What Is the Statute of Limitations for Suing about an Appraisal?

The most common search question by appraisers and appraisal management company personnel that leads to the Appraiser Law Blog is some form of: "What is the statute of limitations for suing about an appraisal?"

Because this is so frequently misunderstood by appraisers, let me say this first: the relevant time period for suing an appraiser or AMC about an allegedly bad appraisal has nothing to do with USPAP's minimum 5-year record keeping requirement.  Don't throw those workfiles away!

So what is the time period for suing about an appraisal?  The time period varies by state and by the precise claim asserted, ranging from 1 year in Kentucky to 10 years in Rhode Island, and further depends on whether the "discovery rule" will apply.  So, it takes a 50-state chart to answer the question completely.  Appraisers and AMCs (who are in the same boat with appraisers when it comes to lawsuits) have access to such a chart at www.readimember.org (registration is required and subject to approval by READI).


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The Mysterious "Notice of Claim" to Appraisers Relating to FDIC Lawsuits

This post is for appraisers who have received a document entitled "Notice of Claim -- Appraiser" relating to lawsuits filed by the FDIC (see example to left).

We have received multiple reports from appraisers and defense counsel about the mysterious "Notice of Claim."  The notices are so far nearly identical and state that the FDIC has filed a lawsuit for damages against one of two AMCS (either CoreLogic-eAppraiseIT or LSI Appraisal) based on one or more of the recipient appraiser's appraisals and that the appraiser may be the subject of claims for negligence by one of those AMCs or by another party. The notices further direct the appraiser to report the notice to his or her E&O insurance carrier.  The notices then attach the first page of a lawsuit complaint filed by the FDIC, a list of appraisers who are identified as having provided allegedly negligent appraisals in that lawsuit, and a "key" to the alleged appraisal deficiencies (these two documents come from the lawsuit complaints filed in court as well).  The notices do not identify who is sending them.

If you've received one of these notices, please read on below.  For a general update on FDIC appraiser claims, others may want to read: "An Update on FDIC Claims Relating to Appraisals."


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An Update on FDIC Lawsuits Relating to Appraisals and a Chart of Target Appraisers' Locations

Update on the update: May 19, 2012 - in the last week, the FDIC sued approximately 20 more appraisers as the receiver for BankUnited in a last-minute rush to file the actions before the deadline for its negligence claims relating to that failed bank.  The appraisers affected by these new lawsuits are in New York, Pennsylvania, New Jersey, Washington, California and Florida.  All of the appraisals were performed for mortgage brokers.

In 2011, the FDIC filed its highest number ever of lawsuits naming appraisers as defendants.  So far in 2012, the FDIC's pace for suing appraisers has slowed, but that may change as the relevant statutes of limitations approach for several large lenders that failed in 2009.  (READI members can read about statutes of limitations and how they differ for the FDIC in "What Is The Statute of Limitations for a Lawsuit Against an Appraiser in My State?")

Since January 1, 2007, the FDIC has sued or identified in court documents approximately 500 individual appraisers for allegedly negligent appraisals.  Of these, approximately 165 individual appraisers and appraisal firms have been named as defendants and the remainder identified as negligent by the FDIC in its lawsuits against other defendants, such as bank officers and directors and appraisal management companies. 

In the last 5 years, the FDIC only has sued fee appraisers for one thing: over appraisal of subject properties.  Most typically, the FDIC has alleged that the appraiser's opinion of value was inflated because the appraiser selected inappropriate comparable sales (to use the FDIC's own words:  "more than one mile from the subject property").  For examples of allegations in recent FDIC lawsuits see "What Is the FDIC Suing Appraisers About?"

A few appraisers have now been sued or identified as negligent in multiple actions by the FDIC -- in other words, some have been sued twice for different appraisals, some have been identified as negligent for different appraisals in more than one lawsuit naming other defendants, and some are subject to both of those issues.  Though suing or identifying approximately 500 appraisers as allegedly negligent in its lawsuits, however, the FDIC has not, as a general rule, filed any complaints against appraisers with state appraiser regulators. Rather than pursue discipline, the FDIC almost uniformly only sues for monetary damages.  The average damage amount claimed by the FDIC in relation to an allegedly negligent appraisal exceeds $450,000.

The chart below shows the city and state of each appraiser sued or publicly identified by the FDIC as allegedly negligent since January 1, 2007.  In a few instances, I've changed the names of smaller cities/towns to more general descriptions. 

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FDIC Sues Bank Officers and Directors for, in Part, Failing to Heed Chief Appraiser's Advice

Can chief appraisers and other managerial appraisers at banks be sued for failing to fulfill their responsibilities with regard to oversight of the bank's appraisal functions?  Yes, they can and have been sued.  The types of actions they have been named in range from fraud actions by private plaintiffs, to whistleblower suits by other employees, to cases filed by government agencies after a bank's failure.

