Beware of Appraiser Karma – Llano Cases
This is an update on the mass litigation against appraisers being pursued by Llano Financing Group LLC in relation to loans held or serviced by Impac Funding, a subsidiary of Impac Mortgage Holdings (IMH) and affiliate of Impac Mortgage Corp., which also does business as CashCall Mortgage.
As covered in prior posts, the litigation against appraisers concerning Impac’s mortgages is an unprecedented legal and economic assault on the appraisal profession. For residential appraisers, the Impac/Llano lawsuits are far worse in frequency than the lawsuits filed by the FDIC following the mortgage meltdown and the FDIC’s receivership of more than 500 failed banks. With the Impac/Llano situation, however, it’s remarkable that all the litigation is coming from just one lending source — Impac.
In this new wave of litigation, the investors behind Llano have doubled-down on failed attempts at similar litigation by Heritage Pacific Financial (which is currently in bankruptcy), First Mutual Group LP (who has had 90%+ of its cases dismissed so far), and Savant LG LLC (aka Savant Claims Management), entities which are all connected in some way to an individual named Chris Granter. Information about the trail of unhappy investors who have sued him or the companies affiliated with him over prior failed investments can be found at www.valuationlawgroup.com.)
New Case Filings
In August and September, Impac/Llano concentrated new case filings in Illinois, Nevada and New Jersey. It has now filed 50+ cases in Illinois, 35+ cases in Nevada, and 20+ cases in New Jersey. Though the filing of new cases in Florida has slowed, Llano continues to file cases there and has now filed 150+ cases in Florida. Nationwide, Llano has filed 285+ cases for Impac. Because many of its lawsuits name two appraisers, sometimes three, as defendants, Llano has sued more than 450 appraisers and appraisal firms to date. A large number of appraisers have been sued in more than one lawsuit.
Continued Connection to Impac Mortgage
The appraisals at issue in Llano’s lawsuits continue to be connected to loans held or serviced by Impac Funding, which is a corporate affiliate of Impac Mortgage and CashCall Mortgage. According to the complaints, Impac is specifically assigning the legal right to sue appraisers over loans that it holds or services to Savant LG, who then re-assigns them to Llano for litigation as Impac’s alleged agent. In dozens of recent lawsuits, Llano expressly states that it “is suing in its capacity as agent for Impac.” In other lawsuits, Llano also refers to itself and Savant LG as “subservicers” for Impac.
Most recently, legal agreements attached to one of Llano’s court filings indicate that Impac assigned the right to sue appraisers in relation to approximately 7,000 loans of its loans. For that assignment, Impac receives a one-time payment from Savant LG and a percentage of the money that Savant/Llano extract from the appraisers they sue. Impac retains control over the lawsuits by having the right to approve the expenses of Savant LG and Llano for such items as expert witnesses and depositions.
As the word gets out about how Impac has fueled this legal assault on appraisers, some are turning their backs on current appraisal work for Impac Mortgage and CashCall Mortgage. No other lenders — to my knowledge — are currently doing business with Savant/Ganter on such a large scale. These appraisers understandably are concluding that a regular appraisal fee is not worth the risk of working for a client who assigns the right to sue appraisers in bulk over defaulted loans and who fuels mass appraiser litigation. Impac has magnified the appraiser’s financial liability risk to a point beyond the realm of any realistic appraisal fee. For the liability risk that Impac seeks to place on appraisers, appraisers might need to charge $1,000 or more per appraisal for Impac (or its CashCall subsidiary) and then allocate most of that increased fee to saving for the costs of the inevitable lawsuits and higher insurance premiums that will result from Impac’s tactics.
Early Losses and Errors by Impac/Llano
The good news is that Impac/Llano — like the losing investors before it — probably will not succeed. They already has lost several early cases based on clear defenses, such as statute of limitations, that can be raised successfully at the outset in some cases or because of other missteps by its legal team. However, since most of the cases are very new and the appraisers are just being served with the complaints now, it will be several months before we see the result of the many upcoming motions to dismiss. When newsworthy and helpful decisions occur, and for as long as the lawsuits continue to burden appraisers insured by LIA, I will prepare updates so that appraisers and their legal counsel can have access to the most current legal developments in defending claims by Impac/Llano.
Recent missteps have included suing the same appraiser in different lawsuits about the same appraisal. In one instance, First Mutual Group first sued the appraiser contending that it was assigned the claims by Impac, but Llano later sued the same appraiser claiming it owned the claims. Actions like these lead us to wonder whether they just create new paper assignments whenever they want a different version, while the investors who apparently bought the claims from Savant LG might be asking themselves: “What did we actually buy?”
