How to Insulate Your Company Name from Bad Press
By Impac Mortgage Holdings (Stock Symbol: IMH)
Let’s say you are a publicly traded company integrally involved in the residential mortgage business as a lender, wholesaler, correspondent, warehouse provider, and servicer. Let’s also say that not too long ago your company had a near death experience…as in your stock price in November of 2008 hit $00.05 per share (yes, that is 5 cents).
Now, let’s say your stock price is doing much better, but you have some really old mortgage loans that you either own or service that went bad during the downturn beginning in 2007. Many of the homes that were collateral for these loans may have already been foreclosed on and then re-sold back into the market. Naturally, you suffered losses from the downturn since even the largest companies couldn’t avoid the pain inflicted by this catastrophe.
One day someone has the brilliant idea to see if there might be some way to squeeze money out of these long dormant files and either finds or is approached by two brothers from Texas. The Texans claim that they are experts at suing real estate appraisers over appraisals done as much as 2-3 years before the market collapse even began in 2007. In support of this proposition they tout the hundreds of lawsuits they have filed so you decide you want to try to find a way to chase appraisers and their magical (as in have $$) E&O carriers.
On the other hand, you are still originating a lot of new loans in the residential marketplace and still need to use these same appraisers to close loans and make money. How then can one continue to use the services of the same group they are about to target and hope not to suffer any consequences from doing so? “It’s simple”, someone exclaims. All you need to do is assign the rights to go after the appraisers to an entity controlled by people that are not connected to you in any obvious way, shape, or form. Conveniently, the Texans have just such an entity available and readily agree to accept the assignments from one or more of your subsidiaries and then to file the lawsuits in the name of one or more new entities.
This sounds like a great plan to chase appraisers from the relative safety of the shadows except for one little inconvenient fact. Once the wave of lawsuits began, the appraisers, E&O carriers, and their attorneys started asking questions about the validity of the alleged assignments and, in time, discovered Impac’s role in what can only be described as a tremendous waste of paper and judicial resources. To Impac we say shame on you for hiding in the shadows and not letting the appraisal community know you are a wolf in sheep’s clothing.
In closing, we’d like to point out to the appraisal community that Impac now owns CashCall and originates a relatively high volume of loans using that name, all of which presumably will require an appraisal. Wouldn’t it be tragic if appraisers decided turnabout is fair play and stopped accepting assignments for loans being done by CashCall? Or would it just be justice? You decide. In the meantime, we’ll continue to watch as these lawsuits continue to get dismissed almost daily in every court they were filed in. If the success rate of these lawsuits was a batting average, it would be .000 since they have yet to produce even one hit.
Author: Brian L. Trotier, JD, is the Executive Vice President and Chief Operating Officer of FREA and a former practicing attorney with more than 30 years experience in real estate and risk management.