Today, four years after New York’s then Attorney General Cuomo filed his state’s lawsuit against First American eAppraiseIT (now part of CoreLogic), the New York Court of Appeals (the state’s highest court) heard eAppraiseIT’s appeal of the trial court’s denial of its motion to dismiss. eAppraiseIT’s argument on appeal, as it was to the trial court, is that New York is preempted by federal savings and loan laws and regulations from pursuing state law claims against appraisal management companies (AMCs) in state court. The trial court’s denial of the motion to dismiss was previously upheld by the lower New York appellate court. The Court of Appeals’ ultimate decision can’t be predicted based on the questioning during oral argument today. In the meantime, any future trial of the case will remain stayed until a final decision by the Court of Appeals.
This preemption issue is a holdover from the era of non-regulation of AMCs pre-Dodd-Frank. Now that states have expressly been given the mandate to regulate AMCs under Dodd-Frank, no plausible preemption argument would exist in cases like this asserting the same legal claims against AMCs about current appraisals for federally regulated lenders.
One interesting point came when the NY deputy attorney general made statements to the effect that: AMCs rose to prominence in residential appraising because of FIRREA and, paraphrasing, “appraisal management companies are largely responsible for the current mortgage crisis.” Those statements don’t recognize that it was actually Cuomo’s HVCC that led to the greater use of AMCs and that AMCs only handled approximately 20-30% of appraisals pre-HVCC. Regardless, whether the appraisals were delivered by appraisers working for AMCs or not, it’s a stretch to contend that faulty appraisals were a predominant cause of the crisis.
At this point, the case is pretty irrelevant to the future of appraising and AMCs. Its only material relevance will likely be to any financial liability of CoreLogic and any collateral effect in other litigation involving the company.
Full copies of the original complaint filed in 2007 and the Appellate Division’s (the lower level appellate court) June 8, 2010 opinion can be found here.