On August 11, 2011, National Association of REALTORS® (NAR) President Ron Phipps sent a letter to federal regulators calling for a ban on the use of indemnification clauses used by appraisal management companies (AMCs). The letter was sent to Federal Financial Institutions Examination Council (FFIEC), the US Department of Housing and Urban Development, the Federal Housing Finance Agency, and the US Department of Veterans Affairs.
Indemnification clauses are becoming more common in service contracts used to engage AMC panel appraisers. In many cases, appraisers are asked to sign contracts that include language to indemnify and hold harmless the AMC against any suit, threat, or claim on any work product or service provided as part of the contract agreement. In some instances, the appraiser is even required to indemnify the lender and the AMC for amounts equal to their costs in repurchasing a mortgage loan, regardless of any proof of culpability on the part of the appraiser. The AMC is free from any legal obligation and the appraiser bears all responsibility.
NAR strongly supports the independence of appraisers and the appraisal process. The use of indemnification clauses places pressure on the appraiser, compromises their independence, and has a negative effect on the quality of appraisal reports. This adds risk for both consumers and lenders while diminishing much needed public trust in the appraisal profession.