     OFFICE   OF TliL   ATTORNEY   GENERAL.   STATE   OF Tsur

     JOHN       CORNYN




                                                        August 16,200O



The Honorable Yvonne Davis                                      Opinion No. K-0271
Chair, Local and Consent
  Calendars Committee                                           Re: Authority of a state licensed or certified real
Texas House of Representatives                                  estate appraiser     to complete    a Valuation
P.O. Box 2910                                                   Conditions Form for Federal Housing Administra-
Austin, Texas 78768-2910                                        tionmortgageinsuranceappraisals    (RQ-0201-JC)


Dear Representative          Davis:

        On behalf of a state certified real estate appraiser, you request an opinion regarding Form
HUD-92564-VC, Valuation Conditions (“VC form”), a form completed in correction with a real
estate appraisal for Federal Housing Administration (“FHA”) mortgage insurance. We understand
you to ask whether a state certified or licensed real estate appraiser is authorized to make the
observations and render the responses required by the VC form. We conclude in the affirmative.

          We begin with a brief review of the federal and state law framework. The FHA requires
appraisals to be performed by state licensed or certified appraisers. Title XI ofthe federal Financial
Institutions Reform, Recovery, and Enforcement Act of 1989 requires that all real estate appraisals
in connection with federally related transactions be performed only by individuals certified
or licensed by a state in accordance with a uniform national appraisal standard. See 12 U.S.C.
$5 3331-3351(1994 & Supp. II 1996, Supp. III 1997, Supp. IV 1998). To assure the availability of
state licensed or certified appraisers to perform appraisals for federally related transactions, the Act
authorizes a state to establish a state appraiser certifying and licensing agency. See id. 5 3346
(1994). The Act also authorizes a federal agency or instrumentality to require compliance with
additional standards for performing real estate appraisals ifnecessary to carry out its statutory duties.
See id. § 3339.

         The VC form is required pursuant to United States Department of Housing and Urban
Development (“HUD”) prescribed standards for FHA mortgage insurance. The maximum mortgage
amount that the FHA (an organizational unit of BUD) can insure is based on the appraised value of
the property. See id. 5 1709(b)(lO) (Supp. IV 1998). The Secretary ofHUD is specifically directed
to prescribe standards for the appraisal of all property to be insured by the FHA. See id. 5 1708(e)
(1994); see nlso 24 C.F.R. $203.5(e)(l) (1999) (FHA single family mortgage insurance regulation
requiring mortgagee to have property appraised in accordance with standards and requirements
prescribed by Secretary of HUD). These standards are prescribed in HUD Handbook 4150.2. See
U. S. Dep’t of Housing and Urban Dev., Handbook 4150.2, Valuation Analysisfor Home Mortgage
The Honorable Yvonne Davis - Page 2                            (JC-0271)




Insurancefor Single Family One-to-Four UnitDwellings (July 1,1999) <http://www.hudclips.org>
[hereinafter “HUD Handbook”]. The HUD Handbook requires a “as repaired appraisal” valuation
ofproperty using the VC form, which addresses physical conditions ofthe property that may render
the property uninhabitable or cause health and safety concerns.’ See id. at pp. 5-2 to 5-4.

         Two state statutes are also relevant to your query. The Texas Appraiser Licensing and
Certification Act (“TALC?.“) was enacted to conform to the regulation of real estate appraisers
under title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989. See
TEX. I&v. CIV. STAT. ANN. art. 6573a.2, 5 2 (Vernon Supp. 2000). Under TALCA, persons are
licensed or certified to perform appraisals by the Texas Appraisal Licensing and Certification Board,
(“TALCB”) “an independent subdivision of the Texas Real Estate Commission.” Id. art. 6573a.2,
$5 5, 6. An “appraisal,” under this statute is “the act or process of estimating value or an estimate
of value.” See id. art. 6573a.2, $ 3(l).

        You are concerned about the extent to which FHA mortgage insurance appraisals require
property inspections. Persons are licensed to perform “real estate inspections,” by the Texas Real
Estate Commission pursuant to section 23 of the Real Estate License Act (“RELA”). See id. art.
6573a. A “real estate inspection,” under RELA is “a written or oral opinion as to the condition of
the improvements to real property, including structural items, electrical items, mechanical systems,
plumbing systems, or equipment.” Id. art. 6573a, 5 23(a)(lO). A person commits an offense - a
Class B misdemeanor - under RELA “if the person knowingly or intentionally engages in the
business of real estate inspecting without a license.” Id. art. 6573a, 5 23(m)(l), (2).

        You believe that the VC form conflicts with state law because it requires all real estate
appraisers to perform “Real Estate Property Inspection[s]” that are outside the scope ofa “real estate
property valuation appraisal[]” that appraisers are licensed to perform under state law. See
Pennebaker Letter at l? We disagree.

        As a threshold matter, we note that a state licensed or certified real estate appraiser who does
not wish to perform FHA mortgage insurance appraisals and complete the VC form is not required
to do so. State licensed or certified appraisers have the choice whether to perform FHA mortgage
insurance appraisals.    If they elect to do so, they must make the requisite property condition
observations and complete the VC form. Only those state licensed or certified appraisers who have
applied to HUD to perform appraisals for FHA mortgage transactions, have certified that they have


           ‘The VC formincludes      questions that require “yes” and”no” responses based on”readily observable evidence”
of “site hazards and nuisances,” “soil contamination,”       “grading and drainage, ” “well and individual water supply and
septic, ““wooddestroyinginsects,““privateroadaccess         andmaintenance,““structuraldefects,””foundation,““roofing,”
“mechanical     systems, ” “other health and safety deficiencies, ” “lead based paint hazard,” and “condominiums                and
plannedunitdevelopments.“SeeU.S.            Dep’t ofHousing andUrbanDev.,       FormHUD-92564-VC,           ValuationConditions
(Sept. 1999) <http://www.hudclips.org>.

