A pair of West Virginia law firms won a federal case (Alig et al. v. Quicken Loans and Title Source) against Quicken Loans based on allegations the lender unlawfully suggested home values to appraisers. The U.S. District Court judge imposed a penalty of nearly $11 million, or $3,500 per violation of the state’s Consumer Credit and Protection Act. The class action suit involved 2,770 consumers, according to a report by The Plain Dealer (Cleveland, cleveland.com).
The class is represented by Bordas & Bordas and Bailey Glasser, both based in West Virginia. One of the attorneys, Jim Bordas, said the danger of skewed appraisals is that a home could be valued for more than what it is actually worth, and that could allow a consumer to borrow more than the home’s value. That could be disastrous if the consumer wants to sell at some point, but owes more than the home is worth, according to the newspaper article.
In an article by The Washington Post, the court found that Quicken provided appraisers advance “estimates” of property values in assignments on home financings, effectively communicating the amounts Quicken needed to fund the loans. Plaintiffs in a class action suit affecting 2,770 homeowners said appraisers working for Quicken had overstated the market worth of their properties, putting them underwater on their loans from the start. One couple said in the original complaint that Quicken’s appraiser had reported their property was worth $151,000, significantly higher than its actual value of $115,500. The court determined that Quicken’s practices constituted “unconscionable” conduct under the West Virginia Consumer Credit and Protection Act.
“If a lender (Quicken Loans) is suggesting a value to an appraiser, it’s just bad business,” Bordas said. The attorney also said this is the first such case he’s aware of involving the objectivity of appraisals. He said this ruling could cause lawyers to file cases in other states.
“Once an appraisal is tainted by the implication of influence over the appraiser, especially by the party compensating the appraiser, the resulting appraisal cannot by any established standard be fair, valid and reasonable,” the court said.
A spokesman for Quicken Loans told Valuation Review: “This case is the latest example of predatory plaintiff law firms, this time Bordas & Bordas and Bailey & Glasser, manipulating our nation’s legal system by inventing a class of so-called ‘aggrieved’ plaintiffs to enrich themselves financially at the expense of lenders thereby, driving up the costs of financing to homeowners and future homebuyers.
“If past precedent of predatory plaintiff firm victories are any guide, the predatory plaintiff firms in this case would end up with multiple millions of dollars confiscated from their target while each of their ‘aggrieved’ clients will end up with relatively de minimis dollars,” the Quicken Loans spokesperson added. “In addition, the court ruled on this claim before the class was even formed, telegraphing to each potential participant that the case was already won before they were given the option to opt-out of the class. This basically guaranteed payment for each person who elected to remain in the class. This is a clear violation of Quicken Loans’ and Title Source’s due process rights under the United States Constitution.”
The Mortgage Bankers Association made its feelings known about the accusations against Quicken Loans, and how it can negatively trickle down to the consumer.
“MBA is very disappointed to see another case where rule changes are being applied retroactively to conduct that was within the law when it occurred,” Mortgage Bankers Association (MBA) President and CEO David Stevens told us. “It was a common industry practice during the time these loans were made to provide owner’s estimate of value to appraisers, until the law changed nationwide in 2009. Retroactively punishing lenders who followed the rules as they existed at the time, by judging their operations under standards that changed afterwards, sets a discouraging precedent that we are hopeful will be reversed by the Fourth Circuit on Appeal. In the meantime, imposing unfair costs like this only hurt our industry and the consumers we serve.”
The Quicken Loans spokesperson also stated that it is irrational to conclude that the customary practice in the 2004 – 2009 timeframe where home owners willingly provided their estimate of their homes value to the appraiser could somehow result in a judgement against lenders for damages. If any party would be aggrieved by appraisers assessing a higher-than-market value to the homes that serve as collateral for loans, it is the lenders who would be damaged by this inadequate collateral.
“In this case, the court concluded that professional appraisers were influenced by borrower’s estimates of their home values. The data does not support this erroneous conclusion. The class data showed that providing a borrower’s estimated value did not have any impact on appraiser valuations,” the spokesperson said. “Professional appraisers, who are subject to their own licensing and ethical standards, deliver independent valuations. The court labeled the borrower’s self-estimates of their homes value as a ‘target value’”.
Bordas and partner Jason Causey previously sued Quicken Loans over another consumer case, and won a $2 million verdict. In that 2006 case, Quicken Loans approved a refinance loan for a woman for $144,800 based on an appraisal of $182,000. The home was later determined to be worth only $46,000.
“There is no evidence to suggest that homeowner’s estimates impacted the opinion of local independent, licensed, professional home appraisers in West Virginia,” the Quicken Loans spokesperson said. “In fact, multiple state-licensed home appraisers testified that such estimates had zero influence on the home valuations they issued. There is also no evidence that the valuations the appraisers issued at the time were inflated in any way or caused any damages whatsoever to a single plaintiff in the class. The facts of this case are clear and we are confident that both the judge’s ruling and the damages assessed will be overturned on appeal.”
Bordas is also confident. “We’re in it for the long haul,” he said.