Lender Seeks to Overturn NY Appraiser-Friendly Statute of Limitations Law
Sharestates operates a crowdfunding platform that provides alternative mortgage lending secured by both residential and commercial real estate. Over the last 10 years, it has reported average annual returns for loan investors ranging from 9.24% to 11.02%. With returns like these, there is likely some loan risk – and Sharestates reports a current foreclosure rate of 2.44%.
Following several of its foreclosures, Sharestates has filed professional negligence cases against about a dozen defendant appraisers, appraisal firms and appraisal management companies, blaming the loan losses on inflated appraisals. Last year, it lost one of those cases in a Nassau County, New York court because, according to the court, Sharestates filed its lawsuit against the appraisers about 5 months too late, after expiration of New York’s appraiser-friendly 3-year statute of limitations. Now, Sharestates has appealed the trial court’s dismissal and is seeking to overturn New York’s longstanding appraiser-friendly law.
Why is the current statute of limitations law in New York friendly to appraisers?
Unlike in many other states that follow a “discovery rule,” when it comes to a negligence claim against a professional such as an appraiser, the law in New York is that the time period of its statute of limitations (3 years) begins to run when the appraiser submits the appraisal report to the client. In states that follow a “discovery rule,” the time period does not start running until the plaintiff discovers or should have discovered the alleged negligence or damages, which means that cases are often pursued against appraisers many years after the appraisal (sometimes long after the appraiser has disposed of his or her work file). Because of the appraiser-friendly law in New York, however, dozens of cases filed more than 3 years after the appraisals were completed have been dismissed. Over the years, New York’s law has been beneficial to many appraiser defendants, from the smallest appraisal firms to national commercial firms.
Sharestates’ losing case against the Long Island appraisers
Here’s a short summary of the facts of the case that Sharestates lost and is now appealing:
Two appraisers prepared an appraisal of a Kings Point, Long Island home for their client SGS Capital in February 2015. Their appraised value of the home was $4.6 million. They signed and delivered the report on February 12, 2015.
Several months later, Sharestates — who, again, was not the client on the appraisal — received a copy of the report, which was on a URAR (1004) report form. Sharestates claims that the borrower requested that Sharestates use the appraisal and claims that it permissibly relied on the appraisal because of the wording in Certification No. 23 on the URAR form:
Thus, in alleged reliance on the report, Sharestates made two loans to the borrower for $1.2 million and $160,000 secured by the property. These were second and third position loans, sitting behind an original first loan of $1.2 million by a different lender.
All three loans soon defaulted, and Sharestates foreclosed. After the property sold at auction for $3,050,000, Sharestates claimed it was left with unpaid principal, interest and other charges totaling $1,169,000. And, on July 20, 2018, it sued the appraisers and the appraisal firm, seeking to recover that amount from them.
The appraisers filed a motion to dismiss based on the statute of limitations. The trial court granted their motion, ruling that the 3-year statute of limitations period, under New York’s long-established caselaw, began running when the appraisers submitted the appraisal to their client. Thus, according to the trial court, Sharestates’ lawsuit should have been filed no later than in February 2018 — but was filed about 5 months too late in July. Sharestates unsuccessfully argued that the time period for its claim should have started at the earliest when it actually suffered damages (either when it foreclosed or alternatively when it extended the loans). This is the basic argument that it will likely pursue on appeal.
If Sharestates prevails on its appeal, the change could be quite dramatic for future claims against appraisers in New York.
Below is the trial court’s full decision that Sharestates seeks to overturn.
For information about the statute of limitations in other states, please see my earlier post: What’s the Statute of Limitations for Suing an Appraiser in My State?
Sharestates v. Appraisers, NY, Order Dismissing Complaint
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Thanks for posting Peter! Moral here be very careful with clients and hard money lenders, I’ve had a few ask me do do complex renovation valuations for multi million dollar properties, and declined, due to the liability! These loans come down to the strength of the borrower and high end complex homes are often difficult and lengthy to sell, and owner developer types often will do a strategic default and walk away, if things get dicey meanwhile who do you think the 1st person that lender is going after! Be careful out there!
Remember, No one is your friend as an appraiser !!!
Appraisers must take that beautiful knowledge in our heads and put ithe information in the report. The best defense against a stupid lawsuit is a strong appraisal report. It’s like 3rd grade math: show your work.
Maureen, I always enjoy reading your comments, but I must say that it doesn’t matter how strong your work is, it depends on who is judging it….”To Kill a Mockingbird”….
I had an appraisal complaint filed against me from JP Morons for a repurchase consideration on a property I appraised 2 years prior. The state found no USPAP errors but indicate the comp selection may be improper (total laziness on the review appraiser). Once we were in court I simply asked who in the room is a certified appraiser. There were zero certified appraisers in the room. I then proceeded to destroy the entire argument of over valuation and improper comp selection. The subject was a very unique house which was plastered all over the report. This was a purchase transaction with 10 days on market and a prior sale 3 years prior with 52 dom. Clearly marketability has been established by prior sales. The comparable sales were located all over the map however the value was reconciled toward sales which are in the subject’s immediate location. Value and marketability were demonstrated thru the sale comparison approach. I came to find out JP Morgan paid for a desk review from Clear crapital which indicated a much lower value. The desk appraiser was not located in my state however was certified in my state. Nobody drove past the comps. The simpletons from JP morgan also utilized some silly AVM call Red Bell which provided them with a list of non comparable properties. When your dealing with stupid be prepared. Even my E/O insurance provider laughed at the claims. Clearly nobody could think out side the box. Judge sided with the appraiser!
