Friday, May 27, 2011

Thursday, May 26, 2011

Liability Risks to Appraisers and AMCs Stemming from the Appraisal Provisions of the Dodd-Frank Act

The following article has been published on readimember.org for LIA-insured appraisers and other members of READI.
Liability Risks to Appraisers and AMCs Stemming from the Appraisal Provisions of the Dodd-Frank Act
"The slides below are from a presentation by Peter Christensen regarding liability risks to appraisers and AMCs stemming from the primary appraisal sections of the Dodd-Frank Act. Of the three sections addressed in the slides, only section 1472 (Appraisal Independence) is currently in effect. However, the other two sections 1471 and 1474 are worth discussing and understanding at this time because their provisions relate to current liability issues that appraisers and AMCs face. Please note that these slides were prepared as of May 25, 2011. Future developments and regulations will significantly impact the subject matter presented in these slides. Section 1473 (AMC registration and regulation) is not discussed in this presentation."

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Friday, May 20, 2011

LIA and READI's 7-Hour Free CE Seminar in Juneau, Alaska on June 4, 2011, Following Bill King's 7-Hour USPAP Update and 7-Hour Regulatory Update Seminars on June 2 and 3

On Saturday June 4, 2011, from 8:30 a.m. to 4:30 p.m., on behalf of LIA and READI, I will present our 7-hour appraiser CE seminar Loss Prevention Program for Real Estate Appraisers (AK Appraiser Course No. 9803, also approved for 7 CE hours in WA, OR, TX and WI). The class is free for appraisers meeting the two conditions below and it is the same seminar we gave in Anchorage on March 1, 2011.  It is a 7-hour version of the class we will present at the Appraisal Institute's Annual Meeting in August in Las Vegas.

The seminar addresses current legal claims and issues affecting residential and commercial appraisers. The information is based on actual claims and lawsuits. In addition to the interesting facts involved in many of the cases, the seminar provides specific instruction about how appraisers can reduce problems that lead to lawsuits and how to be prepared if it happens. We will also discuss the spike in FDIC litigation, including its recent cases against CoreLogic and LSI Appraisals, as well as indemnification clauses and other problematic provisions in appraiser contracts. The registered provider of the seminar in Alaska is LIA Administrators & Insurance Services.

Here are some recent comments about the class:

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Tuesday, May 10, 2011

FDIC News: FDIC Sues CoreLogic (eAppraiseIT) and Lender Processing Services (LSI Appraisal) over WaMu Appraisals

(See updates here and here.)

In December, we offered 11 predictions for AMC liability risks in 2011.  Three of the predictions were: #1 -- several AMCs would be sued by the FDIC, #5 -- some AMCs would see their "reps and warrants" come back to bite them, and #11 -- the FDIC would continue to be the single biggest source of appraisal-related claims.  See 11 Predictions for AMC Liability Risks in 2011.  These came true in the last two weeks.

The lawsuits described below against CoreLogic and LSI Appraisal will likely also lead #3 to occur: a few AMCs will endure liability aftershocks relating to litigation by the purchasers of mortgage backed securities.  Purchasers of WaMu packaged mortgage securities -- and likely MBS from other sources -- will almost certainly pursue their own claims against these AMCs.  We may also see consumer class actions attempting to emulate the FDIC actions.


The FDIC's Lawsuit against CoreLogic and eAppraiseIT

On May 9, 2011, the FDIC filed a lawsuit in U.S. District Court (C.D. Cal.) against CoreLogic and various affiliated companies including  CoreLogic Valuation Services, LLC, f/k/a eAppraiseIT, LLC (" eAppraiseIT").  In its complaint, the FDIC alleges that eAppraiseIT supplied potentially thousands of improper appraisals and that eAppraiseIT was grossly negligent in the provision of appraisal services in 2006 and 2007.  According to the complaint, the FDIC has sampled 259 appraisals out of the thousands at issue and alleges that 194 (or 75%) of them "contain multiple egregious violations of USPAP."  Keep in mind that many so-called "forensic reviews" obtained by entities making appraisal liability claims, including the FDIC, are often pieces of advocacy, riddled with their own problems and supplied by other AMCs. Nevertheless, just based on those 194 allegedly flawed appraisals, the FDIC says that eAppraiseIT is responsible for more than $129 million in losses that WaMu allegedly suffered -- presumably, the damages sought by the FDIC could be much higher when the FDIC reviews more appraisals.  A few sample allegations from the FDIC's complaint are attached to the right. 

The FDIC's allegations appear closely related to the issues in the 2007 case filed in New York state court by then-NY Attorney General Cuomo against eAppraiseIT.  That case is still being litigated -- most recently, the New York court denied a motion for summary judgment by eAppraiseIT as discussed in this prior post here.

How is it that the FDIC can be suing about appraisals delivered 5 or more years ago?  First, when the FDIC sells off the assets of a failed lender for which it has been appointed receiver, the FDIC typically retains for itself the right to claims against parties like professionals and officers and directors whom it can blame for losses of the failed lender.  The standard language included in FDIC asset sale agreements is shown to the right.   Second, under its interpretation of the Federal Deposit Insurance Act, the FDIC receives an extension of any state statutes of limitations -- an additional three years for tort claims (e.g., negligence) and six years for breach of contract claims, running from the date of the FDIC's appointment as receiver.

The FDIC's Lawsuit against LSI Appraisal and Lender Processing Services 

The FDIC also sued LSI Appraisal, its parent corporation Lender Processing Services and various of their affiliates yesterday in the same U.S. District Court.  This lawsuit also concerns appraisals delivered to or managed for WaMu during the same period.  In this lawsuit, the FDIC seeks approximately $154 million in damages, but these alleged damages only relate to 220 specific appraisals or review appraisals supplied by LSI between June 2006 and May 2008  -- the FDIC says it has only sampled 292 so far (of course, the ones sampled would only be for loans that have defaulted).  The FDIC suggests in its complaint that there could be thousands more appraisals at issue.  Indeed, the FDIC alleges that LSI supplied or managed more than 386,000 appraisals for WaMu during the relevant time period.

A sample of the FDIC's allegations in the complaint against LSI Appraisals is attached above.  The full text of the complaint is available here on appraiserlaw.com.   


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