Tuesday, March 30, 2010

Appraiser Blacklist Class Action Updates: Rels Valuation and Landsafe

A law firm press release almost always coincides with the filing of a new class action complaint.  It generally serves as publicity for the law firm and as a way to attract assistance from potential class members and other potential cases.  And, then most times, you don't hear much about the case for a very long time.  When the plaintiffs' class action firm Hagens Berman Sobol Shapiro LLP filed class actions with appraisers as putative class members against two large lenders and their affiliated AMCs, the filing of each lawsuit was accompanied by a press release -- release about Landsafe lawsuit and release about Rels Valuation lawsuit.  Since then, there hasn't been very much news.

The allegations in each lawsuit are very similar: that two lender-owned AMCs allegedly colluded with their affiliated lenders to pressure appraisers to deliver inflated valuations and allegedly punished appraisers who did not cooperate by blacklisting them.  Blacklisting, of course, AMCs is a serious issue for appraisers and many affected appraisers feel they have been unfairly blacklisted based on low quality of review appraisals or other wrong information.  Here is an update on the status of each case -- both cases are on a very slow path toward resolution.

Sound Appraisal v. Wells Fargo Bank and Valuation Information Technology (dba Rels Valuation).  This case was filed on April 14, 2009 in the United States Disitrict Court for the Northern District of California as a class action on behalf of appraisers affected by Rels Valuation's alleged blacklisting practices.  A class action like this has five main phases:
(1) Filing of the complaint and motions to dismiss attacking the sufficiency of the allegations in the complaint -- in other words, if the plaintiff's allegations are presumed to be true, are the allegations enough to support the legal claims?
(2) Discovery and litigation about class certification -- is the lawsuit appropriate for a class action?  Are the alleged claims and damages of the proposed class members similar enough to be litigated together in a class action? If not, then the case becomes an ordinary individual plaintiff lawsuit by the plaintiffs named in the complaint. In my view, it will be challenging for the plaintiffs to certify a class in either of these actions because the potential class member appraisers likely have very different factual histories, different potential claims, and different types and amounts of alleged damage.  Often a decision on class certification is appealed in the middle of the case, but usually without success. 
(3) If a class is certified, discovery proceeds with regard to the allegations and defenses at issue.  In these cases, there would likely be many depositions of appraisers and appraisal managers.  Motions for summary judgment will likely be filed by the defendants at or near the conclusion of discovery.
(4) Settlement or trial.  (5) Appeal.

Almost one year after its filing, the class action complaint filed by Sound Appraisal is at the very first of the five stages.  A motion to dismiss by Rels Valuation is pending before the court.  A short summary of the defendants' arguments for dismissal is stated in Rels Valuation's reply memorandum attached above (first page only) -- the initial complaint in the case and Rels Valuation's complete reply memorandum can be read here.

Capitol West Appraisals v. Countrywide and Landsafe.  This case is pending in the United States District Court for the Western District of Washington (in Seattle).  It is on an even slower pace than the Rels Valuation case.  The initial complaint was filed on October 16, 2008.  Since then, the plaintiff has filed two amended complaints.  Defendants Countrywide and Landsafe filed a motion to dismiss the second amended complaint on January 15, 2010.  For a summary of what is at issue in the motion, you can read the defendants' reply memorandum here.  The motion to dismiss is currently awaiting a ruling by the court.

The above cases are companion cases to consumer/borrower class actions filed against Wells Fargo/Rels Valuation and Countrywide/Landsafe by the same law firm.  The firm filed the borrower class action complaint against Wells Fargo and Rels Valuation in January 2009 -- three months before the appraiser action against the same parties.  The borrower class actions against Countrywide/Landsafe (and KB Homes) involve a number of separate actions filed in different courts.  It appears that the lead case among the group is Johnson v. KB Home/Countrywide/Landsafe in the U.S. District Court for Arizona.  In that case, the essential story is that Countrywide allegedly approved loans for amounts in excess of the subject homes' true values by using Landsafe to push appraisers to deliver higher values.  The court ruled on a motion to dismiss in that case today.  While the Court dismissed some of the plaintiffs' claims entirely under unfair competition law, it permitted plaintiffs' RICO fraud claims to go forward.

My lawyer view is that appraisers should be skeptical that any benefit will come to their profession from the pursuit of these class actions.  I have little doubt that the borrowers have a good chance of victory against the likes of Countrywide and that the appraisers may also prevail in some manner -- simply because that company is viewed as a villain and as a cause of the mortgage crisis.  The plaintiff borrowers also benefit from the fact that Arizona's legal climate favors appraiser liability and because Arizona is an epicenter of the real estate melt down. However, it seems that appraisers offering testimony/evidence to support alleged appraisal inflation claims (either in the appraiser or borrower class actions) and a potential class action court decision will seal the fate that more borrowers will sue more appraisers, including plenty of good appraisers.  We already see individual copy-cat borrower complaints being filed against other lenders and appraisers -- the borrowers are using the lawsuits as foreclosure delay strategies and dragging many good appraisers through litigation with such tactics.

As a non-appraiser, I think a better result may come to appraisers from devoting as much effort into their professional organizations and coalitions, which support professionalism and advocate for legislation and regulation favoring the use of qualified appraisers.  The HVCC was the result of litigation, not legislation, and demonstrates why I think appraisers should be skeptical of letting litigation shape their profession.