It’s been a few months since we issued our last update on our friends (and yours) the Ganter brothers (Chris and Ben). The Ganters have suffered what for most people would be a series of embarrassing setbacks in their blatant attempts to use the legal system to pressure appraisers and/or their E&O carriers into paying off what we view as frivolous claims to save the cost of litigating the underlying dispute. For those of you who are reading this for the first time, we have issued two other alerts about this in the past 18 months. Links to the earlier blog posts are footnoted below as are links to some other articles written by other sources close to the situation.
The bottom line is that in the good old United States anyone can sue anybody for any reason with very little risk of having to pay for abusing the legal system by flooding it with frivolous claims. The Ganters are not the first, nor will they be the last, to exploit this fact. They began their efforts as long ago as 2008 when they first started pursuing claims against appraisers for negligent overvaluation using the entity Heritage Pacific Financial. Once Heritage itself was sanctioned by several courts and became the target of a class action, it filed for bankruptcy and closed its doors. Not to worry though, the Ganters were not done by any means.
They next set up a new entity called Savant Claims Management, LLC and Savant began issuing threatening letters to appraisers seeking compensation for overvaluation. Apparently these letters did not result in a flood of voluntary payments by appraisers or their E&O carriers so in 2014 two new Ganter entities (Mutual First, LLC and First Mutual Group, LP) began filing lawsuits en masse against appraisers seeking to trigger coverage by E&O carriers that would be more than willing to settle for a few dollars to save the cost of litigating. Most recently, the Ganters have set up another entity called Llano Financing Group, LLC and filed yet another batch of lawsuits against appraisers. Many of the cases filed by Mutual First, First Mutual, and Llano Financing have been filed in federal court rather than state court which may increase the cost to defend.
In virtually every case, the entity created by the Ganters alleges it acquired from one or more lenders the right to pursue collection for appraisal overvaluation issues by “buying” the remnants of the defaulted and often already foreclosed mortgage loan. The complaints go on to state that a review of the original appraisal has been completed and the reviewer reported finding USPAP violations which support the allegation of overvaluation. The trouble we see with this is that the reviewer is also presumably a licensed appraiser who may be in violation of the geographic competency requirements of USPAP. Conveniently, the reviewer is not identified by name in the complaint so for all we know the review was done for a case of free beer by a friend of the Ganters who cannot even spell appraisal.
At last count, Ganter entities have filed roughly 500 lawsuits against close to 700 appraisers in multiple state and federal courts. If this count is even close to accurate it would dwarf the number of lawsuits filed against appraisers by the FDIC when it was cleaning up the files of banks that failed between 2007 and 2010. Quite frankly, this is absurd. Due to ridiculous litigation like this, many people who have suffered real, compensable injuries are forced to wait months or even years to get their day in court. Our legal system is broken and needs to be fixed. The English system makes the losing party pay the fees and costs incurred by the winner and acts as an effective deterrent to the mass filing of frivolous claims. We may have better weather and better food than the Brits, but our legal system is operating in the dark ages and needs a serious makeover. However, any reasonable reform efforts have been opposed by lobbyists for the lawyers that benefit financially from leaving things the way they are. So much for doing what’s right for the majority…
Turning back to the allegations made by the Ganters, here is a list of both factual and legal issues that should be raised if you find yourself the target of one of these lawsuits. Feel free to share it with your attorney. Who knows, it might help.
· First and most important, if you do not have E&O insurance or you know your current policy has a retro date that does not cover the appraisal in question, inform the attorney representing the Ganter entity of that fact immediately. If there is no way to trigger coverage and access insurance proceeds, the enthusiasm for spending money to chase an individual appraiser for damages is likely to diminish significantly. To prove this you may have to tender the claim and get a formal declination of coverage, but that usually only takes a week or two.
· Next, ask for the name of the reviewer and get their qualifications and license number. If they are reviewing work outside of the state where they are licensed, then turn them in to the appropriate state agency.
· Ask to see the documents evidencing the sale of the loan to the Ganter entity and be sure to get a copy of the assignment that purports to transfer the right to litigate overvaluation claims.
· Ask for full list of all of the members and investors in each entity used by the Ganters to pursue these claims and request a list of all cases the entities have filed in state or federal court since 2008.
· Ask for documentation showing what the Ganter entity paid for the loan in question. Every complaint we have seen makes it sound like the lender’s losses have been passed to the Ganter entities, but if that is true then so have the defenses to the claim and in particular the statute of limitations.
· Ask for a detailed accounting of the amount of damages claimed. Not surprisingly, it may show the date of the loss due to default/foreclosure is much earlier than what is being alleged in the complaint and this impacts when the statute of limitations will start running, especially in states that use a discovery rule.
· Ask for the name of the original lender that funded the loan. This may not be the entity that sold the loan to the Ganter entity. The reason for this is to find out if the original lender followed its own lending guidelines when the loan was funded. If it did not, then all subsequent sales of the loan, including the one to the Ganter entity, may be tainted. In laymen’s terms if you shoot yourself in the foot, you cannot sue anyone else for pulling the trigger.
· Finally, ask to depose one of the Ganters so you can ask them to explain why Heritage Pacific was sanctioned so often by the courts that it eventually filed bankruptcy.
We will continue to follow this story and will report back to you with further developments as soon as we have them. Here are some links to other blogs or articles about the same groups.
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.