         ‘Letter from Dotti J. Pennebaker, IFA, to Honorable         Yvonne Davis, Texas State Representative,        District 111
(Aug. 31, 1999) (on file with Opinion Committee).
The Honorable Yvonne Davis - Page 3                 (JC-0271)




read and understood the HUD Handbook, and have passed an examination on the FHA appraisal
method and reporting requirements are eligible to perform FHA appraisals. See 64 Fed. Reg.
72868, 72869 (1999) (to be codified at 24 C.F.R. pt. 200, $5 200.202, ,206); HUD Handbook pp.
l-l to l-2; see also Hud Brief at 6.3 Thus, only appraisers who have voluntarily applied to and have
been deemed qualified by HUD to perform FHA appraisals are required to complete the VC form.

        Completion of the VC form as part of the FHA mortgage insurance appraisal by a state
licensed or certified appraiser does not conflict with state law. An appraiser eligible to perform FHA
appraisals is authorized to complete the VC form because it is part of the FHA appraisal process.
The Texas Appraiser Licensing and Certification Act (“TALCA”), the state law under which real
estate appraisers are licensed or certified, does not expressly prohibit the observations and responses
required by the VC form, nor does it impliedly prohibit those observations and responses. While
TALCA defines “appraisal” as “the act or process of estimating value or an estimate of value,” see
TEX. REV. CIV. STAT. ANN. art. 6573a.2,§ 3( 1) (Vernon Supp. 2000), the statute does not exclusively
set out the specific actions constituting the “act or process of estimating value or an estimate of
value.” Nor does RELA, the state law under which real estate inspectors are licensed, preclude an
appraiser from completing the VC form as part of a FHA appraisal. To the contrary, section 23(n)
of the RELA specifically exempts from the licensing requirement of the act:

                any      person who repairs, maintains, or inspects improvements to
                real property and who does not represent to the public through
                personal solicitation or public advertising that the person is in the
                business of inspecting such improvements.      The provisions of this
                section shall not be construed so as to prevent any person from
                performing any and ail acts which the person is authorized to perform
                pursuant to a license or registration issued by this state

Id. art. 6573a, 5 23(n). To the extent completion of the VC form is part of the appraisal process for
FHA mortgage insured properties, an appraiser licensed or certified under TALCA may complete
the VC form without being licensed under RELA as a real estate inspector.

        Our construction of section 23(n) is supported by its administrative construction. See Dodd
Y. Meno, 870 S.W.2d 4,7 (Tex. 1994) (construction placed upon a statute by agency charged with
its administration, while not binding, is entitled to substantial weight). The RELA is administered
and enforced by the Real Estate Commission.          See TEX. REV. Qv. STAT. ANN. art. 6573a, 5 1
(Vernon Supp. 2000). The Commission construes section 23(n) to allow licensed or certified
appraisers to complete the VC form as part of an appraisal: “[The Commission] considers appraisers
licensed or certified by the [Texas Appraisal Licensing and Certification Board] to be exempt from
the inspector licensing requirement when performing an appraisal. Thus, a licensed or certified
appraiser may complete the new HUD Form 92564-VC as part ofthe appraisal process without being


        ‘Brief of U.S. Department of Housing and Urban Development,   in response   to Attorney   General   Opinion
Request No. 0201.JC (on tile with Opinion Committee).
The Honorable   Yvonne Davis - Page 4          (JC-027   1)




licensed as an inspector by [the Commission].”  TALCB, Appraiser Report (August 1999) at 2
(emphasis omitted) (on tile with Opinion Committee); see also Pennebaker Letter at 1. (“[The
Commission] has issued a statement that Appraisers are exempt from being Licensed Real Estate
Inspectors when performing an appraisal, thus may complete the HUD VC Sheet.“).

         Furthermore, completion of the VC form as part of the FHA mortgage insurance appraisal
is permitted under federal law. HUD construes the observations and responses required by the VC
form to constitute an essential part of the appraisal of the property to be insured by the FHA to
determine its market value; completion of the VC form, HUD asserts, does not require or constitute
a real estate or home inspection. See HUD Brief at 10-12; see also, e.g., HUD Handbook at p. 5-2
(“A home inspection is not required to complete the VC [form].“); 24 C.F.R. § 200.145 (1999)
(“Any appraisals, inspections, environmental assessments, and technical or financial evaluations
conducted by or for the [Federal Housing] Commissioner are performed to determine the maximum
insurable mortgage, and to protect the Commissioner and the FHA insurance funds.“).
The Honorable Yvonne Davis - Page 5               (X-0271)




                                        SUMMARY


                        Only state licensed or certified real estate appraisers who have
               voluntarily applied to and have been deemed qualified by the United
               States Department of Housing and Urban Development to perform
               FHA mortgage insurance appraisals are required to complete the
               Valuation Conditions Form on FHA mortgage insurance appraisals.
               A state licensed or certified real estate appraiser eligible to perform
               FHA appraisals is authorized to complete the Valuation Conditions
               Form. Completion of this form as required by federal law does not
               conflict with state licensing requirements for performing real estate
               appraisals and real estate inspections.




                                               Attorney General of Texas



ANDY TAYLOR
First Assistant Attorney General

CLARK KENT ERVIN
Deputy Attorney General - General Counsel

SUSAN D. GUSKY
Chair, Opinion Committee

Sheela Rai
Assistant Attorney General - Opinion Committee
