Appraisal Scoop

AMC Declares Bankruptcy: What Appraisers Need To Know

GUEST AUTHOR: Ramir Rodriguez is a business development officer for Treasure Valley Factors.  He helps real estate appraisers understand what factoring is and how it can help grow their business.  He has a B.S. in Business Administration with an emphasis in Management from Eastern Oregon University. For more questions about factoring accounts receivables, please email him at rrodriguez@treasurevalleyfactors.com or visit our blog www.factoringhelps.wordpress.com or our website www.treasurevalleyfactors.com

 

You received a letter in the mail informing you that your client has filed for bankruptcy.  It is this moment you realize that this bad news just became your problem.

Many of us are familiar with the recent bankruptcy filings of Evaluation Solutions and its subsidiary ES Appraisal Services.  Peter Christensen, attorney and general counsel to LIA Administrators & Insurance Services, shared in his blog that the total unpaid fees to appraisers, agents, and brokers as listed in bankruptcy documents is $11,048,411.97!  This is a remarkable amount.  Evaluation Solutions’ bankruptcy documents accounted for $9,349,612.97 of the total amount and a separate filing of its
subsidiary was for $1,698,799.

I Received A Notice… Now What?

If you received a notice regarding Evaluation Solutions/ES Appraisal Services’ (I will refer to them as ES) bankruptcy you may be wondering what the next step is to try and recover money owed to you.  Yes, a client’s bankruptcy can be costly for you, but most importantly, not adhering to the rules of the bankruptcy process can cost you significantly more.

Knowing the types of bankruptcy, how to play by the rules, and what you can (or can’t do) will help you understand the scope of your problem and ensure you don’t get in trouble. 

Types of Bankruptcy

There are lots of information you can gather from the bankruptcy notice from ES to help you understand the nature of this problem.  But first you must recognize the type of bankruptcy ES is filing.

Chapter 7 – This type of bankruptcy is the liquidation of remaining assets to distribute among its creditors.

Chapter 11 – This a financial reorganization of a business, which allows your client to function while they follow court ordered debt repayment plans.

Chapter 13 – Similar to Chapter 11, but rather than a business filing bankruptcy it is the individual reorganizing and following a debt repayment plan.

Ideally, it’s more favorable on your end if your client files for either Chapter 11 or 13.  These types of bankruptcy give your client a breather until they figure out how to repay.

If your client however files for Chapter 7, which is what ES filed, not only will your chances of getting
paid be reduced, but also you may be waiting a long time (even years) for this type of case to be completed.

Take A Number

At this point you are probably frustrated and would like to call someone to attempt to collect your money.  Stop right there!  Your actions can get you in deep waters.  If you attempt to make phone calls to ES’s accounting department, send nasty letters, or try to file a lien (which some appraisers have done in other instances and is not recommended), you will face penalties.

Assuming you do get some money owed to you, you will have to wait in line.  This is the second item you must understand.  Here’s the payment order:

1. Lawyers, administrative expenses, and other professional services that are involved with the work of filing the bankruptcy.
2. Secured claims, including mortgage holders.
3. Priority claims, including wages and taxes.
4. Unsecured claims, which is where you as an appraiser may be categorized.
5. Equity claims, including stockholders.

So curb your frustration because all you can do at this point is wait.

What Can You Do While You Wait

Sure you have to wait for ES’s bankruptcy process to take its course, but there are some things you can do in the interim.  Since this case can drag for a long period of time, you can do the following:

 

1. Consultwith your CPA about taking a deduction on your taxes for the bad debt.  If you manage to receive some money owed toyou after the bankruptcy case is settled you can claim it as income at thattime.  See your accountant for moredetails.
2. It doesnot apply in this case, but if you have a future instance where your client files for Chapter 11 or 13 and wants to continue a working relationship, it may be to your advantage.  Of course your immediate reaction is to quickly say “no way!”, but understand that Chapter 11 and 13 require debtors to stay current on all accounts moving forward.  This means you can add a fee to your appraisal fees to recover what was lost, stricter payment time frames, and
   maybe exclusivity as other appraisers may not take another chance.  Keep in mind that the best way to reduce or eliminate risks is to get paid up front.

Improve And Move On

Now that you’re somewhat familiar with the types of bankruptcy, payment pecking order, and what you may be able to do as the bankruptcy takes its course, it is important prepare for the future.  This means assessing your appraisal business and how to prevent this problem from happening again.

First, create a process on how to screen new clients by knowing their payment history.  There are many tools and resources you can use online that are free or for a small fee.  Second, improve your accounts receivable aging management procedures.  Just because they are still “current” doesn’t mean it does not require all of your attention.  Current receivables can quickly turn into problems if you don’t pay attention.  Last but not least, be persistent and tough but professional with your collections.

If you have an AMC bill in your state, read it and educate yourself on how it can help your appraisal
business.  There are sections in most AMC bills that require AMCs to pay by a certain time frame.  For example, Texas AMC bill requires AMCs to pay appraisers within 60 days.

Also consider resources available to you such as factoring your receivables where the risk of non-payment is transferred to the factoring company.  In this case, you can get paid quickly without the responsibility of collecting and liability of non-payments.

