While it is not uncommon for CEO’s to be upset with criticism that their companies receive, it is highly unusual, perhaps unheard of, for CEO’s to follow the path that Ben Behrouzi has in single handedly destroying his reputation, brand and likely becoming liable for slander and defamation. The secondary effect that is as the story continues to grow it only serves to increase his exposure to growing murmurs regarding a Class Action lawsuit by dissatisfied ePerks users. To date: 8 of the top 10 results in a Google search for “eperks.com”and likewise “ben behrouzi” point to content that has negative commentary or comments about ePerks and ePerks CEO Ben Behrzouzi.

This morning, Vlad Zablotzkyy was served with a civil action from Brabus Ventures Corporation (ePerks parent company, owned by Behnam Behrouzi) claiming unspecified damages for posting information on his blog about a false child molestation allegation that was made against him. Vlad made no accusations but simply presented anecdotal evidence indicating that ePerks was possibly linked to the false charges. The evidence showed that user names used by the person posting false child molestation allegations matched user names used by persons leaving comments on Vlad blog originating from ePerks.com corporate IP address.

Fluff. The purpose of a Cease & Desist letter is to forewarn of pending legal action in lieu of compliance. When legal action is taken, the actions should be consistent with the items cited in the Cease & Desist letter if they have validity.

Break down of Specific Complaints in ePerks C & D Letter vs. Actual Complaint:

• C & D: “Your only goal is to cast ePERKS in a negative light for personal gain…………your blogs deceptively fail to inform the reader that you are motivated by an undisclosed proprietary interest in an ePERKS competitor.” Not Included in Complaint.
  
• C & D: “Having researched the content of your blogs, we have come to conclusive proof that a substantial number of your postings are bogus, in that they frequently describe experiences that never happened and people who do not exist.” Not Included in Complaint.
• C & D: “Our research also shows that negative remarks are not only invited, but are posted without a challenge.” Not Included in Complaint.

Central Complaint:

“Defendant Zablotskyy published an accusation on his blog website that plaintiff was responsible for an anonymous internet posting alleging that defendant was a child molester. Said post by defendant is attached hereto as Exhibit “A”. At the time the Exhibit “A” post was published, defendant had no reasonable basis to accuse plaintiff, or its internet name ePERKS.com of being the author of the child molester post.”

Stupidity. ePerks is going after Vlad for accusing them of being behind the child molestation allegation on Yahoo Answers. The fact is that Vlad did not accuse them as such, he simply presented anecdotal evidence. The irony is that the single piece of information that will confirm what IP Address the Yahoo Answers post originated from and will likely invalidate ePerk’s complaint is one subpoena away and is the also the single piece of evidence that will provide Vlad with an airtight Libel and Defamation case against ePerks should it link ePerks to the allegation.

On June 5th, one day after ePerk’s complaint against Vlad was filed, BrokerScience laid out the connection between ePerks and the Yahoo Answers child molestation post. While the link will only be definitive once Yahoo is subpoenaed, the anecdotal evidence points strongly to ePerks. One thing is for sure, it is very likely that Ben Behrouzi and company are panicked in light of the IP Address link to ePerks presented by BrokerScience only one day after their complaint was filed.

If ePerks was so unhappy with Vlad’s assertions, how will they feel about ours? Will BrokerScience be served in the coming days? Our fingers are crossed. An ePerks case against BrokerScience all but guarantees the story goes national, gaining exposure to Vlad’s plight and consumer complaints against ePerks.

Community Reaction: Greg Swann at BloodHound has established the Vlad Zablotzkyy Defense Fund.

Support Vlad Zablotskyy’s Defense Fund
Defend your own right to free speech!

The Complaint:

Related Stories:

Original BrokerScience Eperks Case Study

Ben Behrouzi Updates Company “Values” and “Culture” Web Pages. Only One Problem: They’re Stolen

ePerks.com Link to Vlad Zablotzkyy

BrokerScience Coverage of iHype.com Launch

ePerks CEO Ben Behrouzi Insinuates Legal Action Against BrokerScience, Cites “Damages”

BrokerScience Acquires BenBehrouzi.com

This is no surprise, CEO Ben Behrouzi and his companies have a proven track record of engaging in unethical behavior and marketing and his latest debacle of adding “copyright infringement” to his resume are par for the course. This is a time that one would think, as CEO, he should be apologizing to the victims of his harassment and focusing on his failed startup, iHype.com which one of his employees humorously defended as a “soft launch” when it failed to launch as announced on June 2nd.

BrabusVentures.com Steals Culture Page from Mervyns.com

(Click Thumbnail Below For Full Size Image)

Screenshot of Original Mervyns.com Page (URL) / Screenshot of Offending BrabusVentures.com Page (URL)

BrabusVentures.com Steals Values Page from Chevron.com

(Click Thumbnail Below For Full Size Image)

Screenshot of Original Chevron.com Page (URL) / Screenshot of Offending BrabusVentures.com Page (URL)

Dissasemble. I really want to make this story go away, but it’s the gift that keeps on giving. I REALLY want to write some positive stories here.

While it is fairly common for content to be recycled on real estate and mortgage websites (especially privacy pages, legal pages, glossaries and even basic content that define general concepts) it is never ok for a CEO or Founder to steal a Mission Statement, Values Statement, or Definition of Company Culture. Never. Ever.

