The following opinion is presented on-line for informational use only and does not replace the official version. (Mich Dept of Attorney General Web Site - www.ag.state.mi.us)


STATE OF MICHIGAN

FRANK J. KELLEY, ATTORNEY GENERAL

Opinion No. 5234

October 17, 1977

SAVINGS AND LOAN ASSOCIATIONS:

Authority of the supervising authority to promulgate rules governing the form and content of appraisals.

The Financial Institutions Bureau may promulgate rules relative to the content and form of real estate appraisals with respect to State chartered savings and loan associations.

Although, pursuant to the police powers of the State, the legislature may enact legislation to protect citizens against injurious business practices, such regulations may not interfere with the exercise of loan-making powers granted to Federally-created institutions and may not conflict with Federal regulations relating to the form and content of real estate appraisals used by such institutions.

Richard J. Francis

Commissioner

Financial Institutions Bureau

Department of Commerce

Law Building

3rd Floor

Lansing, Michigan 48913

Citing section 421 of the Michigan Savings and Loan Association Act, 1964 PA 156, Sec. 421, MCLA 489.821; MSA 23.540(421), you have asked:

(1) Whether the rule-making powers granted the supervisory authority in section 421 authorizes the Commissioner to promulgate rules governing the form and content of appraisals; and

(2) Whether the State can regulate the lending avtivities of nationally chartered financial institution by controlling the form and content of real estate appraisals.

Real estate appraisers are subject to the licensing requirements of the Real Estate License Law, 1919 PA 306, MCLA 451.201 et seq; MSA 19.791 et seq. Rules regulating the manner in which such appraisers do business may be promulgated by the Michigan Department of Licensing and Regulation. Additionally, Section 421 of the Savings and Loan Association Act, supra, provides in pertinent part as follows:

'(1) The supervisory authority has supervision over all associations subject to the provisions of this act. He shall enforce the purposes of this act by use of the powers herein conferred and by reference to the courts when required. Every approval granted, every regulation adopted or order issued by the supervisory authority pursuant to the provisions of this act shall be in writing and shall be addressed to the association's board of directors, or an officer thereof, at the home office of the association.

(4) The supervisory authority, after giving notice of intent 15 days in advance, may adopt rules not inconsistent with the provisions of this act deemed necessary to enable savings and loan associations to properly carry on the activities authorized under this act. . . .'

The necessity of state chartered savings and loan associations to receive and use real estate appraisals is stated in sections 277, 368e and 369 of the Savings and Loan Association Act, 1964 PA 156, Secs. 277, 368e, 369, MCLA 489.677, 489.768(e), 489, 769; MSA 23.540(277), 23.540(368e), 23.540(369), which provides as follows:

'Every association shall appraise each parcel of real estate at the time of its acquisition. The report of each appraisal shall be submitted in writing to the board of directors and shall be kept in the records of the association. The supervisory authority may require the re-appraisal of real estate securing loans which are delinquent.' MCLA 489.677; MSA 13.540(277)

'Real estate loans may be made as authorized by this act. No real estate loan shall be made until a qualified person selected by the board of directors has submitted a signed appraisal of the real estate securing the loan, which shall be unemcumbered except by prior liens held by the association.' MCLA 489.768(e); MSA 23.540(368e)

'An association may make or purchase real estate loans and land contracts secured by real property. No such real estate loans and land contracts shall be originated or purchased in excess of 80% of appraised valuation, except as provided in sections 369c, 369d, 369e, 370 and 370c.' MCLA 489.769; MSA 23.540(369)

Thus, an appraisal of the property being secured by a loan made by a state chartered savings and loan association constitutes not only a condition precedent to approval, but also determines the maximum amount of loan that can be issued. The purpose of the appraisal is to ascertain the true market value or worth of the property in question relying on such criteria as replacement value and selling price of similarly situated properties.

