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Editor’s Note: The take away of this decision sheds doubt on how many interpret federal law when it comes to lenders and AMCs; the court held there was no agency relationship between Chase and its AMC, Evaluation Solutions/ES Appraisal Services (ESA)- leaving many appraisers with unpaid fees.
Case Closed: Appeal Dropped in ESA/Chase Bankruptcy
By Isaac Peck, Associate Editor
Many appraisers will remember the bankruptcy case of Evaluation Solutions/ES Appraisal Services (ESA), an AMC whose primary client was JPMorgan Chase. After ESA declared bankruptcy in January 2013 with $11 million in unpaid debts, a number of real estate appraisers, agents, and brokers tried to file lawsuits against Chase, alleging that under federal law the bank was responsible for the actions of its AMC/agent; they had performed appraisals and broker price opinions (BPOs) for ESA on behalf of Chase, making the lender responsible for their unpaid fees.
To the surprise and dismay of many appraisers, in June 2013, a Florida bankruptcy judge ruled that ESA was not Chase’s agent. Consequently, Chase was released from any liability for the estimated five million dollars due to over 10,000 real estate appraisers, agents, and brokers for valuation reports completed on behalf of Chase. While many appraisers initially hoped that the lead plaintiff in the case, ProValue, Inc., would appeal the judge’s decision, the appeal has been officially dropped and the case closed.
Class Action Suit in California
ProValue, a real estate brokerage located in San Jose, Calif., originally sought to certify a class of real estate appraisers, agents, and brokers for a class action lawsuit against Chase in California. ProValue is owed $44,000 by ESA. They hired Breck Milde of Terra Law, LLP to jointly pursue Chase, along with all the others owed money, for the over $5 million worth of BPOs and appraisals that were performed by ESA on Chase’s behalf. However, Chase and the Trustee of the Estate succeeded in defeating the class certification.
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Bond Requirement Ends Case
ProValue initially pursued the appeal but was forced to drop it due to bankruptcy code that would have required them to post an exorbitant bond. Pursuant to federal bankruptcy rule 8005, when an appellant seeks to stay an order of a bankruptcy court, they can be required to post a bond to cover the opposing counsel’s court costs in the event the appeal is defeated. Chase and the Trustee of ESA’s estate tried to force ProValue to post a $2.5 million bond, roughly the amount that ESA was owed by Chase before its bankruptcy. The judge eventually lowered the bond amount to $250,000 but ProValue was forced to drop the appeal against Chase when it could not post the bond.
On April 7, 2014 the appeal was officially dismissed and an order granted relieving Chase of liability for over five million dollars in unpaid appraisal and BPO fees.
Countersuit Against ProValue
In a surprising turn of events, Chase and the bankruptcy Trustee subsequently filed a motion for Contempt and Sanctions against ProValue on the grounds that the company had deliberately violated the Bar Order, which required a stay to all litigation and which mandated that Chase could not be held liable for any claims against ESA. According the Court documents, Chase and the Trustee of the estate were seeking damages in excess $150,000. Chase demanded over $138,000 in legal fees and the Trustee sought in excess of $15,000.
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After ProValue dropped the appeal and argued that such sanctions are exorbitant, both Chase and the Trustee of the estate withdrew their claims. Chase rescinded its Motion for Contempt and Sanctions on April 2, 2014.
Agency Relationship
With the appeal dropped and the Bar Order in full effect, it is unlikely that any further claims against Chase will be pursued for the over five million dollars in unpaid appraisal and BPO fees. The result is that it remains cloudy whether the courts will find that a lender is responsible for the actions of its agent and, conversely, whether AMCs are really the agents of lenders, in terms of the common law definition of agency.
Some appraisers have been successful in collecting unpaid AMC fees from lenders by suing in small claims court and winning the argument that an AMC is the agent of the lender. But the ESA/Chase case remains the only one where a ruling has been issued in a district or federal court. The conclusion? In this case, that the court found that no agency relationship existed between Chase and ESA.
> Directory of Best AMCs to Work With
About the Author
Isaac Peck is the Associate Editor of Working RE Magazine and Marketing Coordinator at OREP.org, a leading provider of E&O Insurance for appraisers, inspectors, and other real estate professionals in 49 states. He received his Bachelor’s in Business Management at San Diego State University. He can be contacted at Isaac@orep.org or 888-347-5273.
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by Seymor@visionz.com
So much for USPAP. Looks like judges could care less about it.
-I thought it was to define the client and user, doesn’t it?
But, the state boards will take your livelihood off you if you don’t
exhalt.
by Christie M Bond
This just highlights one of the primary reasons I refuse all Chase bank work that is solicited to me. They are just too high of a risk to deal with and I do stand in silent unison and support with the appraisers and consumers that have been abused by Chase practices. I am happy to report that it appears that my peers in this market area at least are doing the same. Chase orders that are solicited to me come over at a much higher than typical fee than other orders from those AMCs for other lenders. And, several days later I often receive phone calls asking me “what would it take” for me to accept the assignment. My response is always “not at any price”. I even had an AMC client call to ask for my feedback on what Chase needs to do to improve their reputation with the local appraisers, and they tried to tell me that Chase was very proactive and concerned with improving their relations with the vendors. I told my AMC client that it was a burnt bridge as far as Chase is concerned, and that it is as simple as not trusting crooks and liars. I’ve even had some AMCs try to slip Chase orders by me by concealing the lenders identity on the order, forcing me to call them to find out – or by discovering the subject to be a Chase owned property. I think it’s absolute madness that AMCs even take them on as a client given their track record. But no one ever said AMCs were a brilliant bunch :-)
-by Alex
Chase should be boycotted from all appraisers until debts are paid to appraisers. It tough enough for appraisers with low fees to make a living theses days. That is why a lot of good appraisers are leaving the industry. If Chase funded the loans that were appraised then Chase should pay. They probably would re-consider if they are not able to get appraiser to do work for them, Enough is Enough!!
