Unlike residential real estate brokers, who are enjoying better times after years of depressed sales, appraisers are still struggling.
At the market’s peak, the appraisal firm Mitchell, Maxwell & Jackson was one of the most dominant in New York City. And one supervising appraiser, Marianne Mueller, stood out as MMJ’s most successful employee, according to the heads of the firm.
Then the recession hit, and relations between Mueller and MMJ soured, too.
The case, which The Real Deal first reported online, resulted in an administrative court judge ruling to pull the licenses of MMJ’s founders — Steven Knobel and Jeffrey Jackson — effective Feb. 1. But that harsh measure has been put on hold pending the founders’ appeal.
This month, TRD took a closer look at the firm and how it went from flying high during the boom to teetering on the edge of closure today. And the Mueller case provides a unique lens into the behind-the-scenes operations of the firm and the changes that the struggling appraisal industry has undergone in recent years.
The bone of contention in that case: Mueller’s electronic signature. She accused MMJ of signing her name to 14 appraisals that she insists she never saw. MMJ eventually fired Mueller, who had climbed to executive vice president, and she filed a complaint with the New York Department of State, which regulates appraisal firms.
At a Dec. 27 administrative law hearing, a judge ruled in her favor, determining that Knobel and Jackson knew that their other employees were affixing Mueller’s electronic signature to the appraisals, all conducted in 2009. That’s when he ruled to pull Knobel and Jackson’s licenses — an action that sources say is virtually unheard of.
MMJ appealed the judge’s order. In January, a senior DOS official granted a stay to the firm, noting that the judge mistakenly used a test applicable to only brokers. (Brokerage firms are responsible for the conduct of their employees; appraisers, though, are not.)
As TRD went to press, the DOS opposed the appeal, which pushes the matter to the Secretary of State, according to a DOS spokesperson. It’s unclear when the Secretary of State will issue a decision on whether Knobel and Jackson can retain their licenses, the spokesperson said.
Knobel and Jackson deny any wrongdoing. “[Mueller] tells different sets of stories, convincingly,” said Knobel in a sit-down interview with TRD last month. “But so did the people in the witch trials in Salem. And people got burned for it.”
“She says she is trying to protect the industry, but she isn’t trying to protect anything but her money,” he said.
He said, she said
Mueller sued MMJ in May 2010 in New York State Supreme Court, accusing the firm of myriad wrongdoings such as misappropriating funds, misclassifying her as an independent contractor, wrongfully firing her and failing to compensate her according to her contract.
MMJ contends that the lawsuit has not proceeded because Mueller has limited evidence to support her charges and had hoped the administrative hearing would boost her case.
Mueller’s attorney, Adam Russ of the Manhattan-based Wasser & Russ, called that “nonsense,” and said it was MMJ who had requested adjournments in the civil case. “Ms. Mueller looks forward to her day in court,” he said.
The two sides are scheduled for a mandatory arbitration this month. But in the claims and counterclaims reviewed by TRD, Mueller and MMJ disagree on nearly every point.
Mueller, for instance, claims she was not paid commissions in a timely fashion because MMJ was broke; MMJ claims that she had agreed not to be paid until her clients paid their bills. Mueller alleges she was fired in 2010 without cause; MMJ contends she was terminated for incorrect billing and insubordination, once challenging Knobel to “fire me.”
“It’s a matter of getting to me because I threw her to the curb,” Knobel said of Mueller. “She is a vindictive person. She tells stories.”
Whether fact or fiction, Mueller has been successful speaking on her own behalf. At the administrative law hearing, the judge called Mueller’s testimony “convincing,” despite the “large number of documentary exhibits” presented by MMJ.
A breakneck pace
Knobel and Jackson launched MMJ in 1991 and, by all accounts, saw their firm soar. “Every time I would do a closing, they seemed to be the appraisers,” said real estate attorney Adam Leitman Bailey.
By 2008, MMJ was one of Manhattan’s eminent appraisal firms.
“They went from a handful of appraisers to near 100 people,” said Jonathan Miller, who runs real estate analytics company Miller Samuel, which competes with MMJ.
Only two years later, though, MMJ’s client list, once about 3,000 strong, had dwindled to about 50, Knobel said. And many of the firm’s appraisers, most of whom weren’t salaried, walked out the door, too, when the business dwindled.
In 2009, MMJ traded its office in a Fifth Avenue skyscraper for more modest digs on 41st Street. Today, the owners are in a dispute with their former landlord, a limited liability corporation, over unpaid rent for the space at 546 Fifth Avenue. Knobel told TRD that the former landlord was granted a judgment against them.
Many blame the housing crash on appraisal firms, contending they helped inflate real estate prices through their cozy relationship with mortgage brokers.
MMJ was never accused specifically of malfeasance, but industry sources told TRD that the firm relied heavily on mortgage broker clients and filled out appraisal forms with breakneck speed.