These are the documents that define the moral, ethical and business code of your company and are the basis for the culture that is created through the actions and leadership of company founders and management. These are to be created with care, sensitivity and purpose. Without positive core beliefs, philosophies and morals, one is truly lost.

Related Posts:

Original BrokerScience Eperks Case Study

ePerks CEO Ben Behrouzi Threatens BrokeScience Citing “Damages”

ePerks.com Link to Vlad Zablotzkyy

BrokerScience Coverage of iHype.com Launch

Beginning of the End: ePerks CEO Ben Behrouzi Sues Blogger, Confirms No Strategy in Place

BrokerScience Acquires BenBehrouzi.com

In the transcript below, we asked you to provide us proof of any factual inaccuracies we have published, you failed to do so.

You state that what we are publishing is “completely false and now damaging the company“, yet failed to list even one “false item” or “fabrication” and failed to prove how we are damaging your company.

More importantly, you have failed to take responsibility for your own actions, those of your employees and the consequences that have befallen you as a result of the behaviors you engage in.

While your harassment of bloggers like Vlad Zablotkyy, Dennis Pease, myself & others speaks volumes about your character, the feedback I have been getting from your employees is even more telling. While I have been given the green light by my legal team to share my conversations with a handful of your employees, it is not my intention to do so at this time.

You claim that I have threatened a suit against and harassed your employees. That is categorically false. For the record, my only complaint against your employees is that they suck for sending me spam.

You claim that I have shown up at one of your employees’ homes. That is categorically false. In a conversation with one of your employees (the conversation lasted one and a half hours), I indicated that I had seen proof that the domain name they personally owned and sent ePerks spam from was registered to a private residence, not a business. I simply used Google Maps Street View to make this confirmation. If they falsely concluded that I trekked from Los Angeles to San Francisco to see their home, they were mistaken.

If you care to continue this dialog in the courtroom of public opinion, it will be my pleasure to disassemble you and your argument at will using nothing more than your own words against you from here on out.

If you are so stupid as to think you have something to gain by continuing this dialog in Superior Court, I want to thank you in advance for the recognition, traffic and revenue you will bring to BrokerScience as the story goes national and you become personally responsible for being the tipping point that puts BrokerScience.com on the map.

Trace Richardson / BrokerScience

Email Transcript

Related Stories:

Original BrokerScience Eperks Case Study

ePerks.com Link to Vlad Zablotzkyy

BrokerScience Coverage of iHype.com Launch

Ben Behrouzi Updates Company “Values” and “Culture” Web Pages. Only One Problem: They’re Stolen

Beginning of the End: ePerks CEO Ben Behrouzi Sues Blogger, Confirms No Strategy in Place

BrokerScience Acquires BenBehrouzi.com

ePerks.com launched in 2007 to connect consumers with professionals in the real estate, automotive and home improvement verticals, with an emphasis on real estate. Real estate agents pay territory based subscription fees and share commissions with ePerks on completed sales. ePerks was Founded by Behnam Behrouzi, 27, who also co-founded reply.com with his uncle, Payam Zamani (founder of autoweb.com) and one John Truchard. The three Reply.com founders also founded Imotors.com. Ben also owns Echostar Financial, a mortgage company, Brabus Real Estate, and Brabus Ventures. Behnam was featured as a 2004 Young Millionaire in Entrepreneur magazine.

Marketing the ePerks Way

Paid Review Posts. ePerks launched by engaging in pay per post marketing (where blogs are paid to write a review of the company). Pay per post marketing is controversial because of the ethical dilemna it presents to marketers because it is inherently deceptive in nature, lacks transparency (many blogs do not disclose or poorly disclose that they have been paid to write a review) and reviews are by and large positively biased. Consumers can usually spot a fake endorsement a mile away and this means that the goal of raising awareness of a brand has been successful via these paid posts, but in reverse. Consumers are now aware of your brand, product and or service, but have been made so through a medium that inherently builds mistrust and skepticism about your company. Many still, would argue that pay per post campaigns have little reach and influence even when properly executed.

Seeding Positive Comments in Paid Posts, Forums and Blogs. ePerks then took the step of starting fake forum posts like this one by “RKS6″ which are easily identifiable when they are created by users that create a new account on a forum and only make one or two posts regarding the company they are spamming for. Then they seeded their paid posts with false praise of ePerks and started seeding other forum discussion threads (another example of “RKS6″ inquiring about ePerks similar to many inquiries by “RKS6″ on various forums and blogs). Many of the seeded comments are little more then thinly shield corporate talking points and never include links or contact information that can be verified. We were able to find two commenters with positive ePerks feedback that did have verifiable contact information but both declined to comment for this story and both said they longer worked ePerks due to ePerks performance issues.

The screenshot above is from perhaps the most humorous example of ePerk’s use of seeded forum comments where there are dozens of fake ePerks comments. This forum automatically assigns a city to each comment based on IP address, making it simple to see which comments are fake. In this example all one has to do is note which posts are from Brentwood, CA to spot the fake ePerks comments. This isn’t always reliable though because ePerks likely pays people to seed fake comments from different states and IP addresses but in this case a good number are obviously fake, especially those purporting to be satisfied ePerks users that are in Washington, for example, even though their IP address has outed them as being in Brentwood as occurs with dozens of other fake ePerks testimonials.

This entire blog, started by “Michael K” is dedicated to getting ePerks “feedback” so that the “Michael K” can make a decision as to whether or not he is going to join ePerks. Not surprisingly, there is nothing but glowing praise about ePerks in the comments.

