FDIC Sues 29 Appraisers Over Loans By Downey Savings
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In the two weeks leading up to Thanksgiving Day, the FDIC sued 29 more individual residential appraisers. All of the appraisers sued in this round reside in California. The FDIC’s complaints against them uniformly allege that the appraisers were professionally negligent by overappraising the value of properties securing loans by failed Downey Savings in 2004-2007. The average claim against each appraiser is for approximately $350,000. The complaints concern both origination and review appraisals.
One of the recently sued appraisers has now been sued twice by the FDIC. This is the third appraiser to be sued twice by the FDIC. Another of the defendant appraisers was previously identified by the FDIC as having provided allegedly faulty appraisals for WaMu through the AMCs that the FDIC has sued in separate lawsuits. Issues like these are starting to cause potential new liability issues for AMCs in connection with current appraisal work because a few lenders have indicated they expect AMCs to identify appraisers accused of such negligence.
All of the defendant appraisers had applied for and been accepted by Downey Savings for its approved appraiser panel, and Downey Savings typically had a more detailed review procedure than other lenders. However, the FDIC has not sued any former appraisal officers or managers of Downey Savings. It has sued officers of other failed lenders for negligent appraisal management.
Some of the allegations of negligence against the defendant appraisers suggest that the FDIC is seeking to hold appraisers liable for things most appraisers would not normally expect. For example, in this allegation, the FDIC is blaming the appraiser for failing to indicate that “the market was possibly slowing” at a certain price level in 2005 based on one of the selected comparables having been on the market for 91 days:
(iii) Comparable I, which involved the most recent sale in 2005, was on the market 91 days, indicating the market was possibly slowing at that price; yet
xxxxxxxxdid not analyze whether the market appreciation of these small, older homes, was sustainable.
In another allegation, the FDIC is alleging that an appraiser was negligent because three comparables “were over one mile” from the subject property and one comparable sale was more than six months old:
misleading Downey concerning available comparables. Three of the comparable sales that were used were over one mile from the Kearns Property and one of the comparable sales exceeded a sale date greater than six months from the subject Property. By using inappropriate comparable data, Plaintiff is informed and believes and thereon alleges that the value of the Kearns Property was inflated.