Who are Mutual First, LLC and Savant Claims Management? Why is Mutual First Suing Appraisers?
Some appraisers are now being targeted in lawsuits by an entity named “Mutual First, LLC.” It has filed at least 35 lawsuits since May. Mutual First is not a bank, credit union or any kind of regular financial institution. It’s an entity aiming to make money for investors by suing appraisers. Based in Texas, it acquires foreclosed loans for small fractions of the original principal amounts. It then files lawsuits against the appraisers who performed appraisals years ago for the original lenders who made the loans. In its lawsuits, Mutual First claims that the appraisers are liable to Mutual First for damages as the result of negligent overvaluation in the appraisals. The damages demanded include the full unpaid balance of the long-ago foreclosed loan (some were foreclosed 4-5 years ago or more), even though Mutual First itself only paid a very small amount to buy the loan after it was already foreclosed and after the appraised property no longer served as security.
Savant Claims Management appears to manage the litigation against the appraisers. Other business names used by parties involved include Savant Legal Group and SavantLG. Both of the law firms responsible for filing Mutual First’s most recent court complaints use the same email address at the domain “savantlg.com” for communications about the cases. One of those firms is named Lloyd Ward & Associates, PC. The work of attorneys in that firm in the consumer debt settlement industry has been the subject of legal media attention and litigation (WA appellate decision and OH appellate decision).
According to marketing literature circulated by a third-party investment promoter: “The directors of Savant Claims Management, LLC have been collecting on sub-prime mortgage portfolios since the market crash in late 2008.” The literature from the promoter noted that one of the last ventures associated with Savant’s executive team was known as Heritage Pacific Financial, which also tried to produce investment returns through litigation regarding defaulted debt. However, that venture ended in bankruptcy earlier this year. Before its financial failure, most of Heritage Pacific’s litigation efforts were directed at trying to collect from borrowers. Those cases produced a backlash of counterclaims and lawsuits by some borrowers for alleged wrongful collection practices, even a proposed class action, and at least one significant monetary judgment against Heritage Pacific itself. A smaller part of its litigation involved suing appraisers over appraisals for the defaulted debt. In the cases I observed against our insured appraisers, Heritage Pacific did not succeed financially. One of the appraisers sued by Heritage Pacific, in fact, obtained a judgment against the company for his legal costs after the court dismissed the case.
The marketing literature from the promoter seeking investments indicated that the upstart Savant’s business model will focus on suing appraisers, asserting that appraisers make better targets than borrowers. Mutual First, in fact, did start suing appraisers late last year with a few cases in Florida state court; the only case I have observed as reaching a conclusion so far was dismissed by Mutual First without obtaining a monetary recovery after the appraiser filed a motion to dismiss. In May, it then tried a different tactic by filing 16 new cases against appraisers in federal court in the Eastern District of Texas. That court is known as the “rocket docket” because of the speed in which it handles cases, and the third-party investment promoter stated that cases would now “go from file to trial in less than six months!” Mutual First’s rocket misfired on the launch pad. The appraisers Mutual First sued in Texas did not reside in Texas, which promptly caused the court to ask for legal justification supporting why the cases belonged in the Eastern District of Texas. Shortly thereafter, Mutual First requested dismissal of all 16 cases before the appraisers even had to respond.
Now, it appears that Mutual First has begun filing cases a new in federal court in Florida and New Jersey. Within the last week, Mutual First has sued at least 15 appraisers in those courts, including several that it had previously sued in Texas. It remains to be seen if Mutual First and/or Savant intend to follow through with a grand plan to sue hundreds more — to that end, the investment promoter circulated scenarios involving the hypothetical filing of hundreds cases, potentially even more than a thousand cases, against appraisers. Based on my experience in seeing the outcome of thousands of appraiser professional liability cases, however, I think it’s very unlikely a campaign like that would succeed because the proposed returns in the investment scenarios depended on unrealistic assumptions being met; two key assumptions were that they would settle 80% of their cases and recover an average of $50,000 in each case. These assumptions do not reflect the reality of professional liability claims against appraisers, at least, in our program. The assumptions also seem disconnected from sound analysis of the legal merit of the claims to be pursued and Mutual First’s ability to present admissible evidence at trial. But these are lessons the investors will have to learn for themselves.
If Mutual First or Savant actually pursue the scenarios offered by the investment promoter, they will eclipse the number of lawsuits filed by the FDIC itself against appraisers since 2007 in connection with its receivership of more than 500 failed lenders. However, the FDIC’s own financial experience suing individual residential appraisers suggests that it is very unlikely that such litigation effort would pay off as an investment. Suing residential appraisers hasn’t worked for the FDIC, even though the FDIC has many more legal advantages in its favor than a private litigant, including a specific statutory extension of applicable statutes of limitation. Moreover, in 2011, an investment fund that I wrote about in a post at the time — LSF6 Mercury REO Investments — tried to implement the same kind of strategy. That fund was affiliated with the large hedge fund Lone Star. After about 50 cases, LSF6 and Lone Star gave up and filed no more. It would be an even harder strategy to make pay off now because we are almost three years further past the time of the mortgage-boom loans that are the subject of these lawsuits.
Looking at all this from another point of view: what if these companies actually were to succeed with the scenarios put forth and systematically recover tens of millions of dollars against thousands of residential appraisers? Such success would fuel more rounds of litigation by this venture and new ones. If they succeed, they would have a bigger effect on the business of residential appraising and likely put more appraisers out of work than any other of the recent events affecting the industry: the mortgage meltdown, the HVCC, and rise of the AMC-business model. I don’t think this is going to happen but a number of appraisers unfortunately will likely be sued before the investors pull the plug.
If you are an appraiser and you are contacted by either Mutual First or Savant Claims Management, I suggest that you immediately contact your professional liability insurance provider and discuss the threat with them, and I suggest that you do not provide any information or respond to either company before then.