Again, consumers can spot comment spam very quickly and there are fewer things more despised online more then spam in the form of fake forum posts or fake comments in blog posts or forum theads. Ultimately, the paid blog posts and fake forum posts have served as a launching pad for ePerks users to vent and complain about their bad ePerks experiences.

Spam. Legitimate companies and smart brands do not spam for obvious reasons. Many have complained about ePerks spam and I too have received it. Spamming is one of the single best ways to build distrust and resentment towards your brand.

Poor Marketing Decisions. Commercials like this are not only offensive to your intended client base of real estate agents but some might argue are unnecessarily lacking the taste and sensibility necessary to engage the public in a meaningful way.

ePerks Performance

Execution. Performance is marketing through execution and based on online user complaints about ePerk’s performance, they seem to be failing to achieve user satisfaction on a large scale. Complaints include claims of being misled about how ePerks works and the results that can be expected, failure to honor an in place refund policy, charging credit cards after accounts were canceled, difficulty in canceling services, lack of communication (especially once a complaint was lodged), failing to produce results and misrepresentations about promotions such as a super bowl commercial to generate traffic to the site, among others. Virtually any forum thread or blog post you can find about ePerks is bound to include user negative feedback with consistent complaints about ePerks performance across the board.

The Tale of the Tape. The ePerks model enables ePerks users to pay for the right to receive leads for specific zip codes that are generated on ePerks.com. In exchange for the monthly fees members pay ePerks, ePerks is responsible for marketing and advertising to bring traffic to the site that can then be converted to leads. ePerks, like most online lead generation companies will see an increase in the leads they generate as they increase their online ad spending and media buys. If they do not increase their traffic as they add users, the number of leads should remain constant overall, but will decrease on a per user basis as more users are added. For this reason, ideally, they should use internal data to estimate the number of page views necessary to generate their desired baseline or target number of leads per user. This would enable them to estimate how much ad spend is required on a per user basis and as they add users, can estimate the required total online ad spending / marketing budget based on users participating and adjust it as necessary. Theoretically, as the company grows, so should their traffic as they increase ad and marketing spend to achieve the traffic necessary to meet their per user lead targets.

Example Based on Generic Numbers: If ePerks determines that they want to generate 15 leads per user per month and it takes 500 page views to generate one lead, they will then know that they will need to generate around 7500 page views per user per month (500 page views x 15) to generate the necessary 15 leads per user. If they estimate it will cost $15 to generate 1000 page views then they can estimate it will cost $112.50 ($15 x 7.5 = 7500 page views) to generate 15 leads per user.

As they add users, their ad spend (assuming advertising costs don’t change) and overall site traffic should increase. If their number of users stays the same, their ad spend and traffic should go sideways to maintain the necessary lead generation required to hit user lead targets and if they decrease their user base, their ad spend and traffic should decrease. They should maintain a volume of traffic that is equivalent with generating the page views and leads necessary to satisfy their existing pool of paid users.

The chart above shows an approximate 75% reduction in traffic from March to May. If their traffic is tied to their ad spend as necessitated by the number of users participating as I demonstrated above, then there has been a clear exodus of ePerks users away from the company.

Reality. The much more likely possibility that ePerks never engaged in a marketing campaign tied to the size of their user base which would explain user complaints of receiving few or no leads. In this scenario, users would not be receiving a consistent or adequate amount of leads because of the liklihood that there was inadequate marketing / traffic to begin with and as new users were added to the pool, they only served to dilute the already inadequate available lead pool.

At the time of this writing we were unable to find any banner ads anywhere or pay per click advertising for ePerks on google using keywords they would be likely to target. Delisting by google might explain such a drop in traffic, as shown above, but at the time of this writing ePerks has around 60k pages indexed, further indicating that cessation of marketing activities is the cause.

Further Confirmation. KeywordSpy.com measures Pay-Per-Click advertising used by advertisers and indicates that ePerks stopped all advertising in February.

One early ePerks adopter we spoke with quickly ditched the program when “it became clear that their marketing strategy did not work and appeared to consist of a one tier approach of posting their one commercial on youtube.com”. In all likelihood, according to the data in the charts above, ePerks ceased whatever marketing it was engaging in at the end of January, even though it continues to collects fees from past customers and new signups. Such data fuels speculation and online chatter that a class action lawsuit is inevitable.

Sloppy on the Simplest of Tasks. The screen shot below shows the domain name registrant information for ePerks.com. They have provided a false address, false phone number, and questionable email address. Per ICANN, this is grounds for cancellation of the domain name.

Notice that Ben was able to input the correct information for the soon to be launched Ihype.com.

Engaging the Industry the ePerks / Ben Behrouzi Way

Attacking Critics. Perhaps the most egregious of all of ePerk’s indiscretions has been how it has handled its critics, online peers and customers. In perhaps the single largest real estate marketing debacle of 2008, ePerks has managed to turn one of the original pay per post bloggers it hired to write a blog review for the company, Vlad Zablotskyy of Go-Beyond-MLS.com, into one of its most vocal opponents. With ePerk’s decision to send a cease and desist letter to Vlad, ePerks instantly transformed Go-Beyond-MLS.com into a negative ePerks publicity machine and lightning rod that has created a grassroots underdog pseudo-celebrity in Vlad with the full sympathy and support of the real estate community, including heavy weight real estate bloggers like Greg Swann and even spawning “ShaftingRealtors.com“.

