Skip to main content

Inaccurate Appraisals: Weakest Buy-Back Demand

Philip R. Stein

Misrepresentation?

We have long held the view that investors’ buy-back demands based on allegedly inaccurate appraisals are about the weakest type of buy-back demand imaginable.

Think about it: the two fundamental components of such a demand are that the loan originator made a “misrepresentation,” and that the misrepresentation concerned the appraised value of the property being obtained with the mortgage loan.

What is a “misrepresentation”? It is generally a more polite way of saying that the originator lied — or at least that the originator was reckless and inaccurate in representing and warranting that the appraisal appeared to be appropriate.

Fact vs Opinion

And what is an “appraisal”? It is nothing more than an opinion (as Bank of America has recognized and stated publicly when suing a mortgage insurer).

So let’s put those two fundamental concepts together. The essence of an appraisal-based loan repurchase claim, therefore, is that the originator “misrepresented” (i.e., lied about) an OPINION.

All of us can understand how a FACT might be misrepresented, but how exactly does someone misrepresent an OPINION?

No Basis for a Repurchase Claim

If the loan purchaser wants to come back to one of our clients and demonstrate that the client somehow falsified an appraiser’s actual opinion (doctoring the paperwork to show an appraised value over and above what the appraiser actually concluded, for example), we are happy to have that discussion — but that’s never what the investor is actually claiming, in our experience.

Instead, the claim is that the appraiser’s opinion was somehow incorrect, and that the originator therefore allegedly “breached” the loan purchase agreement by submitting with the loan file an appraisal containing that supposedly inaccurate OPINION.

We hope that no originator will ever feel inspired to open up its wallet in response to a buy-back claim that is based simply on an investor’s opinion that an appraiser’s opinion, given years ago, was inaccurate. Solid facts, not mere conflicting opinions, must be the starting point for a potential repurchase.

YOU MIGHT ALSO LIKE
Development Conference March 15, 2023
Suzanne M. Amaducci and keynote speaker Jeff Krasnoff, Chief Executive Officer of Rialto Capital Management, discuss the state of real estate debt markets amid ongoing economic uncertainty at Bilzin Sumberg’s 4th Annual Development Conference.
Blog November 2, 2022
As claims based on pre-2008 loans sold and securitized in residential mortgage-backed securities (RMBS) trusts are still being resolved, industry analysts are bracing for a new wave of indemnification claims and put-back attempts. Credit Suisse Securities and Bank of America have both agreed to make...
Blog February 18, 2022
Last week, the U.S. District Court for the Southern District of New York dealt a major blow to mortgage investors in two parallel actions pending for the past few years. The impact proved to be fatal to one of the actions, which was dismissed in its entirety. The other one was barely left standing. ...
VIEW MORE