No small business is immune to the unexpected, but you can certainly minimize you risks as work towards a successful 2013.

GUEST AUTHOR: Ramir Rodriguez is a business development officer for Treasure Valley Factors.  He helps real estate appraisers understand what factoring is and how it can help grow their business.  He has a B.S. in Business Administration with an emphasis in Management from Eastern Oregon University. For more questions about factoring accounts receivables, please email him at rrodriguez@treasurevalleyfactors.com or visit our blog www.factoringhelps.wordpress.com or our website www.treasurevalleyfactors.com

 

 

Seven Cases the Defendant Appraisers Won Based on Expiration of the Statute of Limitations - Appraiser Law Blog

GUEST POST: Peter Christensen is an attorney who advises professionals and businesses about legal and regulatory issues concerning valuation and insurance.  He serves as general counsel to LIA Administrators & Insurance Services.  He can be reached at peter@liability.com.

I am biased in favor of defendant appraisers.  I always root for the  defense, even if it's one appraiser suing another appraiser (as in one case below).  Defense is our business.  Here, are seven cases where the  defendant appraisers won based on a statute of limitations defense.   That means even if there was something wrong with the appraisal at  issue, the defense counsel still won the case.  So, you have to give the  credit to the defense counsel.  That's not to say there really was a  problem with the appraisal in each case below -- it just didn't matter  if there was.

READI members can find more cases like these, including cases where the appraisers lost, here on www.readimember.org.

Here are the seven cases:

Arkansas

Varner v. Peterson Farms, 371 F.3d 1011 (2004). Applying Arkansas law, a federal appeals court upheld dismissal of  fraud, unjust enrichment and conspiracy claims against an appraiser, and explained that the "statute of limitations begins to run-in the absence of concealment of the wrong-when the negligence occurs, not when the  negligence is discovered."

California

Bartha v. Deutsch, Cal. Ct. of Appeal, Unpub. Dec., No. F058669 (2010). In an action by an appraiser against a review appraiser for defamation, the California appellate court ruled in an unpublished decision that  the 1-year defamation limitations period applied, not the 2-year  limitations period for negligence. The appellate court upheld the trial  court’s dismissal of the defamation claim against the review appraiser.

Indiana

Farmers & Merchants Bank v. Putnam, Indiana Court of Appeals (2009). Applying Indiana law, a U.S. District Court dismissed negligence claims by lender against appraiser based on 2-year limitations period for  negligence. The court found the bank had or should have discovered the  alleged appraisal negligence more than 2 years before filing the lawsuit against the appraiser because it had earlier alleged in a suit against  the borrower that the borrower lied to the bank about the value of the  property. The court ruled that the bank’s fraud claim, however, would  not be dismissed based on the longer 6-year period applicable to fraud  claims under Indiana law.

Ohio

Flagstar Bank v. Airline Union's Mortgage Co., 128 Ohio St.3d 529 (2011). Ohio does not follow a "discovery rule" for negligence claims against appraisers.  Accordingly, the Ohio Supreme Court upheld dismissal of Flagstar’s negligence claims against appraisers because Ohio's 4-year limitations period begins at  time appraiser performs appraisal.  In the primary claim at issue in the case, Flagstar sued a  residential appraiser about three appraisals performed in 2001 and 2002  for three different loans which defaulted in 2003 and 2005. Flagstar  blamed the appraiser for its financial losses on the loans but did not  file a lawsuit until 2008 – seven years after the first appraisal. On  appeal, Flagstar tried to argue to the Ohio Supreme Court that the  statute of limitations should not begin to run until it discovers the  full extent of the alleged damage it has allegedly incurred as the  result of negligence in an appraisal. The Ohio Supreme Court ruled in  favor of the appraiser. It confirmed that the period in Ohio begins to  run when the appraisal is delivered, and it affirmed the dismissal of  Flagstar’s claim because Flagstar filed its lawsuit years after that  period had expired with respect to each claim.

Michigan

Capital Bankcorp Ltd. v. Landheer Appraisal Service, et al., Michigan Court of Appeals, No. 291966 (2010) (unpublished decision). A Michigan appellate court upheld dismissal of lender's claim against  appraiser based on statute of limitations because lender should have  discovered appraisal faults with reasonable diligence.  The court concluded that the statute of limitations began running from the time that the lender should have discovered the faults if it had acted diligently.  In particular, the lender alleged in its complaint that the appraisal was defective because the appraiser was only licensed, not certified, and that the appraisal was inflated.  The court concluded that these alleged issues would have been discovered by the lender if it had acted with reasonable diligence.  Among other things supporting that conclusion was the fact that the lender possessed an earlier  appraisal with different information than contained in the appraisal by  the appraiser it sued.

New York

LSF6 Mercury REO Investments v. Midrome, Inc., et al., New York Supreme Court, New York County (2012). New York does not follow a "discovery rule" for negligence claims against appraisers and has a 3-year limitations period under New York CPLR 214  (6). Thus, the trial court dismissed two consolidated cases filed by a private equity fund LSF6 Mercury REO Investments against appraisers and appraisal firms because the appraisals were performed more than 3 years before LSF6 filed its legal actions.  (For more information about LSF6 and its voluminous litigation against appraisers, see this article Who Has Been Suing the Most Appraisers?  Two Names You Know.  Two Names You've Probably Never Heard.)

