ALJDEC decisions subject to certification as final

06F-2177-BOA · Board of Appraisal · 2007-07-09

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: June 14, 2007. The record closed on June 18, 2007. APPEARANCES: Assistant Attorney General Dawn Walton Lee represented the State of Arizona. Respondent Lucille DeMarco did not appear. ADMINISTRATIVE LAW JUDGE: Daniel G. Martin _____________________________________________________________________

The question presented by this matter is whether Respondent Lucille DeMarco has violated the provisions of Arizona Revised Statutes (“A.R.S.”) § 32-3612 and/or 32-3631, and, if so, whether her appraisal license is subject to disciplinary action. Based on the evidence of record, the Administrative Law Judge makes the following Findings of Fact, Conclusions of Law and Order: FINDINGS OF FACT 1. The Arizona State Board of Appraisal (the “Board”) is the duly constituted authority for licensing and regulating the practice of appraisal in the State of Arizona. 2. Respondent Lucille DeMarco holds license no. 11366 for the practice of residential appraisal in the State of Arizona. The classification under which Ms. DeMarco is licensed is defined as “those persons meeting the requirements for licensing relating to appraisal or appraisal review of noncomplex one to four residential units having a value of less than one million dollars and complex one to four residential units having a value of less than two hundred fifty thousand dollars.” See A.R.S. § 32-3612(A)(3). 3. On February 17, 2006, Ms. DeMarco issued an appraisal (the “Appraisal”) for a property located at 5700 McDonald Drive in Paradise Valley, Arizona (the “Property”). The Appraisal was effective as of February 14, 2006, and was directed to NFS Loans in Irvine, California. See Exhibit 1.

4. Pursuant to the Appraisal, Ms. DeMarco estimated the market value of the Property as of February 14, 2006 to be $5,000.000.00. See Exhibit 1. 5. On April 26, 2006, the Board received an anonymous complaint alleging that Ms. DeMarco had acted outside of the limits of her license and further that she had committed multiple factual errors and had violated the Uniform Standards of Appraisal Practice (“USPAP”). See Exhibit 1. 6. On August 15, 2006, the Board engaged Ms. Pat Thoms to conduct an investigation into the allegations of the complaint against Ms. DeMarco. Over the next two weeks, Ms. Thoms conducted her investigation. On September 1, 2006, Ms. Thoms issued a written investigative report. See Exhibit 3. 7. At its February 15, 2007 meeting, the Board considered Ms. DeMarco’s case. Ms. DeMarco appeared at that meeting, presented statements in her own behalf, and responded to questions from the Board. See Exhibit 4. 8. On May 10, 2007, the Board issued a Complaint and Notice of Public Hearing pursuant to which the Board alleged that Ms. DeMarco had violated A.R.S. § 32-3612, 32-3631(A)(6), and 32-3631(A)(7), and that such violations constituted grounds upon which the Board could take disciplinary action against Ms. DeMarco’s license in accordance with A.R.S. § 32-3632(B). The Administrative Law Judge addresses each of the Board’s allegations in the Conclusions of Law, below. 9. The Board’s Complaint and Notice of Public Hearing advised Ms. DeMarco that the hearing in this matter would convene on June 14, 2007 at the Office of Administrative Hearings in Phoenix, Arizona. The Board sent a copy of the Complaint and Notice of Hearing to Ms. DeMarco at her address in Apple Valley, Minnesota by regular mail and by certified mail, return receipt requested. 10. Ms. DeMarco did not appear at hearing, nor did she contact the Office of Administrative Hearings to state any reason for her absence. When Ms. DeMarco continued in her failure to appear after the expiration of a fifteen minute grace period, the Administrative Law Judge convened the hearing and proceeded in Ms. DeMarco’s absence.

11. The evidence presented at hearing, consisting of Ms. Thoms’ testimony and five exhibits submitted by the State, demonstrated the following: a. The Appraisal pertained to a complex property. b. The Appraisal fails to analyze the fact that the Property had been listed for $3.5 million, and appears to give credit to a $6 million contract price. A reasonable appraiser would have questioned why a property had been the subject of such a significant increase in the listing price, and the failure to have included the information regarding the prior listing rendered the Appraisal misleading. c. The Appraisal did not show any previous sale of the Property within the previous three years; however, according to NetValueCentral, the Property had been sold on September 3, 2004 for $1.6 million. d. The Appraisal contains errors with regard to the subject’s address and the existence of homeowner’s association dues. e. The Appraisal contains errors with regard to its use of comparable properties, including failure to support large location and site adjustments, failure to adjust for the presence of guest houses on two of the comparable properties, and failure to comment on and adjust for significant age differences. f. The Appraisal’s cost approach figures (approximately $500.00 per square foot) are not supported by Marshall Swift (a commonly used data source that provides cost data for different regions). g. The Appraisal does not include an estimate of reasonable exposure time (that is, the amount of time a property remains on the market). h. The Appraisal estimates the market value of the site at $3 million (i.e., more than half the value of the Property) without sufficient or adequate documentation. i. The Property is 34 years old; the Appraisal unreasonably applies an effective age of five years to the Property and total accrued depreciation of 2.08%.

j. The Appraisal “falls short of summarizing sufficient information to permit the reader to follow the Appraiser’s reasoning leading to market value opinion.” See Exhibit 3, at 15. 12. Because Ms. DeMarco did not appear for hearing, she did not present any evidence to controvert or mitigate the evidence presented by the State. 13. At the conclusion of the hearing, the State requested, based upon all of the evidence and the totality of the circumstances, that Ms. DeMarco’s license be revoked. CONCLUSIONS OF LAW 1. In this proceeding, the State bears the burden to prove, by a preponderance of the evidence, that Ms. DeMarco violated A.R.S. § 32- 3612, 32-3631(A)(6), and/or 32-3631(A)(7), and that her license is subject to disciplinary action. See Arizona Administrative Code R2-19- 119. 2. A preponderance of the evidence is “such proof as convinces the trier of fact that the contention is more probably true than not.” Morris K. Udall, Arizona Law of Evidence § 5 (1960). 3. The State sustained its burden of proof as to each of the allegations set forth in its Complaint and Notice of Public Hearing. 4. A.R.S. § 32-3612 provides, in pertinent part: A. The following classifications of state licensed real estate appraisers and state certified real estate appraisers are established:

1. State certified general real estate appraisers consisting of those persons meeting the requirements for certification relating to the appraisal or appraisal review of all types of real property.

2. State certified residential real estate appraisers consisting of those persons meeting the requirements for certification relating to the appraisal or appraisal review of one to four residential units without regard to value or complexity.

3. State licensed real estate appraisers consisting of those persons meeting the requirements for licensing relating to appraisal or appraisal review of noncomplex one to four residential units

having a value of less than one million dollars and complex one to four residential units having a value of less than two hundred fifty thousand dollars.

5. Ms. DeMarco’s licensure is limited to those properties defined under A.R.S. § 32-3612(A)(3). Ms. DeMarco exceeded the scope of her licensure in performing the appraisal at issue herein in that such appraisal pertained to a complex property having a value in excess of $250,000.00. 6. A.R.S. § 32-3631(A)(6) and (A)(7) provide: A. The rights of an applicant or holder under a license or certificate as a state licensed or state certified appraiser may be revoked or suspended or the holder of the license or certificate may otherwise be disciplined in accordance with this chapter on any of the grounds set forth in this section. The board may investigate the actions of a state licensed or state certified appraiser and may revoke or suspend the rights of a license or certificate holder or otherwise discipline a state licensed or state certified appraiser for any of the following acts or omissions:

* * *

6. Violation of any of the standards of the development or communication of appraisals as provided in this chapter.

7. Negligence or incompetence in developing an appraisal, in preparing an appraisal report or in communicating an appraisal.

7. The standards of practice applicable to Ms. DeMarco’s conduct are those codified in the 2005 version of the USPAP. See A.A.C. R4-46- 401 (as in effect at the relevant time). 8. By her conduct, Ms. DeMarco violated USPAP Standards Rule 1-1(b) (failure to reference $3.5 million list price), 1-1(c) (series of errors in report), 1-2(c)(iv) (failure to include estimate of reasonable exposure time), 1-4(a) (failure to provide competent analysis of comparable properties), 1-4(b)(i) (site value lacked adequate support), 1-4(b)(ii) (no basis for replacement cost), 1- 4(b)(iii) (unreasonable estimate of effective age and accrued depreciation), 1-5(a) (failure to analyze increase in list price

from $3.5 million to $6 million), 1-5(b) (failure to address prior sale within three years), 2-1(a) (omissions of analysis resulted in the issuance of a misleading report), 2-2(b)(v) (failure to include estimate of reasonable exposure time), 2-2(b)(ix) (failure to provide sufficient information to allow a reader to follow the appraiser’s reasoning leading to the market value opinion). Such violations of the applicable standards of practice constitute violations of A.R.S. § 32-3631(A)(6) and (A)(7). 9. Based on the statutory violations found herein, the Administrative Law Judge concludes that Ms. DeMarco is subject to disciplinary action. 10. The State requested that Ms. DeMarco’s license be revoked pursuant to A.R.S. § 32-3631. The Administrative Law Judge concludes that Ms. DeMarco’s statutory violations found herein, viewed in conjunction with the fact that she failed to appear at the hearing in this matter, compel the conclusion that Ms. DeMarco should not be permitted to hold an Arizona appraisal license and that her appraisal license should therefore be revoked. ORDER Commencing on the effective date of the Order entered in this matter, Lucille DeMarco’s license for the practice of appraisal in the State of Arizona (No. 11366) shall be revoked.

Done this day, July 9, 2007.

______________________________________ Daniel G. Martin Administrative Law Judge

Original transmitted by mail this ____ day of July, 2007, to:

Deborah G. Pearson, Executive Director Arizona State Board of Appraisal 1400 W. Washington, Suite 360 Phoenix, AZ 85007

By ___________________________ -----------------------

Office of Administrative Hearings 1400 West Washington, Suite 101 Phoenix, Arizona 85007 (602) 542-9826