“They had people doing 40 appraisals a week,” said a fellow appraiser, who asked not to be named. That pace, the source said, was simply unrealistic; the appraisal form for a Fannie Mae home, for example, includes more than 800 questions.
Knobel acknowledged that a handful of appraisers might have completed dozens of forms — but only rarely. “And say you do [unit] 3B [in a particular building] and you get an order for 4B — how many of those fields do you have to redo?”
Miller did not point specifically to MMJ, but generally described his high-volume competitors during the boom years as “deal enablers.”
“They would mushroom in size and work mostly for mortgage brokers,” he said.
The real estate downturn, though, isn’t the only reason why appraisers hit the skids. It was a regulation that went into effect in 2009.
As TRD and others have reported, the Home Valuation Code of Conduct — called “havoc” by appraisers — strongly encourages the use of third parties called appraisal management companies, who dole out appraisal assignments instead of brokers and bankers. The intent of the regulation was to create a firewall between the lender and the appraiser, preventing mortgage brokers from dictating, or trying to dictate, appraisal values.
“[The change] destroyed the mortgage broker world and the traditional appraisal world,” one source said.
Knobel agrees: “The appraisal business is dead, and I will be the first to put a tombstone on it.”
To expand its business, MMJ formed an affiliated appraiser management company in 2010, but profits are still minimal when compared to pre-recession times, the founders said. Revenue has plummeted from about $1 million a month to “hundreds of thousands a month,” Knobel said, adding he believes other appraisal firms have seen a similar drop.
Headed to trial?
When Mueller discovered that her colleagues allegedly were misapplying her electronic signature in October 2009, her reaction was not exactly measured.
Her first complaints to the DOS fell flat, documents from agency investigators show.
Then, Mueller alerted a bevy of other offices and agencies, the Federal Bureau of Investigation and the office of Gov. Andrew Cuomo, her attorney and MMJ executives confirmed.
MMJ and industry sources familiar with the dispute also point out that Mueller took no action until the firm fired her — a year after the alleged misconduct took place.
Other sources tell a different story: Mueller became exceedingly angry when MMJ did not (or could no longer) pay her and has pursued the complaint and the lawsuit for revenge.
Russ denied that, insisting his client’s motive is about fair compensation.
“This is about an honest day’s pay for an honest day’s work,” he said. Mueller is seeking about $800,000 in commissions, attorney fees, late fees from her final check that bounced and punitive damages, according to the complaint.
MMJ executives said they stopped payment on the final check after learning Mueller had over-billed jobs and didn’t merit the full amount of $20,688.
Before MMJ could issue a check for the correct amount, Mueller sued, Jackson said. In a counter claim filed in 2011, MMJ sought an injunction to prevent Mueller from doing business in Manhattan, citing a noncompete agreement. The injunction was ultimately denied.
When asked how he expects the mediation to go, Knobel threw up his hands.
“She’ll ask for a million dollars, I will say no and then we will go to trial,” he said.
The new normal
The appraisal community is divided over the dispute. Some think MMJ deserves to be punished if it allowed employees to sign Mueller’s name without her knowledge. Others question whether the firm should be the scapegoat for a practice that its competitors — pre-recession — carried out, too.
One appraiser is adamant that MMJ, even if held responsible, should not lose its license. “You have to remember this period — anything went,” he said.
Leitman Bailey, real estate attorney, predicted MMJ would keep its license.
“The administrative judge only looked to whether the conduct occurred and hung the principals after that finding,” he said, when the executives’ “actual knowledge” of the conduct should have been the main consideration.
Regardless of the outcome, there’s one thing perhaps all parties can agree on: The future is not very bright for appraisers.
Appraisals in New York now net between $600 and $700 each, and the appraiser gets a third to a half of that sum, according to a prominent Manhattan appraiser who asked not to be named. “What are you getting for that price?” he asked.
Hardly anything, is what one industry expert thinks.
“Meeting a minimal standard is all that matters,” said Larry Sicular, founder of Sicular & Associates, a Manhattan-based brokerage and appraisal firm.
MMJ’s founders are resigned to the new normal. “When I get to a stop sign in the middle of the desert, I don’t ask why, I just stop,” Knobel said, describing the post-HVCC appraisal world. “It is what it is.”
Clarification: A previous version of this story stated that the Home Valuation Code of Conduct required the use of appraisal management companies. The HVCC does not explicitly require this, but it does encourage the use of the AMCs because it requires that sellers establish “meaningful risk management practices, including separation between risk management (appraisal) and loan production,” according to the Appraisal Institute, a trade group. But establishing and documenting that legal separation has proven onerous, sources told TRD, and so most companies and individuals have opted to use AMCs following the implementation of the HVCC. They are not technically required to do so.