Excerpts From the ePerks Cease and Desist Letter:

Your blogs create the false impression you are inviting comments from legitimate ePerks customers, when the truth is your only goal is to cast ePerks in a negative light for personal gain. In that regard, your blogs deceptively fail to inform the reader that you are motivated by an undisclosed proprietary interest in an ePerks competitor.

We have determined that our damages as a direct result of your activities are in multiple hundreds of thousands of dollars. Such substantial money and brand name damages can no longer be tolerated.

You are hereby instructed to promptly do the following: (1) shutter and prevent access to all blogs with any ePerks reference or content; (2)remove any record of their existence; (3) terminate any links pointing to any blogs that reference ePerks; and (4) cease and desist from any and all current and future digital, print, Internet or verbal reference to ePerks.com or Brabus Venture Corporation. This includes closing down your January 28, 2008 blog that continues to direct readers to your previous remarks and postings. We demand that you complete these actions immediately, and in no event later than five days of this letter. Your failure to comply will result in prompt legal action, including, but not limited to, a claim of money damages and appropriate restraining orders.

We will be closely monitoring your activities. Brabus Ventures Corporation continues to reserve any and all rights under the law, including the right to pursue any and legal remedies against you, your employer, your clients, and/or your web host. Should you have any questions or comments about the contents of this letter, please contact the undersigned.

Any resistance to our demands will be met with swift and decisive action.

We will be closely monitoring your activities.

ePerks fails to name the competitor that Vlad has a “proprietary interest” in and fails to make any connection between Vlad and any such competitor.

CEO, Ben Behrouzi later followed up with this email:

“I have no idea what you just did but clearly your mind shifts like the wind. I have now made my effort to work outside of the legal system and have no regrets with the suit that we will file shortly, which will stay in California for various reasons you’ll be made aware of by the way.

At this point any and all of your activities are being recorded by the watchful eyes of our legal team for use in assessing damages.

At this point I am ending your conversations on proposals, as this avenue and conversation are now over.” - CEO, Ben Behrouzi

Glass Houses. BrokerScience has uncovered evidence that suggests ePerks or their representatives have engaged in the exact behavior it accuses Go-Beyond-MLS.com of in the C & D letter above. In this post, all seeded or fake comments are easy to detect because they all originate from Brentwood. Among the fake pro ePerks comments are also comments denouncing Go-Beyond-MLS.com and an apparent ePerks competitor, PropertyMaps.com. There are multiple attacks on Go-Beyond-MLS.com and oddly these same attacks praise ePerks, CEO Ben Behrouzi, celebrate that ePerks has a board, and even give a short Behrouzi bio. In case you are not convinced, simply “just be running google searches” to learn more about Ben.

Disturbing. When Vlad confronted one of the persons leaving fake positive reviews in the comments section of a post Vlad wrote about ePerks on Go-Beyond-MLS.com, the following correspondence took place (we do not purport that this has any connection to Ben Behrouzi or ePerks in any way, shape or form, but this is relevant in the time line of events and as it relates to Vlad’s communications with ePerks regarding the matter):

From: Jaffar Sadighi sadighij@yahoo.com
To: Vlad Zablotskyy vladzablotskyy@gmail.com
Sent: Friday, January 25, 2008 2:48:08 PM
Hehe. Vlad, I want you to know I eat people like you for breakfast. You are simply pouring fuel. I will enjoy this one.
—– Original Message —-
From: Vlad Zablotskyy vladzablotskyy@gmail.com
To: Jaffar Sadighi sadighij@yahoo.com
Sent: Thursday, January 24, 2008 2:48:08 PM
Subject: One word for you: BANNED

You are banned from leaving further comments on my blogs. Enjoy your life.

Shortly thereafter, the following was entered on Yahoo Answers using the the same name that was used in the correspondence above, “Jaffar S“:

This curious blog has popped up as well promising to enlighten the world with information about Vlad Zablotskyy.

In this thread, Dennis Pease shares his encounter with ePerk’s Compliance Director, Ramesh Birla (no longer with ePerks according to California DRE records) and provides more details in this thread at RealEstateWebmasters as well (note that this post starts as a fake post seeded by ePerks, but turns into a platform for users sharing their negative experience with the company, this is common):

Just so it is public record eperk.com (sic) Compliance Director Mr Ramesh Birla has called me 3 times tonight starting at 7:15 PM, first making threats that I will be taken care of in his words.

Net Effect. A google search for “ePerks” shows 4 of the top 10 posts are negative. The blogosphere buzz and interest is growing day by day with Vlad Zablotskyy playing the role of martyr.

Exit Strategy

Since ePerk’s traffic death spiral indicates that ePerks has stopped marketing and thrown in the towel, this may signal that it is on its way or already in the deadpool. The widespread fake comment seeding and ad spend for marketing as shown by traffic data both seem to dramatically decrease at the beginning of February. In all likelihood this is because Ben has left ePerks to die a slow death yet it appears that ePerks is still continuing operations and taking in revenue from members and new signups. Enter Ihype.com, Ben’s latest and soon to launch startup.

Ihype, a PayPerPost.com clone, launches on June 2, 2008, you can view the live beta here. That’s right, hot off the heels of the ePerks debacle, Ben Behrouzi is gravitating towards one of the sleaziest models on the internet, paid post advertising, following in the footsteps of the infamous PayPerPost.com.

