IndyMac Not Liable for Bad Appraisals

In a victory for IndyMac’s receiver, the Federal Deposit Insurance Corporation, District Judge John G. Koeltl of the Southern District of New York dismissed claims by the purported class representative that IndyMac failed to disclose that it selected appraisers who inflated residential appraisals in order to increase the number of loans it placed and its profits.

According to plaintiff Virgen Cedeno, IndyMac allowed its sales personnel to pressure appraisers into inflating valuations by communicating target or qualifying property values necessary to close the loans. Appraisers were made to understand that by meeting those target values they would be selected for future business with IndyMac.

Cedeno also alleged that a confidential witness indicated that IndyMac refused to do business with appraisers who failed to meet the communicated target values.

The judge’s order dismissed federal claims that IndyMac violated the Real Estate Settlement Procedures Act and the Truth in Lending Act.

Dismissal of the RESPA claim was based upon that statute’s “safe harbor” provision, which provides that RESPA does not prohibit payment for services actually performed. The order recognized that, although the complaint alleged that the appraisal of Cedeno’s property was faulty and inaccurate, there was no dispute that the appraisal was performed and paid for. The court declined to “modify the plain meaning of the safe harbor by requiring an analysis of the quality and price of the services actually performed,” and ruled that Cedeno had not made out a RESPA claim.

Similarly, the court ruled that the complaint failed to state a TILA claim. TILA requires that the terms of the loan and the fees associated with it must be properly disclosed. The court observed that “TILA is directed to requiring that the cost of the service be set out, not to regulating the quality of the service.” Plaintiff’s TILA claim failed because it did not allege a failure to disclose, but rather that the disclosed service was faulty — a defect outside the scope of the statute.

The court also dismissed Cedeno’s state law claims for violation of the deceptive trade practices statutes of both California and New York, as well as claims for breach of contract and unjust enrichment. In each instance, the court ruled that the state law claims were preempted by the federal Home Owners’ Loan Act, under which the actions alleged by Cedeno are regulated.

Virgen Cedeno v. IndyMac Bancorp, Inc. and IndyMac Bank, F.S.B.
No. 06-CV-6438 (JGK) (S.D.N.Y.)

Kristin D. Thompson is an associate with the Washington, D.C.-based firm of Weiner Brodsky Sidman Kider PC. She graduated from Wellesley College, B.A., with honors, in 1981 and from Cornell Law School, J.D., in 1997.

e-mail Thompson@WBSK.com