Alleged faulty appraisals have the Federal Deposit Insurance Corp. looking to the courts to recover more than $150 million in losses on loans from a failed bank. But the defendant, an appraisal management company, claims it was mostly reviewing appraisals completed by other firms.
The appraisals were performed for Washington Mutual Bank by LSI Appraisal LLC between June 2006 and May 2008.
The FDIC, which was named receiver of the bank when it failed in 2008, is zeroing in on just 220 reports.
LSI parent Lender Processing Services Inc. said in a public filing that the lawsuit was filed Monday in U.S. District Court for the Central District of California. The FDIC hopes to recover $154,519,000 as a result of losses suffered from the appraisals.
“The FDIC contends these losses were a direct and proximate result of the defendants’ alleged breach of contract with WaMu and alleged gross negligence of the defendants with respect to the provision of certain services by LPS’s subsidiary LSI Appraisal LLC, an appraisal management company,” the filing stated.
LPS, which first warned of the potential litigation last week, said the FDIC claims that the AMC’s services failed to conform with federal law, state law and regulatory guidelines. It also allegedly violated other industry standards, including provisions of the Uniform Standards of Professional Appraisal Practice.
The mortgage service provider explained that it provided only appraisal reviews on three-quarters of the reports identified by the FDIC. Those appraisals were performed by unrelated companies.
“For all appraisals subject to this complaint, LPS believes there is no basis for a claim that LSI engaged in ‘gross negligence’ or breach of contract related to these appraisal services,” the filing stated. “A review, by definition, and as originally agreed to by LSI and Washington Mutual, is not a product to be used for assigning a value to a property.”
LSI claims that its appraisers meet industry standards and undergo well-documented and rigorous evaluations.
The losses, according to LSI, are the result of bad underwriting, high defaults and a struggling economy and not because of its reports.
“LPS contends that the services LSI provided satisfied the terms and conditions of its contract with WaMu and were not performed with gross negligence,” the filing concluded. “LPS stands firmly behind the integrity of the services it provides to the mortgage industry and intends to vigorously defend itself against these allegations.”