Early v. Rossback, 262 A.D.2d 601 (1999). In this older case, a New York appellate court upheld dismissal of an alleged malpractice claim  against appraiser filed more than 3 years after appraisal and held that the 3-year limitations period under New York CPLR 214  (6) applies to appraiser malpractice claims whether those claims are  alleged in tort as a negligence claim or as a breach of contract.  Again, New York does not follow a "discovery rule" for negligence claims against appraisers.

Click here for the full article: Seven Cases the Defendant Appraisers Won Based on Expiration of the Statute of Limitations

***

Appraisers can learn more about ways to reduce their liability risk at www.readimember.org -- a free resource created by LIA Administrators & Insurance Services.

AUTHOR: Peter Christensen is an attorney who advises professionals and businesses about legal and regulatory issues concerning valuation and insurance.  He serves as general counsel to LIA Administrators & Insurance Services.  He can be reached at peter@liability.com.

 

Who Has Been Suing the Most Appraisers? Two Names You Know. Two Names You've Probably Never Heard.

GUEST POST: Monday, October 8, 2012 - Who Has Been Suing the Most Appraisers? Two Names You Know. Two Names You've Probably Never Heard - By Peter Christensen

These are four of the parties who have been suing the most appraisers in 2011-12.  I suspect most appraisers won't recognize two of the names, unless the appraisers are defendants in one of their cases.  The parties are in no particular order, but the last one does file the most lawsuits. 

LSF6 Mercury REO Investments.  This is an investment fund of a private equity company named Lone Star.  LSF6 bought discounted mortgage debt from bankrupt CIT Group in 2008.  In late 2011, LSF6 began suing appraisers in New York as part of what appears to be an experiment with mass appraiser litigation to recover damages from appraisers relating to the defaulted mortgages.  Most of the mortgages and appraisals at issue date to 2005 to 2007.  So far, LSF6 has sued at least 50 individual appraisers and small appraisal firms in New York.  LSF6, however, has lost some of its early New York cases or been forced to abandon others.  Its masterminds made some obvious legal mistakes.  Perhaps seeking a new testing ground, LSF6 filed one of its most recent lawsuits against an appraiser in a Western state.  If LSF6's experiment with mass appraiser litigation pays off for its private equity investors, the appraisal industry will have a dark future of voluminous appraiser litigation. 
 
Lehman Brothers Holdings, Inc.  This company hardly needs an introduction.  It is the financial services firm commonly blamed for the near destruction of our economy in 2008.  So, what's this former giant doing suing individual residential appraisers?  Well, one of Lehman's mortgage origination machines at the height of the real estate and mortgage bubble was its subsidiary Aurora Bank.  Lehman acquired mortgages from that subsidiary and packaged many for sale to other parties. Though it filed for bankruptcy in 2008 and remains in bankruptcy, Lehman began filing sporadic negligence lawsuits last year against appraisers who appraised for loans by Aurora back in 2005-2006.  These lawsuits have been filed or threatened against appraisers in California, Colorado, Florida, Georgia and Tennessee (to name a few states).  Lehman filed its most recent lawsuit against an appraiser last week in Michigan.
 
Heritage Pacific Financial.  This entity is an investment vehicle of some type that purchases defaulted mortgage debt for pennies on the dollar and then tries to recover some of the debt through creative means.  One of its strategies has been to sue the borrowers for fraud, not just breach of the debt instrument.  Because insolvent borrowers rarely fight in court, Heritage Pacific often obtains default judgments against the borrowers without a fight.  A judgment for fraud can be non-dischargeable in bankruptcy and thus potentially will remain collectible against the borrower forever (a judgment can be renewed perpetually in California) or as long as judgments are enforceable.  The judgments are then either collected on or sold to third parties according to marketing literature from Heritage Pacific.  In the last couple of years, Heritage Pacific also has tried suing appraisers for professional negligence and misrepresentation, contending that the appraisers are liable for the unpaid loan balances -- though Heritage Pacific may only have paid pennies on the dollar for the already defaulted debt.   

With respect to its borrower actions, Heritage Pacific is facing at least one class action for unfair debt collection practices.  Separately, it has been subject to state action for alleged securities violations concerning its investment offerings.  The Center for Investigative Reporting's California Watch published a report on Heritage Pacific earlier this year (link).

Federal Deposit Insurance Corporation.  The FDIC's tear against appraisers continues unabated.  From January 1, 2011 through today, it has sued approximately 140 individual appraisers and small appraisal firms relating to defaulted loans of failed lenders under its supervision as receiver.  It has identified approximately 400 additional individual appraisers by name as grossly negligent in its two lawsuits against national AMCs.  Most or all of those 400 appraisers recently received a document entitled "notice of claim" which purported to give notice that civil claims for damages would be made against them relating to the appraisals in the FDIC's two AMC lawsuits, but the notices do not appear to have come from the FDIC.  Almost all appraisals that the FDIC is suing over date to 2005 to 2007.  Some appraisers in high risk states now have E&O policies that exclude coverage for damages awarded to the FDIC. The FDIC, acting as receiver for failed Amtrust Bank, filed its most recent lawsuit against an appraiser in September in Ohio. 