The concept of market value has generally been defined as follows:

'By 'fair market value' is meant the amount of money which a purchaser willing but not obliged to buy the property would pay to an owner willing but not obliged to sell it, taking into consideration all uses for which the land was suited and might in reason be applied. . . .' Nichols on Eminent Domain, Vol 4, Sec. 12.2(1)

'The market value of property . . . is the highest price estimated in terms of money which it would bring if exposed for sale in the open market with a reasonable time allowed in which to find a purchaser, buying with knowledge of all the uses and purposes to which it was adapted and for which it was capable, or, as otherwise stated, it is the price it will bring when offered for sale by one who desires, but is not required, to sell, and is sought by one who desires, but is not required, to buy, after due consideration of all the elements reasonably affecting value.' 29A CJS, Eminent Domain, Sec. 137.

Our courts have on several occasions reviewed the methods employed in arriving at market value and have concluded that the determination of value is not subject to any particular formulas or rules, but is rather a matter of exercising sound judgment and discretion. These legal sentiments were expressed by the Supreme Court in In Re Widening of Bagley Avenue, 248 Mich 1, 4 (1929):

'Many technical rules have been promulgated for determining value, none of which are important. The determination of value is not a matter of formulas or artificial rules, but of sound judgment and discretion based upon a consideration of all the relevant facts in a particular case. . . .'

And, again, in In Re Widening of Michigan Avenue, 298 Mich 614, 620 (1941):

'Nor can this court set up a formula or dictate the method which must be followed by the jury in its determination of value.'

See also, In Re Widening of Michigan Avenue, 299 Mich 544 (1941); In Re Jeffries Homes Housing Project, 306 Mich 638 (1943).

The making of home loans is an essential and basic part of the savings and loan association business. The Savings and Loan Act directs that such loans be supported by appraisals. Therefore, the manner in which such appraisals are conducted directly affects the soundness of such loans and consequently the soundness of the institutions. Since section 421 of the Savings and Loan Act of 1964, supra, specifically authorizes the Commissioner to promulgate rules to 'enable savings and loan associations to properly carry on the activities authorized under the act', and the Act is silent with respect to the form and content of real estate appraisals, it is my opinion that the Financial Institutions Bureau may promulgate rules relative to the content and form of real estate appraisals with respect to state chartered savings and loan associations. However, such rules must result in an appraisal which properly ascertains the fair market value of the property in question.

Your second question involves the authority of the State to regulate the form and content of real estate appraisals prepared for and used by federally chartered financial institutions. As I indicated to you in my letter of August 10, 1976, the Legislature has the authority pursuant to the police powers of the state to enact legislation to protect citizens against injurious business practices. Thus, I concluded that since red-lining was an injurious business practice directly affecting the well-being of Michigan citizens, the State could enact legislation to prohibit red-lining and that such laws would be equally applicable to federally chartered financial institutions.

The limitation on the authority of the State to regulate the practices of federally chartered financial institutions is stated at 10 Am Jur 2d, Banks, Sec. 14, p 38, as follows:

'. . . National banks are instrumentalities of the federal government, created for a public purpose, and as such are necessarily subject to the paramount authority of the United States. It follows that an attempt by a state to define their duties or control the conduct of their affairs is absolutely void wherever such attempted exercise of authority expressly conflicts with the laws of the United States, and either frustrates the purpose of the national legislation or impairs the efficiency of these agencies of the federal government to discharge the duties for the performance of which they were created. These principles are axiomatic and are sanctioned by the repeated adjudications of the courts. Thus, there can be no taxation of a national bank by a state without the consent of the federal government, nor is it competent for state legislatures to interfere with such banks or their offices in the exercise of the powers bestowed on them by the federal government, or to pass any law which will impede, burden, or control such banks in the exercise of their powers. . . .' (citations omitted)

Accordingly, it is my opinion that although the state may regulate real estate appraisers and real estate appraisals, such regulations must be specific in nature, must be directed towards the elimination of injurious and discriminatory business practices such as red-lining and must result in a determination of the fair market value of the property in question. Furthermore, such regulations may not interfere with the exercise of the loan making powers granted to federally created institutions and may not conflict with any federal regulations relating to the form and content of real estate appraisals used by such institutions.

Frank J. Kelley

Attorney General