Arkansas Appraiser Licensing and Certification Board v. Christopher B. Maris

ARKANSAS COURT OF APPEALS

NOT DESIGNATED FOR PUBLICATION

CHIEF JUDGE JOHN F. STROUD, JR.

DIVISION II

ARKANSAS APPRAISER LICENSING AND CERTIFICATION BOARD

APPELLANT

V.

CHRISTOPHER B. MARIS

APPELLEE

CA 02-855

April 16, 2003

APPEAL FROM THE PULASKI

COUNTY CIRCUIT COURT,

SECOND DIVISION [CV 2001-1193]

HONORABLE CHRISTOPHER C.

PIAZZA, CIRCUIT JUDGE

REVERSED AND REMANDED

Appellee, Chris Maris, is a licensed appraiser who prepared an appraisal for the Bank of Little Rock in 2000 in connection with a housing loan. Appellant, Arkansas Appraiser Licensing & Certification Board, received a complaint from a New York bank that had subsequently purchased the loan. The complaint charged that appellee had violated two provisions of the Uniform Standards of Professional Appraisal Practice in preparing the report. Appellee was given the opportunity to respond. An investigation was conducted, and on January 25, 2001, the Board conducted a hearing at which appellee was present and represented by counsel. The Board determined that appellee violated several of the uniform standards of practice and ordered that his license be suspended for four months, that he be fined $1500, that he be required to take a fifteen-hour course with exam, and that he be

placed on probation for eight months following his four-month suspension. Appellee subsequently petitioned for judicial review of the Board's decision. As a result of that review, the circuit court found that the suspension of appellee's license was unduly harsh, unreasonable, and arbitrary. The court, therefore, modified the Board's order to eliminate that portion of the sanctions. The Board appeals from that decision. For its sole point of appeal, appellant contends that the trial court erred in reducing the punishment imposed upon appellee because there was substantial evidence to support the decision, it was within the scope of appellant's statutory authority, and it was not unduly harsh, unreasonable, or arbitrary. We agree, and therefore we reverse the decision of the circuit court and reinstate the Board's decision.

This court's review, like that of the circuit court, is limited in scope; moreover, our review is directed not to the decision of the circuit court, but to the decision of the administrative agency. McQuay v. Arkansas State Bd. of Architects, 337 Ark. 339, 989 S.W.2d 499 (1999). Administrative agencies are better equipped than courts, by specialization, insight through experience, and more flexible procedures to determine and analyze underlying legal issues affecting their agencies, and this recognition accounts for the limited scope of judicial review of administrative action and the refusal of the court to substitute its judgment and discretion for that of the administrative agency. Arkansas Health Servs. Agency v. Desiderata, Inc., 331 Ark. 144, 958 S.W.2d 7 (1998). The right to be licensed is not constitutionally or statutorily preserved, nor is such a right preserved by private agreement. See Tomerlin v. Nickolich, 342 Ark. 325, 27 S.W.3d 746 (2000). Consequently, it is not the role of the circuit courts or the appellate courts to conduct a denovo review of the record. Id. Rather, review is limited to ascertaining whether there is substantial evidence to support the agency's decision. Olsten Health Servs., Inc. v. Arkansas Health Servs. Comm'n, 69 Ark. App. 313, 12 S.W.3d 656 (2000). We review the entire record in making this determination. Id.

Substantial evidence has been defined as valid, legal, and persuasive evidence that a reasonable mind might accept as adequate to support a conclusion and force the mind to pass beyond conjecture. Arkansas State Police Comm'n v. Smith, 338 Ark. 354, 994 S.W.2d 456 (1999). The challenging party has the burden of proving an absence of substantial evidence. Tomerlin, supra. To establish an absence of substantial evidence to support the decision, the challenging party must demonstrate that the proof before the administrative tribunal was so nearly undisputed that fair-minded persons could not reach its conclusion. Id. The question is not whether the testimony would have supported a contrary finding but whether it supports the finding that was made. Arkansas Bd. of Exam'rs v. Carlson, 334 Ark. 614, 976 S.W.2d 934 (1998). It is the prerogative of the agency to believe or disbelieve any witness and to decide what weight to accord the evidence. McQuay, supra.