 
The FDIC's litigation tactics against appraisers also have been questioned.  It has been using a law firm called the Mortgage Recovery Law Group to make demands on, subpoena and sue appraisers across the country.  The firm is staffed by personnel formerly employed by Indymac Bank, which itself failed and is under FDIC receivership. 

 

One attorney in the FDIC's law firm held the title "Director of Quality and Fraud Risk Management" at Indymac.  A non-attorney staffer formerly employed at Indymac held the title "Vice President of Fraud Prevention and Loss Mitigation."  In some cases, these law firm personnel play the role of a witness for the FDIC; in other cases, the law firm's lawyers represent the FDIC as attorneys.  Some might think the FDIC's utilization of former management insiders at the failed bank is clever, but other people may think it's repugnant that former insiders are now profiting from their management work in Indymac's pilothouse, while others are being sued for it.  In one of its cases (not handled by the Mortgage Recovery Law Group), the FDIC is suing two appraisers -- husband and wife -- over appraisals done years ago.  The husband appraiser is now deceased and the wife appraiser has dementia.  It really is the FDIC against "mom and pop."
 
I could add a few regular lenders to the short list above as suing a fairly high number of appraisers and a couple lenders do sue more often than others, but it's not really newsworthy that appraisers' named lender-clients sue them and the lenders actually don't sue very often as compared to their mortgage volumes.

Does it seem like commercial appraisers have been left out?  They should not feel that way.  First, in recent months, the FDIC and its outside law firms have begun suing and sending subpoenas to more commercial appraisers.  Second, the litigation described above is merely the most frequent, not the most severe.  As written about elsewhere in this blog, the three biggest appraisal negligence lawsuits currently pending concern commercial appraisal work. 

 

PR: American Guild of Appraisers Petitions Federal Reserve Board and Consumer Financial Protection Bureau to Overturn Regulation that Threatens Viability of Professional Appraisal Practice

WASHINGTON, Feb. 23, 2012 /PRNewswire via COMTEX/ -- The American Guild of Appraisers (AGA), a national organization of real estate appraisers that is an affiliate of the AFL-CIO's Office and Professional Employees International Union (OPEIU), has petitioned the Federal Reserve Board ("Fed") and the Consumer Financial Protection Bureau to overturn a regulation adopted by the Fed that is contrary to the Dodd Frank Financial Reform law, threatens the viability of professional appraisal practice and undermines the legitimacy of real estate appraisals relied on by lenders in making residential mortgage loans.

In the aftermath of the national financial collapse brought on in part by badly underwritten subprime loans, Congress found that inadequate appraisals resulting from undue pressure on appraisers was a contributing factor. To address the problem, Congress enacted a series of appraisal reforms in the Dodd Frank law to ensure appraiser independence and accountability. A key component of the legislation is a requirement that appraisers be paid "reasonable and customary fees" for their work. Responding to evidence that appraisal management companies have been dominating the market and pressuring appraisers to accept assignments with unreasonable requirements and unreasonably low fees, the law specifically prohibits basing fees on the current practices of appraisal management companies.

Last year the Fed adopted a rule that allows appraisal management companies that control up to 80 percent of residential appraisals to pay appraisers a fraction of what a customary and reasonable fee would be as defined in the law, sometimes as much as 50 percent or more below the prevailing rates. As a result, industry experts report, the problems that Congress sought to address have been exacerbated. And the reliability of residential real estate appraisals is once again subject to question.

Peter Vidi, President of the American Guild of Appraisers explained, "Under the regulation we are seeking to overturn, the borrower doesn't save a penny but the appraiser gets a fee that is as much as 50 percent less than prevailing rates. What the borrower doesn't know is that perhaps less than half of the fee that they are required to pay is actually going to the appraiser who performs the appraisal. The rest goes to the appraisal management company. AMC's are often owned or controlled by lenders that make big profits without the borrower's knowledge that his fee is an additional profit center for the lender or the subsidiary management company at the expense of the borrower."

Vidi and many other leaders in the appraisal profession believe that the practices of appraisal management companies are threatening the reliability of appraisals to the detriment of borrowers and taxpayers. Vidi noted, "In addition to paying low fees, appraisal management firms are pressuring appraisers to meet unreasonable deadlines and often condition work on an appraiser's willingness to cooperate in ways that compromise the integrity of the appraisal process."

Vidi continued, "Most licensed and certified appraisers are hard working, competent and honest, and under the current circumstances, many are choosing to leave the profession. Those who remain are having to take on too many assignments just to earn a living and are dependent on the appraisal management companies that control the business."

The petition was filed on behalf of the American Guild of Appraisers by lawyers, Matt Schneider and Ben Lambiotte of the law firm, Garvey Schubert Barer. Schneider commented, "We believe that the Guild has a strong legal case that the Fed has violated the Dodd Frank law. We are hopeful that the Fed and the new Consumer Financial Protection Bureau, which is specifically charged with protecting the interests of consumers in financial transactions will reexamine this rule and make the changes necessary to carry out the intent of the law."

