Tag Archives: FRTs

FRTs – Federally Related Transactions

February 25, 2020 – Most of us know which loans are classified as FRTs.  The loans that have caused confusion are those that are under the various threshold levels.  Are those FRTs or non-FRTs?  So, here is a short explanation that will hopefully be of assistance.

We start out with everything being a FRT.

Then we see if any of the 12 or 13 exemptions apply.  Here we fork in two directions.

1.  For the 9 exemptions where neither an appraisal nor an evaluation are needed (e.g. Abundance of Caution, Unsecured loans, loans sold to FNMA/Freddie et al), those transactions are outside of FIRREA entirely and thus are not FRTs.

2.  For the 3 or 4 exemptions that do not require an appraisal, but require an evaluation, these loans also are NOT FRTs.  However, federal regulations still apply as they cover what is needed in the evaluation realm.

The federal regulators only care about evaluations being done by a competent person and providing safety and soundness to banks/CUs.  The December 2010 IAEG is NOT law and, thus, although it addresses who can perform evaluations, the content of evaluations, et al, none of that matters to the bank examiners.  The only requirements in the law itself is that someone competent perform these (can be a licensed appraiser or not a licensed appraiser) and the resulting report provides what is needed for safety and soundness to be met.

So, it is left to the courts to decide debates on whether states can require that only licensed appraisers can perform evaluations.  Although federal regulators believe states have this right, they recognize that the preemption argument can be made and judges might see it that way.
It obviously would be nice if things were not left to various judges to give different rulings.  However, that is not the situation we have to live with.
The Mann 


August 23, 2016 – Per the Appraisal Subcommittee’s (ASC) website, ‘State statutes governing appraiser certification and licensing can be characterized in three ways:

Mandatory (Man) – Certified/licensed appraisers required for any service for which an opinion of value (evaluation or appraisal) for real property is developed;

Mandatory for Federally Related Transactions (M/FRT) – Certified/licensed appraisers required to perform appraisals in any federally related transactions and real estate related financial transactions when Federal law requires the services of such appraisers; and

Voluntary (Vol) – Certified/licensed appraisers not required for any appraisal/evaluation assignments. If appraisers wish to perform appraisals in such federally related transactions and real estate related transactions, appraisers can choose to become certified/licensed and submit to the State’s regulatory jurisdiction.’

I contend that there are no Mandatory States because it conflicts with Federal law to require someone be certified/licensed to perform an evaluation.  The States argue they can ‘add to’ the requirements of Federal law (in this case FIRREA).  Myself, and many others, argue they are not ‘adding to,’ but are in conflict with Federal law – Federal law trumping State law.

Per the ASC website, I count 4 Voluntary States, 13 Mandatory for FRT States, and 38 Mandatory States.  The total includes DC and territories.  Everyone can agree that 17 States clearly are not Mandatory.  It is the 38 States that claim to be Mandatory that I contend cannot be mandatory.

The debate comes down to Federal Preemption – the displacement of U.S. State law by  U.S. Federal law.  FIRREA does not require an evaluator be a State certified/licensed appraiser.  The question becomes, can a State require you to be a certified/licensed appraiser in order to prepare an evaluation?

One item that is clear and not up for debate is that FIRREA requires an evaluation provide an opinion of Market Value ‘As Is’ of Real Estate Only.  The key point being an evaluation does provide market value – just like an appraisal.

As to who can perform evaluations, pertinent quotes from the December, 2010 Interagency Appraisal and Evaluation Guidelines follow:

Persons who perform evaluations should possess the appropriate appraisal or collateral valuation education, expertise, and experience relevant to the type of property being valued. Such persons may include appraisers, real estate lending professionals, agricultural extension agents, or foresters.31

31 Although not required, an institution may use state certified or licensed appraisers to perform evaluations.  (Emphasis added)

From here, we are back to Federal Preemption.  Does it apply or not?  I am aware of one case that has decided this question.  I will provide its reference and the Judge’s quotes below.  As with any case ruling, it can be argued that it only applies to this specific set of circumstances, only in this jurisdiction, etc.  However, it is a Federal Judge and it decides if the State of Pennsylvania can require appraisal licensing for people performing evaluations.  And it decides if Federal Preemption applies.  There is a good chance other Judges around the country would refer to his case.

Let’s start with the exact reference from the copy that was provided to me:

2004 WL 764834

Only the Westlaw citation is currently available.

United States District Court,

E.D. Pennsylvania.

FIDELITY NATIONAL INFORMATION SOLUTIONS, INC., Market Intelligence, Inc., and Pennsylvania Bankers Association, Plaintiffs,


George D. SINCLAIR, et al., Defendants.

No. Civ.A. 02-6928. | March 31, 2004.

Yes, this case is 12 years old.  I am surprised it hasn’t been brought up more often in this debate as to who can perform evaluations in each State.   I will let you read the entire document as it is too long to cut and paste it here.  It ebbs and flows and the Judge does a great job of addressing many arguments from both sides.  In the end, Federal Preemption is the main issue and the Judge says this:

‘...The federal financial regulatory agencies, pursuant to the Congressional authority granted under 12 U.S.C. § 3341(b), have exempted federally related real estate transactions under $250,000 from the state certified real estate appraiser requirement. Insofar as these federally related, but expressly exempt transactions are concerned, REACA is preempted by FIRREA. For all other transactions that are non-federally related either because they do not involve a federal financial institution regulatory agency or the Resolution Trust Corporation, or because they have been designated by the federal financial institution regulatory agencies as not requiring “the services of an appraiser” as set forth in 12 U.S.C. § 3350(4), such non-federally related transactions are outside the scope of FIRREA and are subject to state regulation. …’

REACA stands for the Pennsylvania Real Estate Appraisers Certification Act.

So, there you have it.  Federal Preemption DOES apply and States (at least Pennsylvania for sure) cannot require appraiser certification/licensure to perform evaluations.  Therefore, NO State can be Mandatory.  They can require appraiser certification/licensure for most, but not all, products that provide opinions of value.

Although I am not sure where the money is in such a case, I would hope someone would file a suit against all of the so-called Mandatory States and force them to change their laws to note the exception for evaluations.  Maybe organizations like ABA would do it to assist their members.

Lastly, I have heard of some State Attorney Generals trying to strong arm financial institutions into only using certified/licensed appraisers to perform evaluations.  This is laughable and hopefully there can be push back in one way or another.  Legal Counsel at the Federally-Regulated banks I worked at made it clear that no State was going to get into our files anyway since we were regulated by the Federal Agencies.  But, States will be States and try to throw their weight around.

I recall one State who attempted this with me.  They didn’t like us doing evaluations in their State without being licensed appraisers.  It wasn’t Illinois, but let’s just say it was and the property was in that State.  I replied I am located in Ohio.  I am licensed in Kentucky.  The client got the evaluation report off of the internet from a server located in California.  Please let me know when Illinois has any jurisdiction over anything going on in those States:)  I never heard back:)

As always, I appreciate your thoughts.  I would be very interested in any other settled cases that exist and address the issue of Federal Preemption in regard to evaluations.  Email me if you want a copy of the case I have referred to in this post.