Appraisal Scoop

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 .

Shareholders File Class Action Suit Against eAppraiserIT / WaMU For "Requesting" Artificially Inflated Appraisals

SANTA ANA, Calif. (CN) - First American Corp. provided 260,000 false and inflated appraisals to Washington Mutual in the past 2 years, inflating its own share price through false and misleading statements, according to a shareholder derivative class action. The class claims First American did this through its subsidiary, eAppriaseIT.

The class claims WaMu was eAppraiseIT's largest customer. Plaintiffs claim that Santa Ana-based

"eAppriaseIT, at Washington Mutual's urging, provided materially false and inflated appraisals for properties where Washington Mutual sought to originate a mortgage. This enabled Washington Mutual to engage in real estate mortgage transactions that would otherwise have been untenable had the property at issue been correctly appraised.

Senior executives at First American were aware of and willing to accommodate the request to falsify appraisals. Washington Mutual's competitive place in the market and profit were driven in large part by the number of mortgages it issued based upon artificially inflated appraisals issued by eAppriaseIT."

The complaint adds: "On Nov. 1, 2007, the New York Attorney General filed a complaint alleging that beginning in Summer 2006, Washington Mutual put pressure on eAppriaseIT to increase the appraised value of homes. ...

Defendants' improper appraisal practices during the relevant period [April 26, 2007 to the present]:

1.  rendered the company's statements about its compliance with ethical and legal guidelines materially false and misleading;

2.  rendered defendants' statements about the adequacy of the company's internal controls materially false and misleading;

3.  caused certain of the company's reported financial information, including revenues associated with home appraisals, to be materially overstated throughout the relevant period;

4.  caused the company's loan loss reserves, provisions for doubtful account and contingent liabilities to be materially understated during the relevant period; and

5.  caused defendants to report financial results that were in violation of GAAP."

 Plaintiffs are represented by lead counsel Glancy, Binkow & Goldberg of Los Angeles.

Source Document - Click here

Article Source:  Courthouse New Service

Class Action Suit Says Wells Fargo, "Rels Valuation" Illegally Strong-arm Appraisers

First appraiser suit against Wells Fargo and Rels claims companies blacklist appraisers.

SEATTLE – Today two real-estate appraisers filed a proposed class-action lawsuit against Wells Fargo (NYSE: WFC) and Rels Valuation, an appraisal management service, claiming the two organizations pressured and intimidated appraisers to deliver artificially inflated home appraisal values to help close loans and increase profits.

The suit, filed in U.S. District Court in San Francisco under the Racketeering Influenced and Corrupt Practices Act (RICO), claims that beginning in 2004 Wells Fargo and Rels colluded to punish appraisers who refused to inflate appraisals by denying them future appraisal work.

Rels is one of the largest appraisal management companies in the country, acting as an intermediary between banks and appraisers. Appraisers, by law, are intended to be independent and autonomous from the influences of others, but according to the complaint are compelled to do the bidding of Rels, and through them Wells Fargo.

“We plan to show Rels effectively tells the appraisers what they want to see in the valuation, and if they don’t deliver, they are locked out of future work,” said Steve Berman, the attorney representing the plaintiffs and managing partner of Hagens Berman Sobol Shapiro.

According to Berman, Rels provides the appraiser with a predetermined figure called the ‘Borrower Estimated Value’ and expects the appraisers to deliver reports with values exceeding the Rels-supplied figures.

“We heard from appraisers who say that after providing bona-fide appraisals that come in below what Rels wants, the company contacts them and strongly suggests they reevaluate the property,” Berman noted. “If an appraiser refuses, we contend Rels simply refuses to use them again.”

Don Pearsall and Timothy Savage both claim Wells Fargo tried to strong-arm each of them into inflating appraisal values, violating the laws and regulations of the Uniform Standards of Professional Appraisal Practice (USPAP). The USPAP rules clearly state an appraiser must not accept an assignment that includes the reporting of predetermined opinions and conclusions - something the lawsuit claims Rels does on a regular basis.

According to the compliant, Rels and Wells Fargo have given appraisers predetermined comparable properties to base appraisals, further compromising the appraisers’ independence.

Plaintiff Pearsall, a long-time appraiser, completed an appraisal for Wells Fargo and Rels in 2007. After submitting his report, Rels asked that he alter the report to reflect the company’s desired views on the property.

After refusing, the suit claims Rels blacklisted Pearsall, stripping him of a large portion of his income.

Timothy Savage, an appraiser in Vail, Colorado, also submitted two appraisals to Rels in 2009, which the company rejected, asking him to increase the appraisal values. After refusing, Savage received a letter from Rels informing him that he is no longer included on the approved panel of appraisers, the suit claims.

“We’ve heard from appraisers across the country sharing similar stories - bullied into inflating prices and blacklisted when refusing,” Berman added. “Apparently the treatment that both Tim and Don experienced is the same for hundreds, if not thousands of appraisers.”

The lawsuit seeks to represent all state-licensed or state-approved appraisers nationwide who’ve been removed as an approved appraiser by Wells Fargo or Rels Valuation. The suit asks for treble damages and is the first lawsuit filed on behalf of appraisers against Wells Fargo and Rels.

You can learn more about this case by visiting www.hbsslaw.com/appraisers . If you’ve performed appraisals for Wells Fargo or Rels Valuation and been blacklisted, you can also contact attorneys at wfc@hbsslaw.com.

Click here for the filed suit.