The petition also asserts that the Fed failed to comply with the law by not providing an opportunity for public comment on the proposed rule. In fact, after the rule was adopted, more than 1,400 comments were received by the Fed in response to the rule. Schneider claims that the Fed was obligated under the Administrative Procedure Act, to provide notice and opportunity for comment prior to adoption of the rule and that the Fed was further required to consider and address comments submitted as part of the rulemaking process.

Vidi noted that he has no illusions that getting this problem fixed will be easy. Vidi said, "For the appraisal management companies and their owners there is well over $100 million annually at stake. For the taxpayer who is left holding the bag when bad lending leads to defaults and for the borrower who often overpays for a home, this is a serious matter. For real estate appraisers, this one of several related issues that will determine the future of the appraisal profession."

While expressing hope that the petition will be successful, Vidi acknowledged that if the Fed and the CFPB don't do the right thing, litigation may be the only alternative. Vidi said, "Suing the Federal Reserve is not something that the appraisal industry would do lightly, but there may be no other option. This is far too important an issue to appraisers and consumers to simply walk away. We are fighting for our livelihood and for the integrity of the work that we do. We ask all appraisers to join with us in this effort."

OPEIU International President Michael Goodwin said that OPEIU and AFL-CIO and their millions of members stand firmly behind the AGA. "We support concerted action by the American Guild of Appraisers to protect the integrity of professional appraisal practice and the profession."

ABOUT THE AMERICAN GUILD OF APPRAISERS/OPEIU GUILD 44The American Guild of Appraisers/OPEIU Guild 44 seeks to represent the interests of appraisers, developing a strong presence before the U.S. Congress and each of the state legislatures. By working closely and exchanging dialog with other like-minded organizations, the AGA works to educate consumers about the appraisers' non bias, independent role in the value process, while ensuring the accountability of both the appraisal profession and the financial institutions with which the appraiser provides services.

ABOUT OPEIUThe Office and Professional Employees International Union represents more than 108,000 members in the United States, Puerto Rico and Canada. OPEIU represents employees and independent contractors in banking and credit unions, insurance, higher education, shipping, hospitals, medical clinics, utilities, transportation, hotels, administrative offices and more.

Professional organizations and Guilds affiliated with OPEIU are a diverse group that includes physicians, pharmacists, chiropractors, appraisers, podiatrists, clinical social workers, hypnotists, teachers and helicopter pilots.

 

SOURCE Office and Professional Employees International Union, AFL-CIO (OPEIU)

Copyright (C) 2012 PR Newswire. All rights reserved

American Guild of Appraisers Files Request with Federal Reserve Board Seeking Documents Related to Regulations on Customary and Reasonable Compensation of Fee Appraisers

WASHINGTON, Jan. 23, 2012 /PRNewswire-USNewswire/ -- On behalf of the American Guild of Appraisers, today the law firm Garvey Schubert Barer filed a request with the Federal Reserve Board under the Freedom of Information Act seeking a wide variety of documents related to the regulations on customary and reasonable compensation of fee appraisers that were issued by the Board in October 2011. 

In announcing this action, Guild President Peter Vidi said, "It is clear that appraisal management companies have interpreted rules issued by the Fed as permitting practices that result in real estate appraisers being compensated at levels that are far below 'reasonable and customary fees' as required in the Dodd Frank Law.  We want to learn whether the Fed intended this result and if so why."

Vidi continued, "we hope that these documents will shed light on why the Board chose to create two conflicting 'safe harbors' for compliance with these regulations, one of which permits Appraisal Management Companies to rely upon the considerably lower rates that they themselves pay appraisers in determining what compensation is considered 'customary and reasonable' in direct violation of the Dodd Frank law.  To this end, we have asked for all internal and external correspondence related to their development of these regulations, as well as documents such as meeting records, studies, reports and other information considered by the Board in the development of the regulations."

The formal request under the Freedom of Information Act seeks all documents that chronicle any consideration given by the Board, after having issued the regulations, to the public comments submitted to them, many of which pointed out the problems created by the safe harbor provisions, as well as to any follow-up actions that might be taken to correct these problems.   "We are hopeful that these documents will allow us to better understand the seriousness with which these issues have been considered and the potential for future corrective action," Vidi noted.

The Guild previously announced that it had retained a law firm to explore all avenues including possible litigation to correct a regulation that is in violation of the Dodd Frank law.  The FOIA request is a next step in determining the best means to get the problem resolved.  

This reduction in fees to appraisers of up to 50 percent and amounting to more than $100 million according to industry experts, does not result in any savings for homebuyers because the appraisal management firms have not reduced fees charged to lenders and passed on to borrowers.  Instead, according to Vidi, the quality and reliability of appraisals is being degraded and many competent appraisers are leaving the profession.  "The appraisal fee provisions in Dodd Frank were intended to ensure the independence of appraisers and the integrity of the appraisal process.  Simply put, this is not what is happening," Vidi said. 

ABOUT THE AMERICAN GUILD OF APPRAISERS/OPEIU GUILD 44
The American Guild of Appraisers/OPEIU Guild 44 seeks to represent the interests of appraisers, developing a strong presence before the U.S. Congress and each of the state legislatures.  By working closely and exchanging dialog with other like-minded organizations, the AGA works to educate consumers about the appraisers' non bias, independent role in the value process, while ensuring the accountability of both the appraisal profession and the financial institutions with which the appraiser provides services.

