New York Appeals Court Holds State Appraisal Laws Not Preempted

On November 22, the New York Court of Appeals ruled in Cuomo v. First American Corporation, No. 184, 2011 WL 5838482 (N.Y. Nov. 22, 2011) to affirm two lower court rulings and allow the state attorney general to pursue state law claims against an appraiser. The court held that New York state laws regulating appraisal practices are not preempted by federal laws, including the Home Owner's Loan Act (HOLA) and the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA). In its complaint, the state alleges that a title company illegally inflated appraisal reports for a lender with which it did a substantial volume of business, in violation of the state's Executive Law and Consumer Protection Act, as well as state common law. Arguing alternatively that federal law occupied the entire field of real estate appraisals, or that New York's regulations obstructed the lenders ability to finance real estate transactions, the appraiser moved to dismiss and lost. On appeal to the Appellate Division, the appraiser abandoned the second theory regarding conflict, but the lower court decision holding no preemption still was affirmed. The Court of Appeals agreed, holding that "FIRREA governs the regulation of appraisal management companies and explicitly envisioned a cooperative effort between federal and state authorities." Moreover, the court found "no basis to conclude that HOLA itself or federal regulations promulgated under HOLA preempt" state common or statutory law claims. Those regulations do not explicitly list appraisal laws as a type of preempted state law, and to the contrary provide that state laws that only incidentally affect lending operations of federal savings associations are not preempted. According to the court, authority to pursue the appraisal company under state law would, at most, incidentally affect the institutions lending operations. One judge dissented from the majority opinion and argued that federal guidance on preemption creates conflicts in that some mortgage-related state laws are preempted, e.g. those regarding mortgage processing, under HOLA.