Sunday, September 30, 2012

eAppraiseIT Settlement - Is it Over?

Over the past few days the wire services, appraisal blogs and real estate news sites have shared the headline:  

Bullet points from the story include:

* eAppraiseIT accused of inflating home appraisals
* Agrees to pay $7.8 million to end lawsuit
* eAppraiseIT now part of CoreLogic Inc
* NY AG Schneiderman took case to trial
* Schneiderman to bring new mortgage-related action soon

According to the story:
The case, filed in New York state court in 2007, is one of the few related to the housing meltdown that the government has brought to trial. The trial was in recess when the settlement was reached.
Schneiderman is co-chair of the federal mortgage fraud task force formed in January to probe actions that led to the financial crisis. He has said he plans to take legal action against other targets soon.
Homes that were appraised above their value, allowing mortgage companies to issue bigger mortgages, are among the causes cited by experts for the housing bubble and subsequent financial crisis.
EAppraiseIT, a major appraisal management company during the housing boom, was accused of colluding with Washington Mutual, which had been of the largest U.S. mortgage lenders until the housing market collapsed.

Appraiser Active covered the story after the suit was filed by then New York Attorney General, Andrew Cuomo. As a result of the suit, we appraisers have endured the Home Valuation Code of Conduct, and are now struggling under the effects of appraiser independence provisions in the Dodd - Frank legislation.

Does the New York settlement with eAppraiseIT signal the end of the story? Not by a long shot. There are at least two high profile cases involving eAppraiseIT in the system.

In another sign that the Federal Government is turning its focus towards prosecuting the securitization players who may have contributed to the Mortgage Crisis, the FDIC filed separate lawsuits against LSI Appraisal (available here) and CoreLogic (available here) earlier this month.  In the suits, both filed in the Central District of California, the FDIC, as Receiver for Washington Mutual Bank (“WAMU”), accuses vendors with whom WAMU contracted to provide appraisal services with gross negligence, breach of reps and warranties, and other breaches of contract for providing defective and/or inflated appraisals.  The FDIC seeks at least $154 million from LSI (and its parent companies, including Lender Processing Services and Fidelity, based on alter ego liability) and at least $129 million from CoreLogic (and its parent companies, including First American Financial, based on alter ego liability).

The United States District Court for the Northern District of California granted class certification in a mortgage loan appraisal suit alleging defendants conspired to inflate appraisals to increase the sale of loans in the secondary market. 

The Court found that plaintiffs presented sufficient evidence to establish common questions of fact and law, holding that common questions and answers need not uniformly apply to all class members. The Court also found that the analysis of individual appraisal fees would not create individualized issues, but instead would provide additional support for plaintiffs’ claims that an inflated appraisal scheme existed. Finally, the Court also held that the Real Estate Settlement Procedures Act’s treble damages, attorney’s fees and government enforcement mechanisms did not make class action an inferior method of litigation.
The CASE FILE is available at this LINK. More information about the suit, and a means for parties to join the class at this LINK.

Maybe there are more in the pipeline. Let me know if you are aware of additional suits filed in other jurisdictions. It will be interesting to see how these all shake out.