Red Bell. / Bought by Clayton Holdings. / Clayton holdings bought by Radian mortgage insurance services. Radian owned by Cogency Global.
Gaining speed in associated realms to furnish avm’s as a standard.
Oh look at this, Radian, is also a licensed AMC.
When the company providing the evidence which landed you to court, provided the value estimate for all future value considerations, insured the loan, dictated the rules for default and recession relief terms, sought to replace you with an avm service, skimmed off the top with amc services, is tied into credit rating systems, is tied into larger global corporations…
With these big corporations, fair checks and balances for consumers in America are absent. Just because they run spin off purchased companies under different names does not mean they’re providing valid checks and balances. Clearly, you got lucky going against a corporation like that. Don’t worry, with their end to end full service digital network for professional services and complete logic based automation systems, they won’t need you for very much longer.
Hows globalism working out for you personally?
Lol, I just read a Clear Crapital ‘desk review’. It’s even worse than their bifurcated reports are!
I didn’t think that was possible. I’ve requested the original client ‘allow’ me to submit it to my state as a complaint (it’s THAT bad!).
Personally it was so bad that I cant see how it doesn’t qualify as being fraud. Misleading a client into believing they are getting a professional or competent review and then giving them an undefined and completely unsupported “CDA Value” as if that equates to the market value required in the original appraisal.
It would also be nice to see alternative ‘better’ comps suggested by reviewers that are in the same city as the subject; or that are otherwise really more relevant value indicators.
Appraisers, please be VERY careful before ever agreeing to do hybrids or desk reviews for this company.
Can you post a chart or link or something, providing reference what that limitation time frame is in every state?
There is this link at the bottom of the article: https://www.valuationlegal.com/limitations/
Missed that. Essential reading. Bookmarked in my valuation guidance folder.
All this automation to push loans through in record time sort of does not jive well with a limited statue of limitation rule.
Agree Maureen. Have always said the best time to defend your report is when you are writing it for that particular assignment. Always keep in mind how your state agency will view your report.
It’s Pure Suicide appraising for a Crowd Funding Site (Sharestates) that pays 8-12% return to investors.
They will use the “subject to completion” value to CON THEIR INVESTORS into believing the property provides adequate collateral.
Borrower defaults = APPRAISER IS F****D
JUST SAY NO
They don’t guarantee the loans, but they sure as hell expect the appraisers to.
Know who you are taking orders from. Appraisal 101. Easyknock, sharestates, or anything like it, charge a hazard premium and have a carefully formed sow because that’s where you’re at, if you are wild and zany enough to even take that order in the first place.
It’s a remarkable business strategy. Crowdsource the capital. Charge 1 to 3 additional origination points. Pass all losses to investors, pocket a substantial amount of income as they go without the need for capital in a traditional sense. Grow without a net while offering high rate high fee short term project loans, and profit from the fees. Sounds like the contractual agreement a borrower may sign may strip them of many expected due processes. This company has no problem applying a limitation of 2 years to investors upon loan maturity, they say so clearly in the above document. Security and Exchange rules may not be applicable. Invest in the blind and hope for the best with Sharestates!
You know that old appraisal line, it’s a business decision? Unlearn that as fast as possible and recognize it’s a hollow slogan. The wheels of mortgage fraud are very well oiled, pump on the sale, dump on the recall, and whomever dared provide professional services in between is on the liability hook along with the speculators of all manner whom thought they’d get an easy piece of the action. There is no such thing as a safe real estate loan. The only way to win as a homeowner, is not to play. The rinky dink big shot investor firms brought the claim. Someone needs to tell these guys a home at auction is discounted via distressed sales conditions and auction sales are not representative of fair market value. A study of averaged discount rates of auctioned off recalled notes for high end luxury properties by the bay would have taken the edge off their claim amount, substantially. Perhaps if this amazing new lending company would not have stripped so many rights away from the borrower, and played by traditional rules, the recall could have been avoided in the first place. Looking at these companies is like a little window into the larger wall street world. They offer amazing claims of surety and guarantee, they’ll manage your insurance, your investments, and they do it all full service top to bottom so you can relax, and profit. Nevermind they’re getting reverse hoodwinked on the other side of the sales play with some amazingly loose investment schemes. What a fun story to look into.
It appears the preprinted limiting condition 23 is the real culprit. We cant ‘reduce’ the limits required of/by FNMA but Im wondering if we could add a limiting condition EXCLUDING ALL future non GSE lenders to preclude this type of thing.
Also, FNMA needs to modify this to something like holders in due course of the original transaction-not open-ended second or third transactions unrelated to the original loan appraisal. Otherwise New York appraisers (& possibly many others) will have to seriously reconsider if they are going to do any FNMA loan appraisals at all.
FOLLOW UP TO THIS CASE: https://caselaw.findlaw.com/ny-supreme-court/1908958.html