-by Steve from Berwyn, PA
I am an independent residential real estate appraiser, a “one man show”. I operate my own business and set my own fees based on an individual client’s scope of work and amount of time/labor required to complete the assignment. (Obviously, I am speaking of non AMC work.) The client is stated within my report and is responsible for paying my invoice. With AMC work, the client is the lender, whether the lender goes through the Mercury Network directly to me, or through an AMC; although via the latter, I am not allowed to set my fee, for it is dictated by the AMC. However, let’s remember that the appraisal fee is quoted to the borrower by lender in the lender’s Good Faith Estimate. My wife and I are currently refinancing. We are the borrowers, and we have talked to several lenders (loan officers) and received two GFEs. We see that the appraisal fee for Wells Fargo is $510 for our value range. An appraiser who currently does work for Rels informed me that the Rels fee is $270 to the appraiser (although she believes she might be able to get them up to $300). So, here we are paying $510 for an appraisal on our home, with the appraiser only receiving $270 of it. Who gets the $240 difference for being the lender’s gatekeeper of the assignment? The AMC, of course, and we borrowers and appraisers have not any say in the matter.
-Since the lender is falsely stating that the appraisal fee goes to the appraiser, consumer fraud is being committed. While the lender discloses the existence of the AMC in the Affiliated Business Arrangement Disclosure, the amount of the “appraisal fee” that goes to the third party “Affiliate” AMC is not disclosed. Assuming that the same interaction took place between JPMorganChase and Evaluations Solutions/ES, how can they not be equally held liable for the AMC fee to the appraiser? The AMC is obviously the agent for the lender, and the lender is an advocate for the misrepresentation to the borrower (on the lender’s GFE) as to the actual fee “paid” to the appraiser verses the amount paid to the AMC for handling all communications from the lender to the appraiser.
We appraisers do not require “appraisal management” to perform our service and deliver our appraisal report. Lenders choose –or are forced through government regulations– to create a firewall between the lender’s loan officers and their managers (not the underwriters) and appraisers. Before the rise of the AMC, lenders had both commission only loan officers and their managers, as well as underwriters, communicating directly with appraisers. Lenders are the ones who are required to have a firewall between their loan officers and their managers and we appraisers, not us. So, why are we paying for the AMC instead of the lender? The lender and the AMC are obviously connected to each other.
While the AMCs can address us appraisers as “associates”, “partners”, “clients”, “our venders” and on-and-on ad nauseam, we are none of the above. We are independent contractors, independent business owners. They are spokespersons for the lender’s underwriters, and are conduits for the underwriter’s communications to us. Both are one and both should be equally liable for our fees, since they are both involved in setting our fees and collecting our portion of the misrepresented “appraisal fee” paid by the borrower at settlement.
One additional thought on that Wells Fargo “appraisal” fee. That $510 fee is a mid-marker for a range of fees that I charge, and have been receiving from clients over the past five years for various appraisal scopes of work and timetables to complete, for non lending appraisal work.
For a property in my value range, in my market place, it is the “usual and customary fee” for an appraisal, be it lender or non lender. The crappy reduced fees that appraisers are forced to take by lender/AMCs are not the usual and customary fees for an appraisal in this market area. The fee they charge the borrower are the “usual and customary fee” in this market area based on both lender/AMC fees and non lending appraisal fees charged to homeowners or buyers.
Why many independent appraisers are out there asking for AMC level fees for private work is beyond my scope of understanding. If a potential client asks me why my fee is higher than another fee he/she has been quoted, I ask them if they have recently purchased or refinanced a home. Whether they say yes or no, I let them know that my fee is within the range of the “usual and customary fee that lenders are charging”. Nine out of ten times, I get the assignment.
PS- I also let the client know the difference between a quality, thorough and well-explained appraisal report and a fast turnaround minimalist low fee appraisal report. Based on what I’ve seen in my market area, clients get what you pay for.
by bwest
and the answer is….DO NOT work for Chase.
-In our state, CHASE IS THE NUMBER ONE COMPLAINANT AGAINST APPRAISERS/
DO NOT WORK FOR CHASE!!
by James Korbell
I was owed $3,600 dollars in that mess and the simple fix after Chase refused to pay was to go after the homeowner. To the current date I have been paid by Chase all of the fees I have been owed. Before I issued an order against the homeowner I called them and had a conversation with them on the payment process and gave then the number to complain to the State about Chase. I assume that when they received several calls from angry clients threatening to go to the State they just issued a check
-by Thomas Cahill
Considering the situation, appraisers need to have a backbone and decide not to perform appraisals for Chase and let them know why! If that would happen and Chase could not get appraisals done perhaps they might reconsider and decide they were wrong! Our fellow appraisers might get paid. Great system we have! I know it is ridiculous to think appraisers across the country might ban together,
-