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Appraisal Firms Litigate and Defend

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A trio of lawsuits previously filed on behalf of a failed bank against national appraisal firms have seen mixed decisions by the courts. Two other lawsuits filed by appraisal firms against two big mortgage firms unsuccessfully alleged that being removed from the lenders’ approved appraisal lists damaged their businesses.

Capital West Appraisals LLC appealed a decision by the U.S. District Court for the Western District of Washington to dismiss its second amended complaint against Countrywide Financial Corp. The complaint alleged violations of the Racketeer Influenced and Corrupt Organizations Act. Capital West was the lead plaintiff in the diversity action brought under the Class Action Fairness Act of 2005.

Countrywide reportedly maintained an “unacceptable vendor list” that included Capital West and its owner, A. Wade Massey. The plaintiffs alleged that being on the list caused damage given Countrywide’s standing as the country’s biggest lender. The Bank of America Corp. subsidiary claims the appraisal firm prepared three bad Idaho appraisals.

But the U.S. Court of Appeals for the Ninth Circuit affirmed the decision, noting that Massey and Capital West continue to provide appraisal services.

In November 2007, New York’s attorney general sued eAppraiseIT LLC and parent the First American Corp. alleging the company conspired with Washington Mutual Inc. to produce fraudulent appraisals.

On Nov. 22, 2011, the court ruled that New York can proceed with its lawsuit because federal law does prohibit a state action.

A week earlier, the judge in another lawsuit filed in U.S. District Court for the Central District of California by the Federal Deposit Insurance Corp. on behalf of WaMu against CoreLogic Valuation Service — the successor company to eAppraiseIT — dismissed four of the FDIC’s six claims.

“The FDIC filed its complaint on May 9, 2011, alleging that eAppraiseIT was grossly negligent and breached its contract with WaMu in the provision of appraisal services in 2006 and 2007 relating to 194 residential mortgage loans and seeking to recover $129.0 million in purported losses that WaMu allegedly suffered,” CoreLogic said in a filing with the Securities and Exchange Commission. “The FDIC complaint also asserted claims against eAppraiseIT’s parent corporations, including the company, pursuant to alter ego, single business enterprise and joint venture theories of liability.”

A similar lawsuit was filed on May 10, 2011, by the FDIC in the same California federal court against Lender Processing Services Inc. That case alleged that WaMu suffered $154,529,000 in losses as a result of LPS’ bad appraisals.

The judge in the LPS case issued an order on Nov. 2, 2011, limiting the FDIC’s claims to breach of the contract and granting LPS’ motion to dismiss the regulator’s claims of gross negligence, single business enterprise and joint venture claims.

“With respect to the limited remaining breach of contract claim, the company maintains that the appraisal outsourcing services agreement between LSI and WaMu clearly specifies a $10,000 per claim limitation of liability,” LPS said in an SEC filing. “The company is confident that it will ultimately prevail on any remaining breach of contract claim.”

Sound Appraisal and Savage Appraisal Services Inc. appealed the dismissal of their lawsuit against Wells Fargo Bank and Rels Valuation. The trial court cited the plaintiffs’ failure to state a claim.

Wells was accused of violating California common law duty of fair procedure because it took the appraisers off its approved list. But the U.S. Court of Appeals, Ninth Circuit, affirmed the decision, noting that the plaintiffs claimed that Wells and Rels were among the biggest in the industry but failed to allege that either the bank or the appraisal management company controls a significant percentage of the appraisal market or that their removal from the approved appraiser list significantly impaired their ability to practice.

“Because the appraisal companies allege no facts that would demonstrate that Wells Fargo and Rels have substantial power over the appraisal market, nor any facts that would show that the appraisal companies themselves were substantially impaired by their suspension from the approved appraiser list, their fair procedure claim fails,” the decision stated. “Their conspiracy claim therefore necessarily fails as well.”

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