ABOUT OPEIU
The Office and Professional Employees International Union represents more than 110,000 members (representing 125,000 employees) in the United States, Puerto Rico and Canada. OPEIU represents employees and independent contractors in banking and credit unions, insurance, higher education, shipping, hospitals, medical clinics, utilities, transportation, hotels, administrative offices and more.

Professional organizations and Guilds affiliated with OPEIU are a diverse group that includes physicians, pharmacists, chiropractors, appraisers, podiatrists, clinical social workers, hypnotists, teachers and helicopter pilots.

SOURCE Office and Professional Employees International Union, AFL-CIO (OPEIU)

Read more: http://www.digitaljournal.com/pr/558017#ixzz1lLjkamwj

NAIHP Files Formal Complaint Against Fannie/Freddie Regulator Over HVCC Alleged Cover-Up

WASHINGTON, DC, Oct 14, 2011 (MARKETWIRE via COMTEX) -- NAIHP has filed a formal complaint with the Inspector General's Office, alleging Fannie/Freddie and their regulator agreed to the terms of the Home Valuation Code of Conduct (HVCC) as part of a plea bargain like agreement to avoid further investigation by the New York Attorney General's Office.

In December of 2008, Fannie Mae, Freddie Mac and the Federal Housing Finance Agency (FHFA), agreed to the final version of HVCC on the condition then New York Attorney General Andrew Cuomo, drop the GSE's from his valuation fraud investigation.

"In May of 2008, I met with Fannie Mae General Counsel Beth Wilkinson. During our meeting, I asked the G.C. why Fannie signed on to the HVCC agreement. Her exact words were, 'Cuomo has his foot in our throats.' 

Amongst other evidence, this supports our allegation that the GSE's only signed the agreement to escape further investigation by Cuomo," said NAIHP President Marc Savitt.

NAIHP is vigorously pursuing copies of the tens of thousands of public comment letters received by the GSE's and the FHFA, with respect to the HVCC. NAIHP has made numerous requests for these letters, all of which have been denied. A formal request through the Freedom of Information Act (FOIA) is being
prepared.

In a May 19, 2010 letter to Andrew Cuomo, FHFA Acting Director Edward DeMarco stated, "The Home Valuation Code of Conduct deployed by Fannie Mae and Freddie Mac was implemented after taking extensive market place comments." "Refusing to release the comment letters after admitting they relied upon them when implementing the HVCC suggests the letters fail to support the code's implementation and the FHFA is deliberately withholding this information from the public and Congress," said Savitt.

According to the NAIHP: Since HVCC was implemented on May 1, 2009, valuation fraud has risen by over 50%, appraisal quality has decreased substantially, thousands of appraisal professionals have been forced out of business and home values have continued to decline. Additionally, new appraisal rules have created a sharp increase in settlement costs for consumers.

Although, the HVCC agreement expired late last year, it's been replaced by similar language in the Dodd-Frank Act and GSE guidelines. NAIHP will continue to work with Congress and the CFPB on this important issue.

National Association of Independent Housing Professionals. 601 Pennsylvania Ave NW. Ste. 900 Washington, DC 20004

Contact: Marc Savitt 540-550-4496

SOURCE: National Association of Independent Housing Professionals

Cuomo v. eAppraiseIT: New York's Highest Court Held Oral Argument on eAppraiseIT's Appeal

Cuomo v. eAppraiseIT: New York's Highest Court Held Oral Argument on eAppraiseIT's Appeal Today: By Peter Christensen - Appraiser Law Blog

Today, four years after New York's then Attorney General Cuomo filed his state's lawsuit against First American eAppraiseIT (now part of CoreLogic), the New York Court of Appeals (the state's highest court) heard eAppraiseIT's appeal of the trial court's denial of its motion to dismiss. 

eAppraiseIT's argument on appeal, as it was to the trial court, is that New York is preempted by federal savings and loan laws and regulations from pursuing state law claims against appraisal management companies (AMCs) in state court.  The trial court's denial of the motion to dismiss was previously upheld by the lower New York appellate court.

The Court of Appeals' ultimate decision can't be predicted based on the questioning during oral argument today.  In the meantime, any future trial of the case will remain stayed until a final decision by the Court of Appeals.

Source: Appraisal Legal Defense and Insurance Blog by Peter Christensen and Robert Wiley - Legal issues and insurance matters affecting residential and commercial real estate appraisers   Click Here to Read Full Post

Full copies of the original complaint filed in 2007 and the Appellate Division's (the lower level appellate court) June 8, 2010 opinion can be found here.

Liability.com Claim Alert: Three easy steps to reduce your liability

The following is from the January Liability.com Claim Alert: Three easy steps to reduce your liability - (January 2011)

Despite the large number of claims stemming from the mortgage crisis, the professional liability risk to appraisers remains manageable with prudent loss prevention. Most claims at this time – whether they are frivolous or have a justifiable basis – relate to appraisals completed during the real estate and mortgage bubble years of 2004-2007. An appraiser has little control now over whether a lender, borrower or other party will make a claim about work in the past.