Another notable misstep by Llano (other than filing hundreds of weak cases that they will likely lose in the end) has been to attach highly personal consumer records pertaining to borrowers on loans held or serviced by Impac. In one case in Illinois, Llano — acting as Impac’s “agent” — actually attached a complete, unredacted credit report for the borrower on Impac’s loan. Aside from being a serious violation of the borrower’s privacy rights, the glimpse into the creditworthiness of the borrower in that case shows that Impac was very willing to buy or fund a loan to a borrower with poor credit and then blame the appraiser for its loan loss. It exemplifies why Impac itself — despite having assigned the claims out to its “subservicers” Savant LG and Llano — and Impac’s own lending practices will very much be on trial if these cases go forward.
It was poor judgment by Impac, likely made without adequate due diligence, to release private consumer records of borrowers to Savant LG and its operators and affiliates, given their prior track record. Llano’s publication of the borrower’s credit report in the Illinois case exemplifies real harm flowing from that poor judgment.
How Many Appraisers Will Impac/Llano Sue?
They give no direct indication of the answer. As mentioned above, Impac granted the right to sue appraisers over as many as 7,000 loans (approximately), but we don’t know how many cases Impac/Llano will actually decide to file. Third-party promoters of the initial “investment opportunity” to sue appraisers perhaps have provided a clue. In 2014, the promoters distributed financial projections to proposed investors. They were not savvy about whom they forwarded those projections to and sent them to investors burned earlier by entities related to Mr. Ganter. In those projections (a partial copy of one spreadsheet containing the projections is attached here), the investment promoters suggested that the first tranches of the business plan would involve filing as many as 100 cases per month for a period of 20 months, meaning that 2,000 cases would be filed if that particular plan were followed by investors. Llano is not far under that pace with its Impac-related lawsuits. And, of course, if the first round of 2,000 cases somehow succeeds (against the odds), new rounds would follow.
E&O Insurance Issues.
I recently was forwarded an email that the president of a state appraiser group sent to the group’s members. The president of the group wrote in her email: “Many E&O companies have settled to avoid court proceedings.” Fortunately, I don’t think that’s actually happening. I see no evidence that any insurers in general have been seeking to settle any claims filed by Llano so far. For LIA, however, I can affirmatively say that our appraiser E&O program has not paid a dime in settlement or damages on any lawsuit or demand by Impac/Llano and that our program will seek to make Impac/Llano prove the validity of each and every legal claim they make. These parties are wasting their money filing their weak or frivolous claims against the appraisers insured in LIA’s program.
On the matter of insurance, I do unfortunately hear from appraisers outside of our program who reach out to me for assistance because they do not have E&O coverage for their defense. The most common reasons why appraisers do not have coverage for claims by Llano are: (1) the appraiser being sued signed the report as a supervisor and has one of the E&O policies that exclude supervision of other appraisers/trainees/contractors; (2) the appraiser did the appraisal as a trainee and did not have coverage under the supervisor’s policy or have his or her own coverage; (3) the appraiser made a switch to an E&O policy without prior acts coverage (the concept of “prior acts” coverage is explained in this post here); or (4) the appraiser discontinued his or her E&O coverage and did not obtain “tail” coverage. Regardless of any appraiser’s insurance coverage situation, I would suggest that appraisers sued by Llano get legal counsel and defend the case. Don’t allow Llano to win a default by your failure to show up — these cases can be defended efficiently.
Long term, if the type of litigation that Impac has spawned here endures despite the odds, it would be inevitable that appraisers’ insurers would move to a framework of generally excluding coverage for appraisals for specific lenders like Impac that create economically unsustainable legal risk and/or charging very significantly higher premiums for those appraisers who specifically want to work for such lenders. This is what occurred in Australia when appraisers were faced with voluminous litigation by lenders and mortgage insurers; if appraisers needed coverage for the types of claims being brought by those parties, the premiums for coverage often exceeded $25,000 per year. Even now, it is rapidly becoming difficult for appraisers who have been sued by Impac/Llano to secure insurance at renewal because of the likelihood that the appraiser will be sued in multiple cases.
Beware of Appraiser Karma
In our world of claims involving appraisers, we quite often see different versions of this same story — in this version of the story, an appraiser did a review appraisal that was used by Savant LG in a currently pending case against another appraiser in Florida. Just months later, that appraiser found himself named as a defendant in a lawsuit filed by the related entity First Mutual Group LP. That is appraiser karma at work. More seriously though, I do encourage that appraisers think about how their appraisal work — particularly, appraisal review work — is used by their clients and, when that work is going to be used by operators like Savant LG, First Mutual Group or Llano Financing to destroy the livelihoods of their colleagues and increase the financial burden on all appraisers through higher risk and insurance costs, I think it’s a reasonable suggestion that appraisers turn down such work — if only because our experience confirms that “what goes around, comes around.” In a future update, I may share some of the review work that one appraiser outside Dallas, Texas has produced in bulk for Savant LG in furtherance of these lawsuits across the country — and apparently without regard to whether he needs to be licensed as an appraiser in the states in which the subject properties are located and in which his appraisal work is being used to sue other appraisers.
