New York State Court Holds HOLA/FIRREA Do Not Preempt Cause of Action by New York Attorney General Regarding Appraisal Practices

On June 8, the Supreme Court of New York, Appellate Division (First Department) affirmed that the Home Owner’s Lending Act (HOLA) and the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) do not preempt the enforcement of Uniform Standards and Professional Appraisal Practice standards under state law. People of the State of New York v. First American Corp., 2010 NY Slip Op 04868, 2010 WL 2266832 (N.Y. Sup. Ct. June 8, 2010). The New York Attorney General claimed that the defendants engaged in fraudulent, deceptive and illegal business practices by allegedly permitting residential real estate appraisers to be influenced by a nonparty bank to increase real estate property values on appraisal reports for the purpose of inflating home prices. The defendants moved for dismissal, asserting that HOLA and FIRREA impliedly place the responsibility for oversight of appraisal management companies on the Office of Thrift Supervision (OTS). The defendants also asserted that the New York Attorney General lacked standing to bring these claims. Regarding the preemption issue, the court relied in part on an October 25, 2004 OTS opinion letter requiring thrifts using agents to perform activities such as appraisals to enter into written agreements acknowledging OTS’s statutory authority to take enforcement action against such agents. Noting the absence of such an agreement, the court concluded that the applicable federal statutes, regulations, and guidelines did not preempt or preclude the Attorney General from pursuing the action. The court further concluded that the Attorney General had standing to bring suit, rejecting the defendants’ argument that the Attorney General’s action was actually a federal cause of action characterized as a state law claim.