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!

Brian L. Trotrier
Latest posts by Brian L. Trotrier (see all)
Brian L. Trotrier

Brian L. Trotrier

A former practicing attorney with more than 30 years experience in real estate and risk management. The Foundation of Real Estate Associates (FREA) has specialized in providing Errors & Omissions Insurance to appraisers and home inspectors since 1993. As a membership organization with over 6,000 members, FREA is one of the largest and most well respected professional associations in the country, providing E&O Insurance for appraisers and inspectors as well as educational opportunities, member benefits, and legal support.

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3 Responses

  1. Retired Appraiser Retired Appraiser says:

    Nice article!

    This is exactly why I dumped my E & O along with my 20 year business in 2009! In World War I pilots had one option if their plane caught fire: a pistol for an easy out (no ejection seat, no parachute). I feel for those who are still involved in this “profession”. Appraisal careers today come equipped with an ejection seat but it does require a bit of courage on the part of the appraiser to manually reach for the ejection handle.

    Appraisers are getting decent fees and are busy as bees. I can offer you a 100% guarantee that the decent fees will dry up as rates rise more. If you haven’t considered reaching for your ejection seat handle you may want to consider it now.

  2. Baggins Baggins says:

    This is the chilling factor for sure. It’s best to never trust lawyers. They don’t look out for public trust, or just process.

  3. Mike Ford Mike Ford says:

    The author makes a great case for NOT carrying E&O insurance; or at least not carrying tail coverage.

    Most of us need to reconsider our assets and risks, along with how we operate as a business. Sole proprietors have the greatest risk. Perhaps operating as an Llc or corporate appraiser makes sense for those with significant assets to protect.

    As a practical matter, one can not do work effectively anymore without E&O. The ONLY reason I carry it is because half of my most probable clients require it.

    What E&O carriers COULD (should?) start doing is fighting back in cost effective ways. For example, can they claim the E&O is a confidential contract between the carrier and the insured, and no copy of its policy or Limitations endorsement page may be attached to any appraisal report (as some AMCs require)?

    The OTHER problem though is one E&O insurers bring on themselves. Like ALL insurance companies, they look at a defense cost of say $50,000 and agree to settle for close to that amount.

    That only encourages folks like MLRG to sue because they KNOW IT WORKS!

    As an alternative, let them set up paralegal workshops for appraisers to defend themselves. Most of us can answer the facts of a summons and complaint successfully enough to prevail in a jury trial. Where we go astray is in the procedures part required by specific courts. It is no more than the “form” portion of the war, but it is an important one.

    Unless an appraiser HAS performed in an egregiously deficient manner, there is NEVER a good reason for an E&O insurer to settle or fail to litigate to a successful conclusion.

    “Grow a pair” and start fighting these frivolous suits, and they will stop. Its as simple as that.

    If you wont set up the very low cost paralegal defense system for appraisers, then form a coalition of E&O insurers to take on a couple sample cases, and make the costs of prosecuting it so high, that these ambulance chasers go back to , well, ambulance chasing.


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You’re Safe From the MRLG (Unless You Have E&O Insurance)

by Brian L. Trotrier time to read: 3 min