19th June 2013

Chase Denies Responsibility for Bankrupt AMC Debt

posted in Appraiser News |

If Chase is successful, it means lenders who contract with AMCs for appraisals, broker price opinions (BPOs) and other services, would have no financial responsibility to make good on fees owed to end contractors, such as apprasiers, by bankrupt or otherwise malfeasant AMCs.

Editor’s Note: The bankruptcy earlier this year of the appraisal management company (AMC) ESA left millions in unpaid fees to appraisers, agents and brokers, who now are trying to collect from Chase, the bank who hired the AMC. What happens will have far-reaching effects on the appraiser-AMC relationship and the industry.

Chase Denies Responsibility for Bankrupt AMC Debt
by Isaac Peck, Associate Editor – WorkingRE

The bankruptcy of Evaluation Solutions/ES Appraisal Services (ESA) left $11 million in unpaid debts to its vendors and creditors, with a large portion owed to real estate appraisers and agents/brokers.

As WRE reported last month, (Stiffed Appraisers Go After Chase), the Florida court overseeing the ESA bankruptcy is considering granting a Bar Order that would absolve JPMorgan Chase, the principal client for all services performed, of all liability for fees due to real estate appraisers, agents, and brokers who performed millions of dollars of work on Chase loans. Much hangs in the balance: if Chase is successful, it means lenders who contract with AMCs for appraisals, broker price opinions (BPOs) and other services, would have no financial responsibility to make good on fees owed to the end contractors, such as appraisers, by bankrupt or otherwise malfeasant AMCs.

Chase Denies Responsibility
In its legal response to appraisers and agents who argue that Chase is liable for the unpaid work under federal laws such as Dodd-Frank, FIRREA, and OCC guidelines, Chase’s lawyers write: “Nothing further in FIRREA, or the Dodd-Frank Act amendments to FIRREA, the OCC regulations, or USPAP addresses payments to appraisers.”

Chase also seems to deny that it was the client for the appraisals and BPOs ordered (Chase is listed as the client on the appraisal reports), and also seems to question the notion that ESA was their agent. Chase’s lawyers write: “The appraiser’s client remains the party who, by employment or contract, engages the appraiser. Otherwise, there is nothing in federal law governing the payment of appraisers and nothing requiring a federally-regulated institution such as Chase to backstop or guarantee payment to appraisers engaged by an independent appraiser management company (“AMC”) such as Evaluation Solutions, even if that AMC is acting as the regulated institution’s agent for compliance with FIRREA and its implementing regulations.”

Chase’s lawyers insist that “Agent is nowhere defined in the OCC regulations.”

Due to this lack of definition, Chase’s lawyers define an agency relationship under Florida common law as the following: “An agency relationship may be established expressly or by estoppel (i.e. an apparent agency relationship). The standard for determining whether an agency relationship exists is whether the purported principal has control over the alleged agent.”

Using this definition of an agency relationship, Chase’s lawyers appear to deny that an agency relationship existed between Chase and ESA, even though Chase is listed as the client on all of the appraisals delivered to Chase and despite the fact that numerous federal regulations, including FIRREA, require Chase to engage appraisers in one of two ways only: either directly or through an agent such as an AMC.

The appraisers, agents, and brokers who are seeking to hold Chase responsible for their unpaid fees insist that Chase is liable precisely because ESA was their agent, and Chase must be held accountable for the actions of its agent.

Fighting Back
Sirima Chantalakwong is a BPO Agent in California whose company, ProValue, Inc., is owed $44,000 for BPOs performed over a six-month period. She is the principal claimant in the class action lawsuit filed on behalf of appraisers and agents/brokers across the country who are left unpaid by ESA.

Having requested to remain anonymous previously, Chantalakwong, referred to in earlier stories as Shelley Smith, and her husband Dan (Owner of the Evalonlinecomplaint Facebook page), have been crucial in organizing the opposition to Chase’s Bar Order and are the ones who initially hired lawyer Breck Milde, whose law firm appeared in the Florida Bankruptcy court to oppose the Bar Order.

After the initial hearing in Florida on June 4, 2013, where Milde opposed the Bar Order and urged the bankruptcy judge not to absolve Chase of its responsibilities to make good on the unpaid fees, both sides were given additional time to file proposed findings of fact and conclusions of law.

Counter Suit
In a further development, the Trustee of ESA’s bankruptcy proceedings has filed a motion seeking sanctions against ProValue, Inc., arguing that ProValue is in violation of the automatic stay granted to ESA as terms of the bankruptcy. ProValue is ordered to appear in court on July 10, 2013 to defend its position. The Trustee is arguing that ProValue is liable for compensatory and punitive damages, as well as attorneys’ fees and costs for its attempt to block the Bar Order and prevent Chase from denying responsibility.

Appraisers, Agents Urged to Complain to Regulators
Chantalakwong is urging appraisers and agents to file complaints with Chase’s regulators and let them know about the position Chase is taking. She encourages appraisers and agent/brokers to cite the laws in the petition (found below) in their complaints and to urge regulators to require Chase to take responsibility for their agent, and enforce the federal regulations that require Chase to compensate appraisers with a customary and reasonable fee.

The question of whether lenders are responsible if the AMCs they use fail to pay contractors, such as appraisers, will have far-reaching and long-lasting effects on the industry, many insiders believe.

Complaint Form: Chantalakwong says appraisers and agents/brokers can use the following complaint form to contact regulators. She recommends using a personalized message and citing relevant laws (found in the petition): https://appsec.helpwithmybank.gov/olac_form/

Petition: Chantalakwong says appraisers and agents/brokers can use the following petition to ask Chase to take responsibility for their agent: http://www.change.org/petitions/jpmorgan-chase-take-responsibility-for-the-unpaid-fees-of-your-agent.

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