The appraiser community is still reeling from the decision of a Florida bankruptcy judge to absolve JPMorgan Chase of all liability in the case of Evaluation Solutions/ES Appraisal Services (ESA) bankruptcy case.
Over 10,000 real estate appraisers and agent/brokers were left unpaid by ESA, an Appraisal Management Company (AMC) that procured valuation reports on behalf of Chase. The judge in the ESA bankruptcy case ruled that ESA was not Chase’s agent, and consequently, Chase is not liable for the debts of the AMC.
The court decision has raised many questions within the appraiser community. Namely, who is the client? And are AMCs really the agents of the banks as required by federal law?
Appraisers will be comforted to know that not all courts feel the same way about the relationship between banks and their AMCs, and their responsibility to pay appraisers. Here is a case in point.
Robert Smith (not his real name, he fears reprisal from other banks), is an appraiser from Boise, Idaho who has recently sued One-West Bank in small claims court for an appraisal he completed for the bank that was ordered through JVI Solutions. The good news? Smith won the case and the court ordered One-West Bank to pay Smith the unpaid fee that JVI failed to pay him.
Smith’s story begins in February 2012, when he completed a customized appraisal ordered through JVI Solutions. After going over a year without being paid, Smith decided to track down the lender and hold them accountable for the actions of their agent. As Working RE reported last year, some lenders decided to take responsibility for their portion of JVI’s bad debt, voluntarily paying the unpaid fees of appraisers who completed work on their behalf (See Wells Fargo Pays JVI’s Bad Debt).
In this case, however, One-West Bank, similar to Chase, did not accept responsibility for unpaid fees owed for appraisals ordered through an AMC on their behalf.
(story continues below)
Smith says that on January 31, 2012, JVI contacted him and made it clear that they were shopping for an appraisal on behalf of One-West Bank. “The purpose of the appraisal was to decide what price they could sell the property for. They wanted one value as-is, and one assuming extensive marketing and a 60-90 day exposure time. We bid $1,200 and they liked our bid so we got the assignment,” says Smith.
After completing the appraisal in early February, Smith says he was continually given the run around from JVI regarding payment. “When we pressured them for payment, they said payment was on the way. They said they were having cash-flow problems and would get to it. A lot of promises with no fulfillment,” says Smith.
After over a year of non-payment, Smith decided to pursue One-West Bank for payment since they were listed as the client on the appraisal, and he believes that JVI Solutions acted as the bank’s agent in ordering the appraisal. “Several weeks ago, I said, enough is enough, our small claims limit in this state is $5,000, I’m going to go after them. I filed the papers and found out I had to submit the papers to them through a corporate agent in Boise,” says Smith.
Smith reports that he heard nothing back from One-West Bank until he was contacted by their legal department. “Their attorney called and told me that I should take up the issue with JVI. She told me to go after JVI and that One-West Bank wasn’t responsible,” says Smith.
On the day of court, Smith says that One-West Bank actually flew a representative out from California. “It’s interesting, because they probably spent more than the $1,200 they owe me just to fight the case,” says Smith.
(story continues below)
In Smith’s opinion, the representative from the bank showed up unprepared. “He didn’t know about the Chase case in Florida and he seemed clueless about the federal laws and regulations that require lenders to order appraisals either directly or through an agent. All he brought was the Master Service Agreement between One-West Bank and JVI that says JVI is an independent contractor. Independent contractor or not, that doesn’t change the agency relationship,” says Smith.
Smith says that he read portions of Working RE’s articles on the issue to the judge in Court (See Stiffed Appraisers Go After Chase, Chase Denies Responsibility for Bankrupt AMC Debt, Bankruptcy Court Absolves Chase of All Liability), including the NOLO’s Plain English Law Dictionary definition of agency as: “The relationship of a person (called the agent) who acts on behalf of another person, company, or government, known as the principal. The principal is responsible for the acts of the agent, and the agent’s acts bind the principal.”
Smith says he cited many of the regulations as reported in Working RE, including the Interagency Appraisal Guidelines, FIRREA, and Dodd-Frank. “I saw that the strength was in the agency definition. I said, look, if these guys are going to hold that they have no liability because of their contract with JVI, then they are in violation of federal law. Federal law says that they and their agents are responsible to appraisers for payment,” says Smith.
Smith feels that Dodd-Frank provides the best argument for One-West Bank’s responsibility. “The strength of the argument lies in the Dodd-Frank regulations,” says Smith. “Specifically, Dodd-Frank states:
§ 129E (i) 1: ‘Lenders and their agents shall compensate fee appraisers at a rate that is customary and reasonable for appraisal services performed in the market area of the property being appraised.’”
Smith says the key language is that the law says “Lenders and their agents,” and he argued that the law doesn’t say lenders or agents, it says “and,” which means that if JVI didn’t pay him, the lender is on the hook for it. “If you have to steer an argument in a certain direction, the agency law and the Dodd-Frank law are probably an appraiser’s best evidence and best argument when going against a large bank,” says Smith.
The judge’s handwritten decision says: “Bank’s agent did not pay the appraiser, which means the bank did not pay the appraiser.”
Smith won the case and One-West Bank has been ordered to pay his firm the $1,200 unpaid fee that JVI failed to pay. “I think the judge ended up making his decision based on Dodd-Frank. He was convinced that JVI was the agent of One-West Bank,” says Smith.
Smith expects One-West Bank to appeal the decision and take him to a higher court, even though the amount is only $1,200. “In my opinion, if they pay the bill, they’re admitting guilt. They can’t let this thing go or else they’ll have to pay all of the appraisers who did work for them through JVI and were left unpaid,” says Smith. One-West Bank has 30 days to appeal the decision and so far no appeal has been filed.
Smith is hopeful that he can prevail in a higher court and is hoping to set a precedent for appraisers nationwide. “If they appeal and lose, it will set a precedent for appraisers across the nation because it’s going to a higher court. I think the small guy has an advantage because we’re just a little firm being manipulated and taken advantage of by a big, rich bank,” says Smith.
Smith sees his story as being a positive sign and hopes it gives other appraisers hope to stand up to banks and hold them accountable for the actions of their agents. “We are just a little appraisal firm in Boise, Idaho who was contracted by an out of state bank to do an appraisal. We did a good job, the bank used the appraisal to market the property and they benefited from the appraisal. We waited for the check to come in the mail and it never came. Finally, we pursued action against the bank and we won! I hope this gives hope to other appraisers who have been left unpaid,” says Smith.
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 Bachelors in Business Management at San Diego State University. He can be contacted at Isaac@orep.org or (888) 347-5273.