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Eighth Circuit Upholds Dismissal of Proposed Class Action Over Inflated Appraisal Fees - Gomez v. Wells Fargo Bank

April 16, 2012

Vincent Howard and our San Bernardino foreclosure defense lawyers have written about corruption in virtually every part of the mortgage lending process, including corruption among appraisers. When the housing bubble was inflating and home sales offered easy money, some appraisers were accused of inflating their appraisals in order to create a larger loan, which would benefit the lender or the goals of an underlying mortgage fraud scheme. The fee for the appraisal, normally paid by the borrower, could also be inflated with little risk, since appraisers are usually chosen by the lender but paid by the borrower as just one of a number of fees rolled into closing. That's why we were interested to see Gomez v. Wells Fargo Bank, a proposed class action over the price of appraisal fees paid by home borrowers. The case was ultimately dismissed by the Eighth U.S. Circuit Court of Appeals.

Grant and Lanie Gomez bought their home in Scottsdale, Ariz. in 2006 and refinanced in 2007, both with Wells Fargo. Another Wells Fargo company owns about 50 percent of Rels Valuation, an appraisal company, which Wells Fargo had handle both appraisals. The appraisal fees were $375 the first time and $495 the second, but the Gomezes contend that Rels subcontracted the work, paid the actual appraisers no more than $200 and pocketed the difference, all without disclosing this to them. Their lawsuit also charges Wells Fargo with underpaying the independent appraisers so much that it's impossible to do a thorough job, and pressuring appraisers to come up with the numbers that suit the bank's purposes. They alleged racketeering and conspiracy, violations of RESPA, unjust enrichment, unfair competition and violations of Arizona law. After transfer to Minnesota district court, the court dismissed with prejudice every count but unjust enrichment, for failure to state a claim, then dismissed the remaining claim without prejudice because jurisdiction was wrong.

The Gomezes appealed, but found the Eighth Circuit no more friendly to their claims. The appeals court first tackled the state and federal racketeering claims. The trial court dismissed these claims because the appraisal fees, while higher than the value of the appraisals, were concededly not above market rates. The Eighth Circuit agreed, finding the Gomezes had suffered no financial loss and rejecting arguments that failure to disclose the markup constitutes a loss. For the same reason, it upheld the dismissal of the unfair competition law claim, saying the Gomezes lost no money or property. Under the Real Estate Settlement Procedures Act, the Gomezes argued that Wells Fargo illegally received control of the appraisal process from Rels in exchange for referring the appraisals, and also illegally split fees. The Eighth agreed with the district court that Wells Fargo did not truly have control over the results because Rels subcontracted the appraisal work; the fee-splitting argument was foreclosed by caselaw. Finally, the Eighth rejected the argument that the Gomezes should have been given leave to amend their complaint, noting that they passed up earlier opportunities to do so.

Vincent Howard and our Westminster foreclosure defense attorneys wonder if the outcome of this case might have been different if it had stayed in the Ninth Circuit. Though no part of the country has been left untouched by the mortgage downturn, the Ninth Circuit's states have been hit particularly hard, so that court may be more sympathetic to these arguments than the Eighth. In addition, the Ninth has different caselaw than the Eighth, of course, and perhaps more familiarity with the state-law claims at issue. This may be why Wells Fargo, a corporation with branches and attorneys nationwide, was eager to change the venue of the case. Our Gardena foreclosure defense lawyers work in the Ninth Circuit and work hard to keep cases here, where they usually belong and where we believe the courts have substantial experience handling foreclosure and mortgage issues.

If you're facing foreclosure and you'd like to discuss your legal options with experienced attorney Vincent Howard, don't hesitate to call Howard Law, P.C., for a consultation. You can send us an email or call 1-800-872-5925.

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