The following was re-blogged with the permission of Valuation Review Editor, David Napuk. Thanks Dave!
Since there has been a great deal of buzz in the industry surrounding the decision in the Wells Fargo/Rels Valuation v. appraisers lawsuit, Valuation Review is giving you the unique opportunity to sample of the premium content that our subscribers receive every week.
Wells Fargo and its appraisal management subsidiary Rels Valuation won an important lawsuit this month when a [U.S.] district judge granted the company's motion to dismiss. The lawsuit was filed by two residential appraisals who claimed that Rels Valuation had pressurized them into reaching inflated values on appraisal reports and then subsequently blacklisted them when they did not comply with demands.
Don Pearsall, from Puyallup, Wash., and Timothy Savage of Vail, Colo., both claimed that Wells Fargo and Rels tried to strong-arm them into inflating appraisal values and then blacklisted them when they refused to hit the desired numbers. They were represented by Hagens Berman Sobol Shapiro (HBSS), the Seattle-based law firm that has filed similar lawsuits against several lenders.
The case is Sound Appraisal and Savage Appraisal Services, Inc., on behalf of themselves and all others similarly situated, v. Wells Fargo Bank, N.A. and Valuation Information Technology, LLC, d/b/a Rels Valuation, No. C 09-01630 CW. It was filed in U.S. District Court in San Francisco in April 2009.
Although Wells Fargo was the primary defendant in the case, Rels is technically a joint venture between First American Solutions, a subsidiary of First American Corp. and Wells Fargo Foothill, a subsidiary of Wells Fargo & Co.
The plaintiffs alleged that, in an effort to increase market share in the home mortgage business, Wells Fargo has engaged in a pattern and practice of pressuring appraisers to write appraisals designed to justify the loan even if the appraisal violates USPAP. The plaintiffs also alleged “If an appraiser does not 'play ball' and produce a report affirming the property value or the parameters that Wells Fargo expects or wants, Wells Fargo, through Rels Valuation, suspends the appraiser or removes the appraiser from the list of preferred appraisers and, in essence, 'blacklists' the appraiser.”
The plaintiffs also claimed that Wells “utilized a host of indirect methods to communicate to the appraiser the value needed to fund the loan, and the value the appraiser is expected to 'hit.' As an example, they claimed that Rels' appraisal order form, which indicates the Borrower Estimated Value, reflects the value that the appraiser is expected to meet or exceed in the appraisal.
According to court documents, Pearsall completed an URAR appraisal for Wells Fargo and Rels in June 2007 in Enumclaw, Wash. After submitting his report, an officer of Rels requested that he alter it to reflect the company's desired views on the property. Specifically, Rels' area manager, Randall Pierzina, asked Pearsall to remove all indications that the home in question was currently being remodeled. Pearsall refused to alter the report, noting that doing so would be a violation of his ethical duty under USPAP. In response, Pierzina yelled, “[Y]ou appraisers take USPAP too seriously.” Pierzina then threatened to remove Pearsall from his list of “eligible” appraisers if he “did not receive the requested, altered report immediately.” [Mr. Pierzina is no longer the Rels Area Manager]
After refusing, Rels blacklisted Pearsall, which meant a loss of approximately 21-36 percent of Pearsell's business. When Pearsall inquired about the loss of work, he was told by Pierzina that he had been suspended for refusing to comply “with an OPUS issue.” However, Pierzina did not explain what an “OPUS issue” was and never provided any further explanation for the suspension or notified Pearsall of any procedure by which he could challenge his suspension.
Pearsall confirmed his existence on the blacklist when he received an offer of an assignment from Rels on April 8, 2009. He told the employee over the phone, “I would love to take the job, but aren't I on your blacklist?” The employee put him on hold to check, then came back and said “I'm sorry, I wasn't supposed to contact you.” Savage had been doing appraisals for Rels for 12 years. In Jan. 2009, Savage performed two such appraisal assignments for Rels. After Savage provided these appraisals, a “Collateral Compliance Reviewer” for Rels emailed Savage with information “to support an increased value” of the appraised property. Savage reviewed the appraisal and determined that no such increased valuation was appropriate. The next month, he received a letter from Rels stating that he had been removed from its approved panel of appraisers. The letter did not provide an explanation for the removal.
Before being blacklisted Savage estimated he received 11-17 percent of his income from Rels.
The complaint also contained nine statements by appraisers in Arizona, Nevada, Washington, Pennsylvania, Illinois, Virginia, Indiana and Oregon who alleged that Rels also stopped hiring them because they refused to alter appraisals upon Rels' request. The original lawsuit had three causes of action, but two of these were dismissed with the only complaint remaining a violation of the common law duty to provide fair procedures.
Granting Wells' motion to dismiss, District Judge Claudia Wilken opined that the case centered on the percentage of work that was lost as a result of the blacklisting, and on whether the fair process doctrine should apply to a private organization. “Certain private entities possess substantial power either to thwart an individual's pursuit of a lawful trade or profession, or to control the terms and conditions under which it is practiced,” she wrote, but “certain institutions and enterprises are viewed by the courts as quasi-public in nature: The important products or services which these enterprises provide, their express or implied representations to the public concerning their products or services, their superior bargaining power, legislative recognition of their public aspect, or a combination of these factors, lead courts to impose on these enterprises obligations to the public."
But to be held liable for violating the right to fair procedures, Wilken opined, a private entity must have the power to “significantly impair” the individuals' ability to work in a particular field. “In essence,” she wrote, “the law concerns exclusion or expulsion from membership by a gatekeeper organization, like a union or an insurance company,” which she determined did not apply to Wells Fargo.
“Wells Fargo's extensive national involvement in originating and servicing mortgages does not necessarily mean that it wields significant power over the appraising profession in the geographic areas in which plaintiffs work,” wrote Wilken.
“It is especially important to note that, while loss of income after exclusion by a private entity is relevant, it is not 'conclusive proof' that the exclusion impaired the plaintiff's ability to continue in the profession,” she continued. In the judgment of the court, the percentage of business lost by Pearsall and Savage following their blacklisting was not enough to establish a duty to provide fair procedures. In addition, the blacklisting didn't affect Pearsall or Savage's ability to receive work from other mortgage companies.
“No authority requires the imposition of the fair procedure doctrine simply because removal from a single company's list of appraisers it chooses to retain substantially affects the economic interest of a removed appraiser. Defendants simply made a choice not to do business with plaintiffs; they did not exercise power as a gatekeeper of a profession nor did they prevent plaintiffs from pursuing employment by others,” said Wilken. On this reasoning, she dismissed the claim against Wells Fargo with prejudice, saying that any further amendment would be “futile.”
At press time, neither Wells Fargo nor HBSS were able to return requests for comment to Valuation Review.
Editor: David Napuk [dnapuk@octoberresearch.com]
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