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4th Circuit affirms $10 million penalty for appraisal practices

Courts Appraisal Settlement Mortgages Appellate Fourth Circuit State Issues

Courts

On March 10, a divided U.S. Court of Appeals for the Fourth Circuit affirmed a district court’s summary judgment that an appraisal practice common before 2009 was unconscionable under the West Virginia Consumer Credit and Protection Act. According to the opinion, a class of borrowers filed a lawsuit against a lender and an appraisal management company, alleging the defendants relayed home value estimates provided by borrowers on their applications to appraisers and allegedly asked appraisers “to take another look” if the appraisal value came in lower than the estimated value. The plaintiffs claimed, among other things, that this practice constituted a breach of contract and unconscionable inducement under West Virginia law. Plaintiffs also filed a civil conspiracy claim against the defendants. The district court conditionally certified the class. It ultimately imposed a $9.6 million statutory penalty and awarded class members the appraisal fees paid as damages for breach of contract in an amount totaling nearly $1 million. However, no damages were awarded for conspiracy. The defendants appealed, arguing that summary judgment was wrongfully granted and that the class should not have been certified since individual issues predominated over common ones.

On appeal, the majority determined, among other things, that the acceptability of the challenged practice “shifted dramatically during the class period,” and that “[w]hat started out as a common (though questionable) practice became one that, in short order, was explicitly forbidden.” The majority determined the plaintiffs established their claim for unconscionable inducement, and that it “was unethical for Defendants to attempt to pressure or influence appraisers.” The majority also affirmed the district court’s ruling on the conspiracy claim. However, the appellate court concluded that the district court improperly granted summary judgment on the breach of contract claim and ordered the district court to reexamine whether breach of contract occurred and whether the plaintiffs suffered resulting damages.

The dissenting judge called the majority opinion “startling,” writing that “[t]his is an unjust punishment indeed for a company that followed a practice that was both customary and legal and only later modified to avoid potentially influencing appraisers.”

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