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Gentlemen, I have followed all your posts with great interest. Fortunately I’ve never worked for any of the parasites named.
I have to take exception and disagree with your advice to appraisers NOT to perform reviews of other appraisers work though. Honest, and carefully performed appraisal review work is an integral part of maintaining our professional standards. Human nature being what it is, without the “threat” of a potential review somewhere down the road I think there would still be ‘significant numbers’ or appraisers that would perform sub par work.THAT hurts our profession.
We MUST be prepared to accept and then pursue HONEST & thorough and most of all, FAIR analyses of our peers work. Having said that, ANY appraiser that accepts review work where the intended use is for litigation support is a damn fool if they do not know who and what their client is. Charges for any such work should also be high enough to warrant making those reports ‘text book cases’ of near perfect appraisal reports.
I MIGHT do simple property appraisal work for litigation involving sfrs for as little as $500 to $750 but I would NEVER do a review appraisal intended or potentially intended for use in support of litigation for less than $1,000 and more likely $1,500. As a result, I’ve never been ASKED to do review work for CashCall or their affiliates.
I spend much if not most of my volunteer time with the American Guild of Appraisers (AGA) defending appraisers, and as a matter of principle take no pleasure in finding fault with any peers honestly performed work. But I am ALSO a professional appraiser. I would decline doing a review of another Guild Members work because of the conflict of interest potential, but I would not decline all review work as suggested in the article. It is a valuable part of our professional services albeit one that requires exceptional care above and beyond that of ordinary appraisal.
Hey my respected pal. Â I am sorry to totally disagree with you concerning the “review” process. I have been there and done that. NEVER will I ever be so stupid as to provide a review on one of my fellow appraisers. I can only guess how many ten’s of thousands of dollars that type of stupidity has cost me over the years. My fellow appraisers are my friends…my pals, I will not throw them under the bus for a couple of bucks. Not going to happen…There is absolutely NO loyalty with lenders….they will send your review report to your previous friend in a heartbeat and cause you to have an enemy forever…That sucks…I am not going to play their stupid game. My competitors are my friends…they refer thousands of dollars worth of appraisal work to me each year….Do NOT BE STUPID!…
Smart move Wayne! Not only does it earn you even more enemies within the real estate community; it pays beans as well. I quite doing review work at least 5 years prior to getting out. Why? Their idea of a review was reviewing the appraiser’s work plus providing new comparable sales (doing a new appraisal) all for the incredibly low price of $250 to $300. Cutting out review work completely was a huge step forward in increasing our company’s profit margin (back when doing so was actually possible).
I tried to respond…several times…Just gave up. Too many silly ice cream cones or street signs. A pitiful site to try to navigate. But that is absolutely what all of us appraisers deserve! LOL
Hi Wayne, I cant criticize you for disagreeing. In fact gave you at least one of your thumbs up. Personally Id prefer to be helping to defend an HONEST appraiser than to have to point out unsupported / unsupportable aspects of their work product.
But there are appraisers out there that are breaking the rules and then using their ability to produce unrealistic amounts of work as a result as justification for underbidding our fees. Disagreement among peers is common and not grounds for being critical of another’s work. Where I start chewing on the bone is when apparent dishonesty crops up. Never inspected interior but said they did; different person inspected the property but not disclosed. That type of thing.
Bad appraisers undermine our professional image; reduce the publics confidence and trust in us and affect how much GSEs and other clients feel they have to micro manage us because so many of the reports they get are perceived to be ‘bad’. Where reports CAN be fixed, I ALWAYS leave that option open rather than saying it must be ‘reappraised’. A smart appraiser is going to read the handwriting on the wall and fix their work. A stupid one is going to pretend nothing is wrong and dig their heels in. Im not responsible if they fail the Forest Gump test.
I do NOT do so called “enhanced desk reviews” where an alternative opinion or ANY opinion of value is a SOW requirement. For me, its simple credibility. Either a report is or it is not. I don’t have to agree with all it’s elements. Haven’t done a field review since I left Treasury Dept.. Few are willing to pay what Id charge.
Wayne, How can you pick on our AB heroes? (Heroines actually). They see your posts. Id be real surprised if you don’t get an email from one of them showing you a possible alternative. They did for me (but I keep forgetting how to get to it) *g* Guess maybe I failed the Gump test too.
We did email him earlier 😉 Thanks Mike!!