Our single best piece of advice with respect to reducing your risk for prior work is to keep your reports and workfiles for longer than the minimum five years required by USPAP. We suggest keeping them for seven or eight, or even longer. USPAP has no relevance to any statute of limitations period and whether a plaintiff can sue you about an old appraisal. Given that we are seeing claims about appraisals dating back to 2004 and sometimes earlier, we think that keeping reports and workfiles, in paper or electronically, for seven or eight years provides a better margin of safety for appraisers.

Fortunately, there is much more that an appraiser can do to reduce the threat of liability from future work. You may have heard the following tips previously over the years, but they are more relevant now than ever. You’ll find more information and more tips in the loss prevention section of our website at liability.com and available at our new resource readimember.org.

Appraise Your Client and the Assignment. Appraisers report hundreds of claims to us every year. Time and again, appraisers start the story about a claim with something like "I had a bad feeling about this client" or "I had a suspicious feeling about the transaction." Here’s a recent example: an appraiser reviewed a sales contract in connection with a home purchase loan and accurately reported in her appraisal that the contract contained significant sales concessions. The concessions exceeded the limits in new lending guidelines. After the appraiser submitted her report, the lender’s agent very quickly came back to the appraiser with a "new" sales contract with the same date, signatures and markings, but leaving out any concessions, and wanted the appraiser to prepare a new report. The appraiser declined. In other situations, we’ve heard appraisers basically say that they knew their client was going to use the appraisal report in a misleading way, but that they figured they could cover themselves with a disclaimer or other cleverness in the report.

Your knowledge – or even nothing more than a gut feeling – about a dishonest situation is your radar in avoiding lawsuits or disciplinary investigations. Many of these situations do produce claims and your best loss prevention strategy is to turn down the assignment if any part of, or any party to, the transaction "smells fishy".

Check and Proofread Your Work. This is certainly obvious advice, but we have to say it because we receive too many claims that result from poor quality control. Indeed, we have had claims asserted against appraisers relating to plain old typographical errors. In one recent case, an appraiser delivered an appraisal report through a management company to a lender for its use in evaluating the sale of an REO property. In the report, the appraiser entered the wrong first digit in his opinion of value – i.e., the appraiser keyed in $150,000 when the value in the report should have been $250,000. While any reasonable reader of the report should have recognized the obvious error because the number was outside the range of adjusted comparables and could not be reconciled with other data in the report, we still had to defend a claim by the management company because the lender allegedly agreed to sell the REO at a low price based on the appraiser’s typographical error.

We also see too many lawsuits and disciplinary matters each year involving reports in which entire sections of data or information are copied over from another report and left unchanged. We see these problems from both residential and commercial appraisers. In residential reports, appraisers often carry over data and information that remains in the software template from a prior report in their system. In commercial narrative reports, we see appraisers borrowing sections written for other reports but then failing to update or revise the information to fit the new assignment. Claims about problems like this are even uglier when the data or information is copied from a report by a different appraiser.

These are usually embarrassing claims for the appraisers. Even if the affected data or information would have had no impact on the appraiser’s opinion of value, this kind of carelessness provides fodder for the lender or borrower’s attorney, and the appraiser is never anxious to have his or her deposition taken in a case like this or to take the stand in court. Accordingly, our simple advice is that a lot of liability risk can be avoided by taking the time to check and proofread your work.

Be Careful What You Promise. As the mortgage crisis has unfolded, businesses involved in lending, whether residential or commercial, have become more keenly aware of their potential liabilities. Overall litigation related to mortgage lending has increased more than tenfold (far more than appraisal related litigation). A visible result of all this litigation has been an increasing use of indemnification provisions in legal agreements, including appraiser engagement agreements and AMC independent contractor agreements.

Indemnification essentially means a promise to reimburse someone else for certain costs or expenses. Appraisers need to be careful about what they agree to in this regard because lenders, servicers and AMCs are now routinely demanding that appraisers promise more and more with respect to indemnification.

For example, a new independent contractor agreement used by a well-known AMC states, in part

Appraiser shall further indemnify, defend and hold [AMC] harmless from and against any and all claims, losses, liabilities, costs and expenses attributable to any allegation of intellectual property infringement arising out of this Agreement.

Under this provision, the appraiser is agreeing to indemnify the AMC for liabilities for things like patent and copyright infringement in relation to any appraisals delivered by the appraiser – whether the alleged infringement is the fault of the appraiser, the AMC or some third party, such as a software provider. Another AMC’s independent contractor agreement states, in part:

 

Appraiser shall indemnify, defend, save and hold harmless [AMC] from and against any and all liability, claims, damages, losses, fines, judgments, suits, decrees, costs and expenses . . . in any way related to . . . any appraisal report submitted to [AMC] by Appraiser.

This provision similarly would enable the AMC to argue that the appraiser must indemnify the AMC for liabilities or damages and even fines assessed against the AMC relating in any way to appraisals delivered to the AMC by the appraiser – even if the alleged problems are the result of the AMC’s own conduct.^[*1]

Indemnification provisions also appear in contracts for commercial appraisal work. Fortunately, commercial appraisers often have more leeway to negotiate different or more reasonable language. A reasonable indemnification provision – if one is going to be included in a contract at all – would ideally be two-sided, meaning that both parties have a mutual obligation to each other to indemnify the other party for liabilities arising from one side’s negligence or errors or omissions.

