Thursday, April 28, 2011

Ohio Supreme Court Affirms Judgment in Favor of Appraisers on OH Statute of Limitations

As discussed in an earlier post, Flagstar Bank recently appealed two cases to the Ohio Supreme Court that Flagstar lost against appraisers at the trial court level based on Ohio's statute of limitations.  Under Ohio law, the statute of limitations for most professional liability actions like those against appraisers is four years from -- basically -- the date of the appraisal.  The law on this issue is very different in Ohio as compared to most other states.

Flagstar's argument in the appeal was essentially that the Ohio statute of limitations applicable to appraisers and similar professionals should be subject to the "discovery rule" -- meaning that the four-year statute of limitations period in which to sue an appraiser under Ohio law should start running from when Flagstar discovered the alleged appraisal problems and the full extent of its alleged damage, not from when the appraisal was delivered.  The "discovery rule" is applied in most other states to these types of claims and it sometimes results in what is almost an unlimited statute of limitations period because lenders and other parties usually contend they never discovered the alleged flaw in an appraisal until years after the appraisal when a default or foreclosure has occurred.

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Wednesday, April 27, 2011

Indemnity 101: Educational Article for LIA Insured Appraisers and READI Members

"We field many questions from appraisers about contractual indemnification clauses. The purpose of this article is to give appraisers an understanding about what indemnification is and how it works. Though indemnification clauses are not new to contracts in the appraisal industry, they have become more widespread in the last several years. As the mortgage crisis has unfolded, businesses in the industry have become more keenly aware of their liability risks and more likely to try to shift such risks by using indemnification provisions. As a result, both residential and commercial appraisers need to be prudent about what they agree to with regard to indemnification in their various agreements.

Before we consider some indemnification clause examples from actual appraiser agreements, let’s answer two basic questions:"
This article is now available to LIA insured appraisers and READI members at  Free registration and membership in READI are required to access that material and other articles/reviews because we seek to limit access to the information to our insureds and fee appraisers with a sincere interest in loss prevention.  Information about how to register with READI is available at
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Friday, April 8, 2011

Some Appraiser E&O Policies Now Exclude FDIC or Other Regulatory Agency Claims

Note: this post has been updated since it first appeared.  Appraiser E&O policies are changing rapidly in the present litigation environment and an appraiser's policy terms may change from policy year to year.  This may be the first year that some appraisers see an FDIC exclusion in the policies they purchase.  At this time, no policies issued by LIA contain FDIC exclusions and I believe no policies from Intercorp and FREA contain such exclusions either.  Here are a few examples of what to look for with respect to FDIC exclusions in various policies:

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Thursday, April 7, 2011

Does the FDIC Sue Supervising Appraisers? Trainees? Review Appraisers?

We are often posed these questions by appraisers at our loss prevention CE seminars:  will the FDIC sue an appraiser who "only" signed an appraisal report as a supervisor?  Will the FDIC sue a trainee or former trainee?  Will the FDIC sue a review appraiser?

These are easy questions to answer.  The FDIC has sued and threatens to sue supervising appraisers, trainees and reviewers.

The highlights shown below from a 2010 FDIC lawsuit it filed as receiver for Downey Savings and Loan answer the questions in a single complaint because in this case, the FDIC sued all three: supervisor, trainee and reviewer (none of whom were our insureds).  What makes this case more worrisome, however, is that the 2005 origination appraisal for a loan that later went into default was easily proved to be a forgery -- but the supervisor and trainee who signed that report were forced to spend their money defending themselves to prove it.

The amount of damages alleged by the FDIC and which the FDIC demanded from the appraisers was $291,000 plus interest "at the maximum rate allowed by law."

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Tuesday, April 5, 2011

A Serious Warning for Appraisers and AMCs/Lenders about E&O Insurance

Some new E&O insurance policies being marketed to appraisers pose serious liability risks to appraisers and to the lenders and AMCs that hire them.  No one can deny that appraisers, lenders and AMCs are the subject of record levels of appraisal liability claims.  The most frequent source of claims as a group continues to be financially troubled borrowers, who collectively account for more than 50% of appraisal-related claims, and most claims continue to relate to appraisals delivered between 2004-2008.

The reaction to this crisis by a few E&O insurance providers has been to pull back from the risk faced by appraisers and limit appraisers' coverage.  This reaction is exposing many appraisers and the parties who hire them to risks for which the appraisers have no coverage.  In the most extreme example, the Five Star Appraisers E&O program and certain underwriters at Lloyd's of London decided in late 2010 that they would not renew any insurance policies for appraisers who needed coverage for appraisal work they did in the past (aka "prior acts") and discontinued their existing policy.  Instead, appraisers are offered the chance to purchase a new "no frills" policy which does not cover any of the appraisers' "prior acts" before the date of the new policy.  This means that appraisers who choose this policy have no coverage under that policy for any appraisal work they have done in the past.

Some appraisers have actually moved from policies which covered their prior appraisal work to this new policy offered by Five Star.  In most cases, this means that these appraisers have lost insurance coverage for their prior appraisal work. Even if they move to another insurance provider now, they will not be able to obtain coverage for work prior to the date in their new Five Star policy.

The new Five Star/Lloyd's policy is cheap -- and can be cheap -- because it provides no coverage for most of the claims that appraisers are now experiencing.  If LIA applied the same policy terms to the appraisers LIA insures, I estimate that 98% of the claims it currently receives from appraisers would not be covered under the Five Star policy terms.  Some appraiser publications are accepting advertising for this new policy (see example ad at right).

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