Administrative actions may be considered arbitrary and capricious where they are not supported by any rational basis. Tomerlin, supra. To set aside an agency decision as arbitrary and capricious, the party challenging the action must prove that it was willful and unreasoned action, without consideration and with a disregard of the facts and circumstances of the case. Id. Our supreme court has stated that the requirement that an administrative decision not be arbitrary and capricious is less demanding than the requirement that it besupported by substantial evidence. Id. An action is not arbitrary simply because the reviewing court would have found differently. Id.

Here, Jim Martin, appellant's executive director, testified that he investigates complaints against appraisers as part of his job. He stated that on August 28, 2000, he received a complaint regarding appellee from Mr. Matthew Martinez of Dime Savings Bank in New York. He said that Martinez sent him a copy of a January 25, 2000 appraisal prepared by appellee, and that Martinez's concerns centered on appellee's lack of disclosure concerning the fact that his brother was the borrower and that his father was associated with the lender bank. Martin also explained that the appraisal contained no analysis on the current agreement of sale. He said that the appraisal stated that the subject property recently sold for $95,000, but that the actual closing date on the sale occurred on February 3, 2000, which was after the appraisal report date of January 25, 2000. He further explained, however, that appellee provided information during the investigation that showed the warranty deed on the property reflected a January 4, 2000 date but that the property in fact closed on February 3 and was recorded incorrectly. Martin explained that the Uniform Standard of Professional Appraiser Practice requires an analysis if there has been a sale of the property within the past twelve months.

Martin also testified that in reviewing the appraisal, he became aware of other discrepancies and inconsistent statements in the appraisal that he categorized as minor. He said that those discrepancies included the age of the property and how it was used in cost adjustments; the lack of a fireplace and how comparables were handled in relation to thatfeature; and the fact that the appraisal report provided that the income approach was not used due to insufficient market rental data, but then indicated a comparable rent schedule in the body of the report.

Martin stated that upon receiving the complaint from Martinez, he sent a copy of the complaint to appellee and requested that he provide them with a copy of the appraisal report that he prepared for his client, Bank of Little Rock. He stated that the appraisal submitted by appellee and the one provided by Martinez were not identical; that the report provided by appellee included a paragraph in his additional-comments section with the heading, "Additional comments requested by the underwriter," but that there was no indication that it was a revised appraisal or that it had been amended.

Martin stated that as of January 25, the day of the inspection, the property was taken off the market because there was a sale pending for $95,000; that prior to that date, the property had been on the market for eighty-eight days and originally listed for $107,500; that it was later reduced to $99,000, and then the pending offer on the date of the appraisal, January 25, was for $95,000. He stated that the deed shows a filing date of January 4, 2000, but that it was actually filed on February 4, 2000, after the transaction was closed on February 3, 2000. Martin acknowledged, however, that the buyer and seller had agreed on the purchase price before the closing date and that the closing involved the actual transfer of title and passing of money.

Appellee testified that he has operated CBM Appraisals for approximately six years, that he has been licensed since 1995, and that he has done approximately 3000 appraisalssince 1995. He said that his brother, Eugene Lee Maris, is a loan officer at the Bank of Little Rock Mortgage Company; that it was Eugene who asked him to prepare the appraisal; that his father, Pete Maris, is the chairman of the board of the bank; and that his uncle and his uncle's son and wife own Standard Abstract and Title Company, which does a lot of work for the bank and closed on this property. He stated that the only compensation he received for the appraisal was $325.

Appellee then reviewed the appraisal that he prepared. He stated that the actual age of the house disclosed was thirty-two years, and that he wrote fifteen as the effective age, which made the remaining economic life approximately forty-five years. He stated that using a simple straight-line time for depreciation would make the depreciation of the house over fifty percent, which was not an accurate value, so he used a depreciation rate of fifteen percent in arriving at his value. He said that he arrived at the fifteen percent by taking the actual depreciation of all three comparables; that the first comparable was fifteen and one-half percent, the second comparable was fourteen percent, and the third comparable was approximately fourteen percent. He said that he "just rounded off" to fifteen percent, acknowledging that rounding off in that fashion made the depreciation rate a little higher.

With respect to the confusion on the fireplace, he stated that he just overlooked the fact that the third comparable had a fireplace and that the subject property did not, and that he made no adjustment. He stated that he included the single-family comparable rent schedule in his appraisal; that he obtained that information from homeowners and newspapers; and that $950 to $1100 was the typical rental value of the properties. He statedthat he did not use the income approach because he did not have any sales that were rentals and that he did not have sufficient information to fit an income evaluation.