Has the FDIC sued any chief appraisers in the current spate of bank failures that began in 2008?  No.  Not yet.  While some chief appraisers or other managerial appraisers have captured the investigative attention of FDIC attorneys, the FDIC has not named any as defendants in any of its 490+ lawsuits since January 1, 2008.  In fact, so far, the FDIC actually has blamed a few failed banks' officers and directors for disregarding advice or information supplied by chief appraisers.  This new case provides a recent example.


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Court Permits Negligence Claims to Go Forward in Gibson v. Credit Suisse and Cushman & Wakefield

One case that cannot be ignored on something called the Appraiser Law Blog is Gibson, et al. v. Credit Suisse, Cushman & Wakefield, et al.  Even though the plaintiffs' claims in my view just amount to buyer's remorse following a deflated real estate price bubble, the case needs to be recognized because:

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What is the FDIC Suing Appraisers About? Some Examples of the FDIC's Specific Allegations

The FDIC continues to sue residential appraisers in connection with origination appraisals and review appraisals performed for failed lenders between 2003-2009 on loans now in default.  It may be helpful, or scary, for appraisers and AMCs to see for themselves exactly what kinds of alleged USPAP violations or other errors the FDIC is claiming in lawsuits against appraisers.  Therefore, I have copied below the FDIC's actual allegations against several appraisers.  These are word-for-word the entirety of the FDIC's claimed errors against these appraiser defendants.  Please don't shoot the messenger.  I'm a lawyer, not a USPAP expert, but even I know some of these things aren't really "USPAP violations" despite the FDIC's allegations.

The FDIC's favorite alleged "USPAP violations" or other alleged errors in its most recent cases have been:

• "USPAP required that [the appraiser] analyze whether the level of appreciation was sustainable;"
• The comparable is "more than one mile from the subject property;" and
• The comparable "involved a sale that was more than six months old."

Even though the complaints filed by the FDIC in court are all public documents, I've chosen to conceal the appraisers' names because I don't think the focus should be on who they are -- they could be any of tens of thousands of appraisers who delivered appraisals to failed lenders now under FDIC receivership.

Again, the portions of the FDIC's complaints I've provided below are word-for-word the entirety of the FDIC's claimed errors in the lawsuit complaints against these appraiser defendants.  In other words, I'm not cherry-picking from the FDIC's allegations or taking them out of context.  (In fact, if we looked at the full context of the loan transactions in these lawsuits, the complete stories involve borrower and mortgage broker misrepresentations about occupancy, employment and income.)

1.  FDIC v. Appraiser (in Black):

In this 2011 case, the FDIC sued the appraiser for alleged professional negligence relating to appraisals for two loans extended in 2005.  The FDIC demanded $518,000 in damages against the appraiser.  Below are the FDIC's allegations about the alleged errors in one of the appraisals:


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Appraiser Liability Prevention Resources

Listed below are 10 of the most popular written resources on READI's site www.readimember.org.  The materials contain analysis and information that cannot be found elsewhere on the internet or in print.  We are able to share more detailed information there than we can in a public setting, such as this blog, because access to READI's materials is limited to persons with a legitimate interest in READI's liability prevention mission.

Appraisers and appraisal firms insured by LIA www.liability.com have access to READI's resources.  Subject to approval, others may join READI for access to most resources by following the registration procedure explained on the site. READI is free.

1.  What is the Statute of Limitations for a Lawsuit Against an Appraiser in My State?

. . . the chart below identifies the relevant time period for a professional negligence claim against an appraiser in each state, provides the statutory basis for that time period, and indicates whether courts in that state will likely apply a “discovery rule” to a claim. . .

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FDIC Filing MBS Lawsuits Based on Appraisal Defects as Determined by AVMs

The FDIC has joined the fray of mortgage backed securities (MBS) litigation as a plaintiff.  In one of several MBS-related legal actions, the FDIC recently sued Countrywide Financial and Bank of America in connection with poorly performing MBS held by failed Security Savings Bank.  The FDIC filed this particular lawsuit in state court in Clark County, Nevada on February 24, 2012.  Countrywide and BofA have since removed the action to federal court.  It's among the first that the FDIC has filed as a plaintiff.  It has inherited other cases after plaintiff banks failed.

The FDIC's complaint in this case is virtually identical to the dozens of other MBS complaints against mortgage originators and aggregators filed by pension funds, insurance companies, banks and other MBS investors. The newsworthy point here is that the FDIC is deciding to join in this litigation boondoggle and is doing it exactly in the same way as many "civilian" MBS investor plaintiffs.  For the appraisal industry, it's also worth observing that the FDIC is using the same retrospective AVM model as the other MBS plaintiffs to claim the appraisals at issue were flawed and failed to comply with USPAP.

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