Residential appraisers, on the other hand, often have limited ability to negotiate with lenders and AMCs, and often their only choice is to say "no" to the business relationship if the risk being shifted to them outweighs the benefit of doing business with the lender or AMC.

There are insurance concerns too with indemnification provisions. As to this issue, appraisers should understand that indemnification provisions such as the two from AMC agreements exemplified above do not change an appraiser’s E&O insurance coverage or "void" the policy. The E&O policy will still provide the same degree of protection and coverage as if the indemnification agreement did not exist. However, under these types of indemnification provisions, appraisers are agreeing to pay losses, damages, attorneys' fees, etc. of the AMC even if the loss or damage results from the AMC’s own errors or wrongdoing. Further, the appraiser is agreeing to indemnify the AMC for types of damages that are beyond the realm of E&O coverage, such as damages for patent infringement. Thus, the appraiser is agreeing to pay potential costs and damages that are broader than can be covered by the appraiser’s insurance. An appraiser’s E&O policy can only cover mistakes or damage caused by the insured appraiser (not a third party such as the AMC) and cannot cover liabilities forced on the appraiser by contract.

When appraisers are concerned about the nature of liabilities they may be assuming under an indemnification provision, we encourage them to discuss the relevant language with us. More information is also available on this topic in our loss prevention resources at liability.com and readimember.org.

Source: from the January Liability.com Claim Alert: Three easy steps to reduce your liability - (January 2011)

FNC Lawsuit - "That legal issue is just not gonna fly . . . ."

I assume that many of you remember the lawsuit that was filed as a class action against FNC back in the Summer of 2007?  

"Plaintiffs allege, FNC has acquired and compiled this proprietary appraisal data into a “National Collateral Database,” where it may be accessed by subscribing lenders and other market participants."

Would you believe that It's STILL going on!!?   That's right!  At the bottom of this post is a complete audio file of testimony and rebuttals before a panel of judges. 

http://www.ca5.uscourts.gov/OralArgumentRecordings.aspx

Here's just a sample of the testimony that starts around twenty-seven minutes into the proceedings . . . .

Attorney: “In that sense, uh, uh, the statements were made to the users, not to uh competitors. The misrepresentations were not anti-competitive in the traditional sense of a Lanham Act Claim. The relevant inquiry, we would submit, is the relationship of the parties as it pertains to the challenge against the statements. And here, the misstatements were made to the plaintiffs appellants that as simply as users of. . .”  (huh?)

Judge: Give us your data and we will keep it confidential and when basically then you take the data and dump the competition . . . that’s the allegation.

Attorney: That’s the allegation your Honor. As a factual matter we will argue that stating that the data will be secure refers to the security of the transmission not to ultimately who would use it.

Judge: “We won’t let anyone else have it . . . we can use it.”

Attorney: But, but, that’s uh . . .

Judge: I hope you can sell that distinction to a jury (snicker) . . .because what that says is “We can have your data. We’re gonna protect it. Don’t worry we won’t let anybody steal it . . . .we’re gonna use it!”

Attorney: Well, uh, Your Honor, I think that at bottom what they’re suggesting . . .

Judge: That legal issue is just not gonna fly . . . .

Download FNC 09-60804_10-6-2010

Arizona Court Rules Appraiser Owes Duty to Buyer/Borrower

In an April 30 decision, the Arizona Court of Appeals has ruled, for the first time in an Arizona published opinion, that an appraiser hired by a lender owes a duty to the buyer/borrower in that transaction. In its decision, the Court focused on the reality that the buyer would likely never hire a separate appraiser. For that and several other reasons, the appraiser owes a legal duty of care to the buyer/borrower.

"Finally, adopting Blagg’s contention that an appraiser retained by a lender owes no duty to the buyer/borrower would mean that a prospective homebuyer who seeks to rely on a prepurchase appraisal must contract separately with an appraiser for that purpose.

In the purchase in this case, as is not uncommon, the buyer was obligated to reimburse the cost of the appraisal ordered by the lender. Even if we were to assume such an arrangement were not the general rule, we see no reason to impose on the parties to a transaction the burden of paying twice for the same information simply so that the buyer may join the lender within the scope of the appraiser’s duty of care.

Public policy and common sense compel the conclusion that when a lender to which a prospective homebuyer has applied for a loan contracts for an appraisal of the home, the appraiser the lender hires owes a duty of due care not only to the lender but also to the homebuyer."

The decision was rendered in a Sage v. Blagg Appraisal Company, in which the buyer/borrower sued the appraiser for overvaluing the home because he used the incorrect square footage, among other things. The trial court had dismissed the action concluding, under two prior Court of Appeals decisions, that an appraiser hired by someone other than the buyer/borrower did not owe any duty to the buyer/borrower. In its unanimous decision, the Court of Appeals disagreed and allowed this case to proceed.

The case opens the door for buyers to sue appraisers even when the appraiser was hired by the lender.

Daphne Reaume of Berk & Moskowitz, P.C. argued the appeal for the buyer/borrower. For a PDF of the court’s decision, visit www.berkmoskowitz.com/documents/CV080331.pdf .