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Question:
What is the name of the AMC with the faulty indemnification clause? A “well known” AMC is too vague. Please name the AMCs that we should avoid.
Most of us don’t understand the legal jargon in these contractor agreements.
Answer:
Thanks for taking the time to both read our
Claim Alert and give us comments. I agree highly specific information can be
valuable. To answer your specific question, the first indemnification
example in the claim alert is a shortened version of language from a recent
CoreLogic agreement, and the second example is highly simplified from a TSI
agreement but is also the same type of language used by 50% of AMCs. Please
read on below, however, and please understand we don’t at this time tell
appraisers they shouldn’t do business with any specific AMCs.
The main reasons we don’t name names in our
printed Claim Alerts are: (1) the printed alerts are kept by many insureds
for years and the specific names would get outdated, and (2) the alerts are
intended to educate appraisers more generally about the risks we are seeing
– i.e., on an issue like indemnification, they are intended to give you
information about what to look out for in all of the different agreements
you might be asked to sign. On the specific issue of indemnification, we
also have written a fairly long article that will be in the next issue of
AI’s Valuation – in which we try to show appraisers what is more risky and
what may be more acceptable by comparing and contrasting different language.
For the AMCs and lenders that are paying attention, the article also makes
the point that when an AMC has a more unfair one-sided agreement, the AMC is
more likely to have an appraiser panel that is on average lower in quality
because more knowledgeable, experienced and stable appraisers are more
likely to decide against doing business with the AMC.
We are more specific with names, however, on
our appraiserlawblog.com and readimember.org website.
You will currently find on readimember.org , a
very specific review of the CoreLogic appraiser agreement, and there will be
more specific reviews of AMC agreements in the future. You’ll also find
information about which lender presents the highest liability claim risk to
appraisers (Flagstar), which lender files the most state board complaints
(Chase), and which single entity is the biggest current liability risk to
appraisers (the FDIC).
I do want to let you know that the issue of
indemnification in an AMC contract and other legal/insurance issues we may
discuss are only a few of the criteria that appraisers should consider. This
is part of the reason why we don’t and shouldn’t tell appraisers whether to
do business with a certain AMC or whether to sign a certain agreement. The
information we give is something to be weighed with all the other
considerations that might apply: Are the performance requirements and
assignment conditions reasonable? Do they pay on time? Do they pay a
reasonable fee? etc. I will say, however, if one particular AMC was
presenting a truly abnormal, extra dangerous liability risk to appraisers, I
think I would definitely make our insureds aware of it to save both them and
our insurance program, but we have not yet seen a threat like that from an
AMC – the FDIC is a threat of that magnitude and we do all we can publicly
and privately to make appraisers and appraiser organizations aware of it.
Finally, I do need to say this about
indemnification in AMC agreements: it is still very, very rare that AMCs
actually pursue claims against appraisers under these agreements. The
problem is indemnification clauses have now become much more common and we
can’t predict what they may do in the future.
Click here read the original Claim Alert: Three easy steps to reduce your liability