Appellee stated that his brother indicated that he had already signed an offer and acceptance to buy the property for $95,000, that his brother did not tell him the date that he bought the property, and that January 25 was the effective date of his appraisal. Appellee stated that on the appraisal, he indicated that the original listing price was $107,500 and that the property had been transferred in the past twelve months. He said he obtained that information from his brother.

With respect to his failure to disclose his relationship with the borrower and the chairman of the board of his client, appellee stated that he just did not think about including them when he signed the certification attesting to the fact that he had no personal interest with the parties involved with the assignment. He stated that in order to correct the problem he has been including a statement that he is related to the loan officer "and the mortgage company as well as the Bank of Little Rock."

Appellee explained that there were additional comments in the Exhibit 7 appraisal (provided by him) that were not included in the Exhibit 5 appraisal (from Martinez) because the underwriter at the Bank of Little Rock, Linda Overstreet, asked for additional information. He said that she contacted him directly and asked for the additional information and that he had no idea what the bank did with the additional information.

Appellee said that the values for the three comparables were $124,000, $115,000, and $124,500. He explained that he adjusted the comparable sale prices and that the adjustedprices were $115,800, $119,500, and $122,775, with an approximate average value of $119,000. He stated that he has done a number of appraisals for his brother; that on a number of occasions the appraisal was less than the brother had agreed to pay and, as a consequence, he could not get financing; that he had made some appraisals that came out within the parameter of the offer and acceptance; and that the subject appraisal "appears to give him the ability to get 100 percent financing." He stated that based upon the comparable sales average, the value of the property at $120,000 appeared to be accurate. He acknowledged that there were errors in the appraisals, which he attributed to oversight and bad proofreading, among other things.

Appellee stated that he did not recall when the underwriter requested the additional comments nor when he provided them, but that it was after January 25. He stated that when he provided the additional comments, he did not change the date and resign the appraisal with a new date. He explained that he typically uses the closing date as the sale date for property, that the sales dates for his comparables were actual closing dates, and that he typically examines an offer and acceptance in preparing an appraisal. He said that he did not know why he did not do so in this case.

Appellee stated that he put the rent schedule in the appraisal because the client asked for it as the property was going to be used for rental purposes. He explained that the subject property was located in Leawood, and that the second comparable was located in the Cherry Creek subdivision, which is in west Little Rock off Bowman Road. He said that the age ofthose houses is probably ten to twelve years, but that his appraisal says twenty years. He said that he did not recall why he put twenty.

Appellee acknowledged that if the sale actually took place at closing on February 3, then the comments regarding the subject property recently selling for $95,000 and selling for that amount prior to inspection would be incorrect. He also acknowledged that his comment that the property had been updated since the date of purchase was not correct because those updates had not been made on the date of his inspection and the date of his report, January 25.

Appellee further acknowledged that with respect to rental values, he should have indicated "owner" as the source of his information and that the county had no way of knowing what somebody rents their house for. He also acknowledged that he was in error when he noted that the subject property was not currently under contract.

Appellee stated that the appraised value came out higher than the list price because the comparables adjusted out higher. He stated that he used a comparable in a subdivision that was half the age of the subject property because it was the best comparable he could find at the time of the appraisal. His memory was that the seller was anxious to sell and that it was somewhat of a distressed sale.

Pete Maris, appellee's father, testified that the Bank of Little Rock was a privately owned company that has about eighty shareholders; that he does not have a controlling interest in the bank; that the bank owns the Bank of Little Rock Mortgage Company; andthat he is the chairman of the board at the mortgage company. He said that the loan involved with this appraisal is not on the books; it was paid off and moved to another institution.

We find that the Board's decision was supported by substantial evidence and that the punishment imposed was not unreasonable or arbitrary. While there were some minor violations, the major focus of the complaint was on the appraiser's relationships with the parties involved, his failure to disclose those relationships, and the possible manipulation of the data in order to set the highest value on the property - - exactly the types of conduct the Board is charged with overseeing and preventing from happening.

We reverse the circuit court's modification of appellee's punishment and reinstate the Board's original sanctions.

Reversed and remanded.

Griffen and Roaf, JJ., agree.