In the two weeks leading up to Thanksgiving Day, the FDIC sued 29 individual residential appraisers and a rafter of mortgage brokers in 12 separate lawsuits. All of the appraisers sued in this round reside in California — in the last three years, the FDIC has so far sued a total of over 150 appraisers and appraisal firms about appraisals in AZ, CA, FL, GA, IL, IN, MD, MI, MN, NV, NY, SC, TX and UT. In addition, the FDIC has identified approximately 350 additional appraisers as having delivered negligent appraisals to the two AMCs it has sued.
The FDIC’s complaints against the 29 most recent defendant appraisers uniformly allege that the appraisers were professionally negligent by overappraising the value of properties securing loans by failed Downey Savings in 2004-2007. The average claim against each appraiser is $314,674, which is the amount claimed as damages by the FDIC for unpaid principal, interest, late charges, foreclosure costs and other fees on each nonperforming loan. The complaints concern both origination and review appraisals and include both supervising and trainee appraisers as defendants.
One of the recently sued appraisers has now been sued twice by the FDIC. This is the third appraiser to be sued twice by the FDIC within the last year. Another of the defendant appraisers was previously identified by the FDIC as having provided allegedly faulty appraisals for WaMu through the AMCs sued by the FDIC in separate lawsuits. Issues like these are starting to cause liability issues for AMCs in connection with current appraisal work because a few lenders have indicated they expect AMCs to identify appraisers accused of such negligence.
All of the defendant appraisers had applied for and been accepted by Downey Savings for its approved appraiser panel, according to the FDIC’s complaints:
The FDIC has not sued any former appraisal officers or managers of Downey Savings. The FDIC has sued officers of other failed lenders for negligently managing the appraisal process, but it has not yet sued any chief appraisers.
Some of the allegations of negligence against the defendant appraisers suggest that the FDIC is seeking to hold appraisers liable for things most appraisers would not normally expect — such as failing to provide analysis of whether the appreciation of a comparable sale “was sustainable or the product of real estate speculation.” Here, for example, are the FDIC’s claims about how one appraiser was allegedly negligent in connection with an appraisal delivered at the height of the California real estate market in 2006:
Based on those allegations, the FDIC seeks $254,000 against the appraiser. In the allegations below from a different complaint, the FDIC is blaming the appraiser for failing to indicate that “the market was possibly slowing” at a certain price level in 2005 based on one of the selected comparables having been on the market for 91 days: