Appraisal, Modification and Foreclosure Lawsuits Soar

DALLAS — (Aug. 24, 2009) A surge in litigation tied to real estate appraisals, loan modifications and foreclosures contributed to a 54 percent increase in mortgage-related lawsuits, according to the Second Quarter Mortgage Litigation Report from MortgageDaily.com. Investor litigation continued to be the busiest category.

The analysis, based on active cases covered by MortgageDaily.com, was prepared in conjunction with the law firm of Patton Boggs LLP, which is known as a leader for its work in mortgage banking litigation.

During the second quarter, 125 cases were tracked, jumping from an already active 81 first-quarter cases. Second-quarter 2008 actions numbered just 42.

Leading the pack were modification cases — which jumped to 22 from none tracked in the first quarter. Much of the activity was tied to actions against modification firms. The increase in cases coincided with the launch of the Obama administration’s Home Affordable Modification program.

Also surging were foreclosure cases, which jumped to 26 actions from just 12.

Investor lawsuits and class actions continued to dominate mortgage-related litigation, rising to 31 cases from 21 in the first quarter. However, as the stock market has recently recovered, third-quarter investor litigation appears to be easing.

Second-quarter appraisal lawsuits increased to 11 from two in the prior period. Appraisal-related activity grew just as the Home Valuation Code of Conduct was implemented.

“Tracking consumer litigation cases like those identified by MortgageDaily.com can help companies identify litigation and regulatory trends,” stated Pat McManemin with Patton Boggs. “This is a great way for industry members to mitigate against potential risks affecting products and services.”

The table below includes the most active categories.