You Can Earn Over $10,000 Per Month Writing About Anything! - Ihype.com / Craigslist Ads

In True Spammer Behrouzi Fashion: In these comments for an unrelated article (a full 4 months before Ihype has even launched) “Britney” spams that “new website coming out called ihype.com i’m hearing a lot of cool stuff about it” . You can find more seeded comments here, here, paid post here, and a hilarious paid post here, where the paid poster confuses the Ihype.com with hype.com (an energy drink) and praises the energy drink site on accident.

The Moral of this Amoral Story

It is no secret that leadership starts at the top and shapes the moral and ethical fiber and culture of a company. The behaviors exhibited be ePerks paint the picture of a company that operates outside the bounds of any ethical or moral code. The upshot of this story is that it was supposed to be about brand destruction, but the truth is that the evidence suggests that Ben never intended to build a brand with ePerks or that he simply gave up.

While I despise payperpost.com, they have built out their company and infrastructure to support and grow their user base. I can say without hesitation, that in my opinion, Ben Behrouzi is in no way capable of doing the same with Ihype.com. At the time of this writing, days before launch, the Ihype.com 800 number goes directly to a voicemail that isn’t even set up. Ihype is simultaneously advertising that they have thousands of users while their paid post jobs board shows nothing but test jobs.

Ben has demonstrated his lack of leadership abilities with ePerks and has clearly shown where he stands in regards to ethics in business. By all appearances, he does not seem capable of building a brand nor growing a business on his own. ePerk’s failure to perform further validates speculation that his early success was more due to co-founder and uncle Payman Zamani then his own business acumen. Further confirmation is found in the recent threats against Go-Beyond-MLS.com and others as such actions are clearly not the actions of an intelligent and dynamic CEO, but those of an immature and inexperienced business person content on using brute force in lieu of tact and sound business strategies.

(ePerks CEO, Ben Behrouzi did not respond to requests for inclusion in this story.)

Related ePerks Coverage:

The Beginner’s Action Guide to Learning about Vlad Zablotkyy vs. ePerks / Ben Behrouzi

ePerks Threatens BrokerScience with Legal Action

ePerks IP Address Link to Vlad Zablotzkyy: When the Hunter Becomes the Prey

iHype.com Launch Coverage Here

Ben Behrouzi Updates Company “Values” and “Culture” Web Pages. Only One Problem: They’re Stolen

Beginning of the End: ePerks CEO Ben Behrouzi Sues Blogger, Confirms No Strategy in Place

BrokerScience Acquires BenBehrouzi.com

Of all the serious flaws in HVCC that stand to hurt consumers, Realtors, appraisers and lenders, Richard fails to address even one of the primary deal breakers that make HVCC a non-starter in its current form. When given the opportunity to name specific recommendations, Richard gives three specific examples:

• Recommendation for change in verbiage regarding “partial payment”
• Requests change in verbiage so that “licensed and trained” employees are required as opposed to “appropriately trained and qualified” employees
• Requests change in HVCC guideline that lenders may not use appraisal company that they have a 20% or more stake in so that lenders must have 0% stake in any company they use

Fair enough, three sensible suggestions until you consider that he has failed to address any of the real issues on the table that stand to detrimentally affect consumers and real estate professionals including those he represents, Realtors. While Realtors stand a very real chance to be hurt by HVCC in its current form, Richard’s comments to the GSE’s fail to even touch on the most pressing issues within HVCC but instead waste an opportunity by nit picking verbiage. One might characterize these oversights as a clear lack of leadership in representing the best interests of consumers and Realtors.

#########

LETTER SENT TO FREDDIE MAC AND FANNIE MAE:

April 30, 2008

Home Valuation Code of Conduct Response
Attn: Ray Romano, Senior Vice President, Credit Risk Oversight Freddie Mac
1551 Park Run Drive, Mail Stop D2Z
McLean, VA 22102-3110

Dear Mr. Romano:

On behalf of the 1.2 million members of the National Association of REALTORS®, I am writing to provide comments on the implementation of the Home Valuation Protection Code. NAR has approximately 30,000 appraiser members from across the country and approximately 750 retain our Residential Accredited Appraiser (RAA) and General Accredited Appraiser (GAA) designations.

NAR supports the independence of appraisers and the integrity of the appraisal process. We applaud the New York State Attorney General Andrew M. Cuomo and both government sponsored enterprises (GSE), Fannie Mae and Freddie Mac, for their efforts to address appraisal fraud in the mortgage industry. While the agreement addresses appraisal fraud, we have concerns with the implementation of the proposed “New Home Valuation Protection Code” through the newly created “Independent Valuation Protection Institute.”

The agreement signed between the New York State Attorney General and Fannie Mae and Freddie Mac expires in 28 months. The newly created Independent Valuation Protection Institute will be funded by both GSEs for 5 years. The agreement is silent on how the GSEs will operate with respect to appraisals after the agreement expires. There is no indication from any party involved in the negotiations that the agreement will continue after 28 months, if one or both of the GSEs will return to pre-agreement appraisal requirements, or if a third option will be explored. It is also unclear how the Independent Valuation Protection Institute will be funded after 5 years or if more than the $5 million allocated by the GSEs is required to fund its operations.

