You’re Safe From the MRLG (Unless You Have E&O Insurance)
Since we last wrote about the unusual subpoenas coming from the offices of the FDIC through the law firm called the Mortgage Recovery Law Group (MRLG), we’ve learned some interesting things that you need to know.
To read the original blog post “What to do if you get a subpoena from the FDIC”, CLICK HERE.
First, the MRLG contracted with the FDIC in late 2010 to pursue collection of losses for the FDIC resulting from the many bank failures caused by the economic (real estate) downturn.
Of particular interest is that the MRLG is not working on a contingency fee arrangement like most collection work is done. Rather, the MRLG attorneys are getting paid fixed hourly rates ranging from $295 to $575 per attorney. I’m not sure about you, but I’m pretty certain my hourly rate doesn’t come close to these rates.
Next, in a prior life the lead partner for the MRLG was in-house counsel for (drum roll, please)…IndyMac Bank, one of the banks which failed and which the FDIC took over.
This reminds me of the 1990’s when the federal government created the Resolution Trust Company (RTC) to deal with assets (real estate loans) from the many savings and loans that failed while hiring many of the S&L execs and staff whose bad decisions caused the savings and loans to fail in the first place. I have yet to find a way to get hired to clean up my own mistakes — and for higher pay as well.
We also learned the MRLG has filed at least 54 lawsuits naming at least one appraiser as a defendant and seeking to make the appraiser (or the appraiser’s E&O carrier) pay for bad lending and credit decisions by the failed bank which made the bad loan, often for 100% LTV to a borrower with no assets or verifiable income. Who could have guessed good loans like these would default?
The MRLG sues the appraiser and claims the appraisal over valued the property and that is why the bank (FDIC) lost money when the real estate was sold at foreclosure. We’re not saying there were no bad appraisals done in 2005-2007, but isn’t it possible the losses incurred came from the 30-40% drop in real estate values in many markets and not from an appraisal which may have been off by 3-5%?
The MRLG knows it will cost an E&O carrier between $50,000 and $100,000 to try the case, so they push for settlement just under the trial costs. This is of course after they let the E&O carrier know they are working on a fat hourly contract and have no real incentive to settle.
Of the 54 lawsuits filed by MRLG, 24 (44%) were filed over loans made by IndyMac. This means that one of the people who made the bad decisions causing IndyMac to fail is now getting paid $575 dollars an hour to shift the blame for the mess onto the shoulders of appraisers, but only onto the shoulders of appraisers with E&O insurance.
You see, we’ve also discovered that the MRLG isn’t filing against an appraiser whose E&O policy is not current and does not have retro coverage for work done back in 2005-2007. In other words, unless they can get paid hourly to squeeze an E&O carrier to write a check to avoid the cost of a trial, the MRLG isn’t suing. When I was going to law school, I am pretty sure we learned about extortion and racketeering and the similarities here are too close for comfort. A recent Frontline segment on PBS seems to agree.
We are happy to report that since we advised our membership to start questioning the validity of the MRLG subpoenas, not one of our members has (to the best of our knowledge) been forced to hand over to the MRLG any information, not even a single piece of paper.
This is information which the MRLG could use against them to find the basis for filing a lawsuit, so not giving in has real and immediate benefits.
If your risk management consultant or E&O provider isn’t helping you stay out of trouble, you may want to switch to one who does help. At FREA, we say we’ve got your back because we do!