) until the backlog of DFI's license applications is resolved, if he or she has submitted an application to DFI; or (3) if he or she claims a specific exemption from the licensing requirements. We suggest that you keep a note of the response and any information provided in your appraisal file. For example, you might include the following note in your file: "Loan Originator, Bob Smith, states that he is licensed as a loan originator, number ____ [or that he has submitted an application and his application is pending]." You should also note whether you were able to confirm that status on DFI's website. We do not suggest, however, that you make any notations in the appraisal report itself. If after doing the above, you are not reasonably satisfied of the originator's license status, you should decline the assignment.

The above steps should help reduce any potential liability exposure.

Copyright 2007. LIA Administrators and Insurance Services. All rights reserved.