NAR recommends the Independent Valuation Protection Institute be affiliated with an already existing appraisal organization. This will help to ensure that the code is implemented in such a way that it adds value to the appraisal process rather than becoming a duplicative layer of bureaucracy. If properly implemented the code will compliment, rather than duplicate or contradict, already existing appraisal codes such as the Uniform Standards of Professional Appraisal Practice (USPAP). Further, the Independent Valuation Protection Institute will be better positioned to work in conjunction with appraisal organizations and state regulatory agencies to ensure the independence of appraisers and the integrity of the appraisal process.

There is concern that GSEs will increase their reliance on automated valuation. While this would appear to address appraiser influence in a transparent way, a deeper look at automated valuations generally reveals they are not able to consider qualitative factors with the same level of reliability that professional licensed and certified appraisers produce. Professional appraisal organizations and licensed and certified appraisers should work closely with the GSEs to ensure the highest quality appraisals remain the preferred method of valuation for residential real estate transactions.

The agreement reached between the New York State Attorney General and the GSEs, including the valuation code, does not address the costs of the real estate transaction. Appraisers will now have to consider their obligations to USPAP and the Appraisal Foundation and the additional burden of ensuring the Code, in conjunction with the institute, is being adhered to. This may also be an issue for lenders. The creation of a new set of standards to follow and a new oversight organization may lead to increasing cost of the real estate transaction. The GSEs and the institute should work to ensure this agreement is implemented without increasing costs of the real estate transaction.

Several items in the Home Valuation Code of Conduct should be clarified. NAR recommends the following modifications to the Code:

• Section I. 1) should include the term “partial payment” and should read “withholding or threatening to withhold a timely payment, or partial payment, for an appraisal report;”.

• Section V states that any employee of the lender be “appropriately trained and qualified in the area of real estate and appraisals.” The word qualified is not defined and does not necessarily mean that the employee must be a licensed appraiser. If the employee is not licensed, then the individual may be operating under the broad scope of “appraiser” without liability to be disciplined while acting like an appraiser. The employee should be licensed and certified by the state in which the property to be appraised is located. The same requirement should hold for employees of appraisal management companies as well.

• Section VI states that lenders or affiliates of lenders cannot use an appraisal report obtained by or through an appraisal management company that is owned by the lender or affiliate of the lender and that this prohibition does not apply where the lender has an ownership interest in the appraisal management company of 20 percent or less. Lenders should be prohibited from using an appraisal report from any appraisal management company where the lender or the lender’s affiliate maintains an ownership stake. Allowing lenders to obtain appraisal reports from appraisal management companies where the lender has a stake in ownership does not meet the spirit of this agreement and does not uphold the independence of the appraisal process.

Thank you for the opportunity to present the views of the National Association of REALTORS®. These comments are also being provided to Freddie Mac and the U.S. Office of Federal Housing Enterprise Oversight. If you have any questions or comments regarding this letter, please contact our Regulatory Policy Representative Jerry Nagy at 202.383.1233 or jnagy@realtors.org.

Sincerely,

Richard F. Gaylord, CIPS, CRB, CRS, GRI
2008 President, National Association of REALTORS®

The Cuomo/GSE Appraisal Deal April 30, 2008

New York State Attorney General Andrew M. Cuomo, Fannie Mae and Freddie Mac (government sponsored enterprises) reached an agreement on March 3, 2008, to change appraiser selection criteria that will help eliminate conflicts of interest on mortgage appraisals. The agreement has the support of the Office of Federal Housing Enterprise Oversight (OFHEO). There are three main components to the agreement:

• Establishment of the New Home Valuation Protection Code
• Banks will be required to adhere to the Code
• Formation of the Independent Valuation Protection Institute

The requirements will have a significant impact on appraisal practices by lenders as they will have to comply with the new requirements agreed-to by the government sponsored enterprises (GSE) if the lenders sell mortgages to the GSEs. The parties have agreed to get comment and concurrence from the federal banking regulators and HUD, as they move to implement the Agreement and the new Code of Conduct. The GSEs have agreed to implement the new Code beginning January 1, 2009. During 2008, the GSEs will get comments from market participants, and changes to the Code are possible.

Home Valuation Protection Code
A Home Valuation Protection code will be implemented establishing standards on solicitation, selection, compensation, conflicts of interest and corporate independence. Mortgage brokers are prohibited from selecting appraisers. Lenders will not use “in house” staff appraisers to conduct initial appraisals and will not use appraisal companies owned or managed by the lender. The code entitles the borrower to one copy of an appraisal report, free of charge, within 3 days of the closing of the loan.

Banks Will Adhere to the Code
Starting January 1, 2009, GSEs will no longer purchase mortgages from lenders that utilize internal appraisers for appraisal reports. Lenders will be required to represent and warrant that the appraisal report was obtained in a manner consistent with the New Home Valuation Protection Code.

Independent Valuation Protection Institute
A clearinghouse of appraiser information will be created, with a separate board of directors, to monitor complaints from appraisers and consumers. All lenders will be required to provide post-purchase copies of appraisal documents to the clearinghouse. Lenders will establish a telephone hotline and E-mail address to receive complaints from appraisers and users of appraisal services on the improper influence or attempted improper influence of appraisers. The Institute will be headed by a Board of Directors with members having no financial connection with Fannie Mae, Freddie Mac, or lenders with whom the GSEs engage.

Frequently Asked Questions
Does this agreement concern only mortgages in New York State?
No, this agreement applies to mortgages across the country. After January 1, 2009, the GSEs will not purchase single-family loans from mortgage originators in any state that do not agree to adopt the Home Valuation Protection Code.

