ESA Bankruptcy, Chase Culprit or Victim?
ESA Bankruptcy, Is Chase to Blame or a Victim?
I find myself offering thoughts about many strange and unusual situations involving appraiser E&O and risk management in general, but today may be the strangest subject of all – why it appears Chase did nothing wrong in the ESA bankruptcy case.
Don’t misunderstand this as meaning I like Chase in the slightest. I strongly disapprove of what Chase has done and continues to do to appraisers using blacklisting, strong-arming, and filing state licensing complaints to force its will on the appraisal profession. I find much of what Chase has done as both a lender and loan servicer to be repugnant and highly unprofessional, but in the ESA case the simple fact is Chase is not the culprit. There is no question the ESA bankruptcy filing has left many appraisers high and dry and it appears millions of dollars may have disappeared, but calling on Chase to pay these losses ignores the fact that Chase was also victimized by ESA.
To put it simply, imagine Chase is the owner of a lot and wants to build a house. As the owner Chase goes out and hires a general contractor who promises to build the house. Chase gives the general contractor money and the building starts. Every month, Chase gives more money to the general contractor and the house gets closer and closer to being done. The general contractor has hired many subcontractors to do the actual work building the house and every month the general contractor promises to pay the subs in full…next month. Finally, the house is finished and the owner gets ready to move in only to find there are a dozen subs who never got paid by the general contractor. When the owner and the subs try to reach the general contractor to see what is going on, they find an empty office and a notice of bankruptcy filing. (*)
This is essentially what happened with ESA. Chase (and other lenders) hired ESA to place appraisal orders and ESA placed those orders with many appraisers. It looks like Chase paid ESA every time an appraisal was finished and it now appears ESA pocketed or wasted the money instead of paying the appraisers on time. When Chase, other lenders, and the appraisers started figuring out what was going on, ESA closed and filed bankruptcy.
Now it turns out there may be millions missing and the appraisal community wants Chase to step up and pay the losses. While it may seem like justice to stick Chase with the bill, this is a case of two wrongs not making a right and the mere fact we’d all like to see Chase in pain is not enough justification for asking Chase to pay for ESA’s actions. Unless someone can show Chase either didn’t pay ESA what it owed or knew ESA wasn’t paying its panel and still kept sending in orders to ESA, I don’t see Chase as being liable.
Those who would disagree with this argue ESA was Chase’s agent, but to those who have seen a typical contract between a bank and an AMC there is nothing in the wording which would imply the AMC was anything but a contractor to the bank, completely responsible for running its own business.
So, what is to be learned from this? First, if an AMC offers to pay more than the market average, beware – there are no free lunches. Next, if you are working for an AMC that starts delaying payments you need to stop working and don’t believe any false promises of payment next month. Remember the saying “fool me once, shame on you – fool me twice, shame on me”. Last, but not least, don’t expect anyone to bail you out of a bad situation unless they caused it and in the case of ESA, it just doesn’t look like Chase did anything wrong…at least at this time.
(*) In the case of home building, the subs could file mechanics liens and eventually get some of their money so maybe the energy being spent on going after Chase would be better spent getting lien rights for appraisers who do the work and then don’t get paid. What if the lender had to get a statement from the AMC and the appraiser that payment had been made before the loan got funded…just a thought.