About Hagens Berman Sobol Shapiro

Hagens Berman Sobol Shapiro is based in Seattle with offices in Chicago, Boston, Los Angeles, Phoenix, San Francisco and New York. Since the firm’s founding in 1993, it has developed a nationally recognized practice in class action and complex litigation. Among recent successes, HBSS has negotiated a pending $300 million settlement as lead counsel in the DRAM memory antitrust litigation; a $340 million recovery on behalf of Enron employees which is awaiting distribution; a $150 million settlement involving charges of illegally inflated charges for the drug Lupron, and served as co-counsel on the Visa/Mastercard litigation which resulted in a $3 billion settlement, the largest anti-trust settlement to date. HBSS also served as counsel in a $850 million settlement in the Washington Public Power Supply litigation and represented Washington and 12 other states in lawsuits against the tobacco industry that resulted in the largest settlement in the history of litigation. For a complete listing of HBSS cases, visit www.hbsslaw.com .

The Appraisal Bubble - In Run Up to Real Estate Bust, Lenders Pushed Appraisers To Inflate Values

The Appraisal Bubble, by Joe Eaton - reprinted by permission of The Center for Public Integrity

In 2004, years before plummeting real estate values turned Fort Myers, Florida, into a top five foreclosure capital, appraiser Mike Tipton faced a dilemma.

Tipton’s employer, eAppraiseIT, sent him to value a two-bedroom home in a new subdivision built by the developer D.R. Horton. Paperwork given by the appraisal management company to Tipton included a $245,000 estimated value.

But after inspecting the home and comparing it to five similar houses that had recently sold, Tipton set the value at $237,000, $8,000 less than the estimate. He knew the difference might disappoint DHI Mortgage, the prospective buyer’s lender, which is a subsidiary of developer D.R. Horton. And indeed it did.

The lender, in a process appraisers say was common in the boom days before the housing bubble burst, asked Tipton to redo the appraisal. It sent paperwork through eAppraiseIT asking him to reconsider the value. It gave him different homes to use for comparisons.

“If you read between the lines, they wanted a larger value,” Tipton said. “I told them no, I wasn’t changing my report.”

Tipton, who like many other appraisers is paid by the job, says he was never given another appraisal for a D.R. Horton home. “All I can say is D.R. Horton has remained an active developer in Lee County,” Tipton said. “I didn’t see any further appraisals for DHI Mortgage. So you tell me.”

Carrie Gaska, a spokeswoman for First American eAppraiseIT, declined to comment on why Tipton received no further orders from the company for DHI Mortgage properties.

Tipton is among dozens of appraisers who have told the Center for Public Integrity that for years lenders across the United States have pushed them into inflating the value of homes to justify higher mortgages. Appraisers and lenders alike are demanding better oversight of the industry. In addition, the Center has obtained copies of lenders’ “blacklists” containing the names of thousands of appraisers; some appraisers say lenders used those lists to exclude those who refused to inflate home values.

The Center also found many appraisers who say they bowed to lender pressure to “hit the numbers” in order to remain in business. These appraisers, along with the lenders who pressured them, helped pump air into the housing bubble that led to widespread economic devastation, according to dozens of appraisers, lenders, and others with intimate knowledge of home loan practices.

And there’s evidence that Fannie Mae and Freddie Mac, the two largest purchasers of home loans, bought mortgages without ensuring they were made with accurate appraisals, according to an investigation by New York Attorney General Andrew Cuomo.

No one knows exactly how much of a role inflated appraisals played in the mortgage meltdown. But as an increasing number of homeowners face foreclosure, many remain unaware that the appraisal they paid for during the purchase process may not have reflected the true value of their investment, and may have allowed them to borrow more money than their home was worth.

Depending on the state where the homeowners purchased, the scheme may or may not have been against the law. Pressuring an appraiser to inflate the value of a property is a crime in at least 20 states and the District of Columbia, though it is often a misdemeanor punishable by a fine, a slap on the wrist that appraisers say does little to prevent the exertion of undue pressure.

“There is rampant corruption throughout the industry,” said George Dodd, a veteran appraiser in Virginia who has been advocating for more regulation. “The way it stands now, the public doesn’t stand a chance.”

Dodd said, that in addition to the appraisal ordered by the lender, consumers can protect themselves by ordering a second independent appraisal before a purchase. They will, however, still have to pay for the lender’s appraisal.

Fudging the Numbers

Richard Frank, an appraiser in Vero Beach, Florida, started appraising homes in 1998, when values were climbing. From the beginning, Frank said he stepped into a business arrangement in which lenders forced appraisers to abandon their standards if they wanted work.

Frank said lenders commonly gave appraisers an estimated value for a home on each appraisal order. Appraisers, who usually determine values by comparing homes to recent sales of comparable properties, often worked backwards from that estimated price to find recent real estate sales that would “make the value,” he said. Working backwards from the estimate was faster. Everyone made money. And since appraising homes is subjective — both an art and a science — it was easy to fudge numbers.

“The [supposedly comparable] houses might be bigger and better, but who’s going to know?” Franks said. “In an increasing market, your sins are buried.”

If an appraisal came in lower than the purchase price, the loan likely would be denied. Since loan origination staff is typically paid by commission, a failed deal meant no paycheck for them. If that happened too many times, Frank says, lenders stopped sending the appraiser work. “Put out, and you will get more dates. It’s just that simple,” he said.

Richard Bitner, a former subprime lender in Texas who has written an insider account of the mortgage industry collapse, backs up Frank’s story. Bitner says the pressure came more from the cozy relationship between lenders and appraisers than threats.

“The pressure applied didn’t really need to be overt,” Bitner said. “If suddenly [an appraiser] can’t make the values, at the end of the day, it’s pretty easy to go to someone else. You are here to make money.”

Appraisers say lenders did just that, sometimes asking appraisers to promise a value before they officially ordered the report.

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