Does this agreement apply to all lenders?
GSEs may exclude lenders that meet the definition of “small bank” according to 12 USC§ 2908 and which the GSE determines would suffer hardships from the provisions of paragraph VI, subsections 1-4 of the Home Valuation Protection Code. However, excluded lenders must otherwise comply with the other provisions of the Code and meet appropriate standards of appraiser independence.

Who is responsible for applying the new Valuation Protection Code?
The government sponsored enterprises will apply the new code to lenders selling mortgages on the secondary mortgage market.

Will appraisers have to help fund the Independent Valuation Protection Institute?
No, the institute will be funded by the GSEs. Fannie Mae and Freddie Mac will each contribute $12 million over five years beginning in 2009.

What does this agreement mean for the independent appraiser?
Independent appraisers and appraisal companies not owned or managed by lenders or settlement companies must continue to meet appropriate standards of appraiser independence, including following Uniform Standards of Professional Appraisal Practice (USPAP) and maintaining relevant state certifications.

What does this agreement mean for REALTORS® ?
Individual REALTORS® cannot serve as a third party between a lender and appraiser. This includes selection, retention, and compensation of an appraiser.

Broker REALTORS® that offer services as a lender or affiliated lender and appraiser services must comply fully with the Home Valuation Protection Code if there is an expectation that their loans will be purchased by Fannie Mae or Freddie Mac after January 1, 2009.

Is NAR going to provide comments and recommendations on the agreement?
Yes, NAR will provide comments and recommendations to OFHEO on the Code and its implementation. NAR will comment on the creation of Independent Valuation Protection Institute; which should likely be affiliated with the Appraisal Foundation. Finally, NAR will comment on the impact this agreement will have on its members and the overall real estate industry.

Can lenders continue to own appraisal management companies (AMC)?
Yes, lenders can continue to own AMCs. According to the agreement, if a lender chooses to obtain appraisal reports from an AMC that is owned by the lender, or an affiliate of the lender, the lender must: 1) maintain 20 percent or less ownership in the AMC, 2) have no involvement of day-to-day business operations of the AMC, 3) the AMC is operated independently, and 4) the lender has no role in the selection of the appraiser.

Is this agreement federal law?
No. This is an agreement signed by two government-sponsored corporations, Fannie Mae and Freddie Mac, and the New York State Attorney General, Andrew Cuomo. The federal regulator of Fannie Mae and Freddie Mac, the Office of Federal Housing Enterprise Oversight (OFHEO) also signed the agreement. No legislation was passed or signed into law with respect to this agreement.

Are real estate agents prohibited from communicating with appraisers?
No. There is only one portion of the code that applies directly to real estate agents. Part III states that third parties, including real estate agents, cannot select the appraiser or compensate the appraiser. A third party, including real estate agents, can still ask appraisers for additional information, provide additional information to an appraiser, or ask for corrections of factual errors.

Can lenders work only through appraisal management companies?
No, lenders that utilize in-house appraisers can still order appraisals as long as they are independent of the loan production staff and do not ultimately report to an officer who manages loan production.

To: Our colleagues
Re: Thank you for speaking up about the HVCC
From: David Biggers, Chairman, a la mode, inc.

Prior to the April 30th deadline for commentary on the proposed HVCC regulations, I wrote you asking for your help in alerting our government officials and the private sector to the damages which would be brought onto the real estate industry if the HVCC was implemented as written.

Amazingly, more than 31,000 of you responded within 48 hours. That exceeded our projections by tens of thousands. Frankly, I would have been pleased if 5,000 of you spoke up. But 31,000 in such a short time is absolutely unprecedented, and it’s gotten the attention of the people in D.C. and New York involved in the HVCC’s drafting and implementation.

The response spanned all sectors of the industry. Over 17,000 appraisers, more than 10,000 mortgage brokers, and more than 3,000 real estate agents signed up and forwarded comments on to the powers that be. Over 500 lenders even added their voices, as did hundreds of attorneys, homeowners, title agents, and more. Plus, nearly 12,000 of you added your own comments to our pre-written appeal to reconsider the regulations.

And rest assured, we delivered your words. By the April 30th deadline, we printed and delivered to OFHEO, Fannie, Freddie, and the New York Attorney General’s office a massive shipment of 127,169 pages of letters.

It’s a good thing that we printed and physically mailed them, because the e-mail servers at OFHEO and Freddie Mac almost immediately began blocking your messages. To Fannie Mae’s credit, they initially blocked the e-mails, but then proactively called us, worked out a solution, and subsequently accepted all of your letters. We’re going to assume based on Fannie Mae’s professionalism that they will pass the comments on to OFHEO as promised. To make it easier for them to incorporate your ideas, and to contact you if needed, we also delivered a CD to each entity with all of your suggestions and contact information in convenient database format.

You can read more details of the HVCC protest, and the full text of the critique that our law firm in D.C. sent (along with other letters submitted to OFHEO), in our AppraisalPress newspaper website at http://www.appraisalpress.com/news/hvcc. Look it over and tell us what you think.

But, I don’t want this “thank you” letter to mislead you – while it’s nice to see such response to our call to action, the fight to stop the HVCC is far from over. You’ll be seeing more from us in the coming days, because we now need to help you get the word directly to your members of Congress, in written form, by phone, and ultimately in face to face visits, as Congress comes home over Memorial Day weekend. You will receive an alert shortly with information on when and how to contact your members of Congress. There will be local media opportunities as well, as we outline the local economic impacts and provide you with key talking points to get their attention.

