Owners' Loan Act, nor the federal Financial Institutions Reform, Recovery,
and Enforcement Act, preempts state law claims based on violations in
performing real estate appraisals for a federal savings association.
A copy of the court's opinion is available at:
http://www.nycourts.gov/ctapps/Decisions/2011/Nov11/184opn11.pdf.
This case, commenced prior to the enactment of the Dodd-Frank Wall Street
Reform and Consumer Protection Act of 2010, was filed in state court by
New York's Attorney General against eAppraiseIT, LLC, an appraisal
management company that performed appraisal work for Washington Mutual,
Inc. (WaMu), a federally chartered savings association, that utilized the
appraisals in its mortgage lending operations.
The complaint against eAppraiseIT and its parent company, First American
Corporation, alleged that the Defendants, at WaMu's insistence, repeatedly
engaged in fraudulent and deceptive business practices by providing
inflated home appraisal values to WaMu in order to keep WaMu as a client.
The complaint further alleged that the Defendants violated appraiser
independence regulations by allowing WaMu to control eAppraiseIT's
appraisers.
Asserting federal question jurisdiction, the Defendants removed the action
to federal court and sought dismissal of the complaint. The federal
district court remanded the case back to state court, where the Defendants
moved to dismiss, arguing in part that the Home Owners' Loan Act (HOLA)
and the Financial Institutions Reform, Recovery, and Enforcement Act
(FIRREA) and their regulations preempted the state claims. Defendants
argued that federal law occupied the entire field of real estate
appraisals and, alternatively, that the state's attempt to regulate
eAppraiseIT conflicted with federal law insofar as state law interfered
with WaMu's ability make real estate loans.
The trial court denied the motion to dismiss, concluding that federal law
did not occupy the entire field of real estate appraisals, and that the
Defendants failed to show how state enforcement of appraisal standards
conflicts with federal law or otherwise interferes with a bank's ability
to make loans. The trial court also ruled that the complaint adequately
pleaded a cause of action under New York's General Business Law. The
Appellate Division affirmed, and Defendants were granted leave to appeal
to the Court of Appeals.
In affirming the Appellate Division's order denying the Defendants' motion
to dismiss, the Court of Appeals focused on Defendants' argument that HOLA
and FIRREA reflected congressional intent to occupy the entire field of
home lending, and thus preempted all state laws regarding the supervision
of real estate appraisal management companies.
In rejecting the Defendants' argument, the Court observed that federal
regulations limit federal preemption where state laws "only incidentally
affect the lending operations of a Federal savings association." See 12
C.F.R. § 560.2(c). The Court concluded that the Attorney General's
authority to prosecute the Defendants for unlawful and deceptive real
estate appraisals was not preempted because "at most, it would
incidentally affect" WaMu's lending operations.
The Court also noted that Congress intended a federal-state partnership as
to the regulation of real estate appraisers as evidenced in part by
FIRREA's reliance on the states to certify, license, and supervise real
estate appraisers. The Court concluded that FIRREA explicitly envisioned a
cooperative effort between federal and state authorities to ensure that
real estate appraisals comport with applicable standards.
Finally, the Court of Appeals also held that the complaint adequately
pleaded a cause of action under New York's General Business Law and that
the Attorney General had standing.
Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: RWutscher@mtwllp.com
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