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.
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It sounds like MR Trotier is a spokesperson for Chase. Chase has an obligation to vet it agents. Chase was made aware long before ESA went under that appraisers were not getting paid. To claim they were a victim too is not a credible position. Chase is in possession of stolen work product and needs to pay up.
Metlife had this same issue awhile back when their AMC went under and they paid all the appraisers. They stepped up and agreed that they made a boat load of money on these deals so paying out our piddly fees was reasonable I guess. They are no longer in the lending business and were in the process of moving out when this all happened. But the bigger issue here is this is a problem with the AMC model. HVCC/Dodd-Frank is what caused this issue. We are the mercy of these AMCs to give us work, we can not market ourselves, we just have to get on lists and hope for work and then to hope to get paid. Its ridiculous and the whole concept needs to change. The lender should pay the appraiser and they can pay the AMC their fee for the use of their services so that the lender is ultimately responsible for the fee. Or better yet just get rid of AMC’s all together, there are more bad than good ones who get paid for doing nothing more than having a website to filter orders through. Just crazy people. When will someone finally see that the AMC model is not working for this industury except to make banks owning AMCs more money for doing nothing. Makes me sick everytime I pay an AMC fee or get a request for an appraisal with a fee that is insulting. Yet clearly there are bottom feeder appraisers that accept this work.
Generally concur with the views and opinions on the surface.
There are however differences. The author caught the mechanics lien one in the final paragraph. Another difference is the way work is obtained.
In the case of the house, ANY sub contractor that can convince the owner of his expertise can become hired directly by the owner. That cannot happen with AMCs and lenders. We are now prisoners of a system that is inherently unfair to us as a profession.
There was never evidence that Chase paid more than the going rate. The inference that higher than typical fees were a factor is insulting to appraisers, AND the agents that did BPOs for Chase/ESA. The truth is that most fees fell short of “reasonable and customary”, though not by as much as with other AMCs.
Throughout most of the pre HVCC fee appraisal history in the United States, appraisers ALWAYS collected a check for their fee when they met the agents and or sellers/ buyers at the property to do the appraisal. That system worked well.
Appraisers could also be declined by brokers based on bad experiences an agency had with them. That’s not the same as saying the broker could choose who did the appraisals. Merely that they had a right to reject those that had proven themselves to be consistently low or to have ridiculous unnecessary conditions. Realistically I don’t see this as being viable anymore.
No one at any level in the process appears to trust appraisers to have the requisite integrity anymore, to sell our own services ethically, and impartially.
THAT needs to change,. If you cannot trust us then the regulations are too lax, or their enforcement is. I am a professional. I KNOW how to say no, AND when to say it.
Ultimately the author is mostly right though. Beware of ALL high volume AMCs. Never let them get into you any deeper than you can afford to walk away from. Along the same lines, never let them become your sole client.
With low fees of $350 or less, I’d not trust them for more than TWO appraisals at a time. If the fees are in the $450 to $500 range, Id probably be more patient for payment and trust them for THREE, but no more.