The bottom line is that solutions are clearly needed in response to the problems which have plagued the mortgage industry, but the HVCC is the wrong regulation, done the wrong way, at the wrong time.

Thank you for reading our bulletins and newspaper, for speaking up, and for the kind words you’ve sent our way in this fight. With your help, we’ll continue to do our best to protect our industry and our nation’s homebuyers at the same time.

Dave Biggers
Chairman
a la mode, inc.

If the GSEs implement the Code as currently drafted, it will cause a major
disruption in the lending community due to a serious interruption in appraisal services.
Such a disruption ultimately will increase consumers’ closing costs and their ability to
obtain financing in a timely manner, or at all.

Hat tip to Rick Grant.

This is fresh on the heals of a recent discussion at LeadCritic.com regarding Lending Tree’s lame attempt via C & D letters to try to get bloggers to delete comments left by a commenter in posts discussing the Lending Tree Data Leak. The comments listed Lending Tree’s client URL login and claimed it was easy to hack along with basic information indicating he was an ex-exec, nothing to get excited about.

“Cease & desist letters are free traffic” - Mike Arrington of TechCrunch.

This C & D letter is a classic and this letter shows what can happen when issuing a C & D backfires. The moral of the story is that blogs usually have very little to lose by posting your C & D, especially if it has very little merit or is simply a bluff. Your C & D will only cause you embarrassment and boost traffic for the recipient, so think long and hard about what you are trying accomplish before hitting the send button.

UPDATE: As expected the TechCrunch prevails vs Marvel at the cost of $2000 for TechCrunch council. Talk about a waste of resources, Party A pays attorney to send C & D to Party B. Party B pays attorney to respond that there is no grounds for the complaint, Party B backs off and everyone goes back to square one. This could perhaps be slightly less productive then high school cheerleader drama.

The underlying story is how well this story has flown under the radar. A handful of appraisers, agents, and mortgage brokers I have spoken with were either unaware or vaguely aware of the HVCC and its implications. Unlike legislation moving through the Senate and House, the HVCC has received very limited coverage. While we are acutely aware that with less then 36 hours until the feedback deadline meaning a petition may be a bit late, we are also aware that you miss every shot you don’t take, that is why we ask you to join us in signing the Petition to Reconsider HVCC.

History:

After an investigation by New York Attorney General, Andrew Cuomo into Fannie Mae and Freddie Mac Appraisal practices, the agencies (with the Office of Federal Housing Enterprise Oversight (OFHEO)) agreed adopt new changes to how appraisals are processed in the mortgage industry in exchange for an end to the investigation. The centerpiece of the agreement is the HVCC, which contains many positive and common sense initiatives to help clean up the industry, but also contains significant negative changes to the how brokers and agents are able to work with appraisers and how appraisers are able to operate, hurting consumers, mortgage brokers, agents, and appraisers.

What it means for Brokers:

1. Brokers (or anybody compensated on a commission basis upon the successful completion of a loan) may not choose appraisers to be used for loans they originate and may not engage in any communication with appraisers. Choosing appraisers and all communication with appraisers is delegated to lenders. This means that brokers are not only not allowed to choose appraisers based on quality of work and professionalism, but ultimately lose control of an integral part of the loan origination process, possibly increasing loan funding times and increasing costs to the consumers in the form of longer rate locks and the need to order new appraisals if there is a change of lender.

2. Since appraisals are made in the lender’s name and not the broker’s, if the broker chooses a new lender for the deal, a completely new appraisal will need to be ordered. This increased consumer costs and the time involved in the transaction.

3. All relationships with appraisers are rendered meaningless overnight.

4. Brokers lose control over transactions and are put at disadvantage as power is shifted toward and biased towards large institutions.

What it means to Appraisers:

1. Must use AMC’s (appraisal management companies), meaning independent appraisers are forced to join and AMC and give 40% or more of their income to the AMC. You read that correctly, this will deprive independent appraisers of nearly 50% of their income in most cases (this could likely mean many experienced appraisers will leave the industry altogether). AMC’s are not regulated, by the way.

2. Unfairly targets appraisers, does not affect AVM’s (Automated Valuation Models) and BPO’s (Broker Price Opinions). This not only hurts appraisers as Lenders may prefer unregulated and unrestricted alternatives that are not included in the HVCC and in a manner which is in contrast with the stated purpose of HVCC.

3. Disallows appraisers from engaging in ANY communication with mortgage brokers, loan officers, agents, or others that may receive a commission upon funding of a deal. This means appraisers are not allowed to talk to their clients, a restriction no placed on any other industry to date. This means all the client relationships they have built are rendered meaningless overnight, an unprecedented act against any industry segment to date.

What it means to Consumers:

1. Higher Costs: If there is a need to change lenders or brokers as a new appraisal will be necessary.

2. Increased time to fund loans as brokers lose control of choosing and managing appraisals and may necessitate longer rate locks or extensions of existing locks. In the case that a new lender or broker is chosen, a new appraisal will be necessitated, increasing time to funding.

3. Decrease incentive to change lenders or brokers if they are not getting the service they deserve due to increased costs and time involved.

Fannie Mae Agreement

Freddie Mac Agreement