February 10th, 2009 15:08 EST
Hostile Territory for Wells Fargo
A class action lawsuit alleges that lending giant Wells Fargo profited off an unholy scheme with an appraiser owned by Wells Fargo`s parent company.
According to the suit, Wells Fargo requires borrowers to use Rels Valuation, an appraisal service owned by the same company that controls Wells Fargo. In turn, Rels, which uses third-party appraisers to perform the work, forces these vendors to come back with an appraisal that meets Wells Fargo`s expectations, and pays the appraisers well below market value for their services.
Despite the bargain that Wells Fargo receives on the appraisals, it continues to charge consumers the full amount for the service, and pockets the difference.
As described in the suit, Wells Fargo`s alleged scheme is exceedingly clever and complex. According to the suit, filed in the United States District Court for the District of Arizona, Wells Fargo pressures subcontracting appraisers to report back with a price that will allow Wells Fargo to underwrite the loan without significant obstacles, regardless of whether the figure is accurate.
Additionally, Wells Fargo allegedly informs the appraiser that they will pay them drastically less than the going market rate for their services. If the appraiser refuses to comply with either of these conditions, they are placed on Wells Fargo`s exclusion list, " and are not considered for future appraisals.
Because of Wells Fargo`s giant stature " it is the number one mortgage lender in the nation " refusal to acquiesce in these demands could mean a drastic drop in appraisers` business and significant damage to their reputation.
Under the rules laid out in the Real Estate Settlement Procedures Act ( RESPA "), no company is allowed to require consumers to use another company, as such arrangements practically invite the kind of price gauging alleged here. However, the Act makes an exception for lenders, since appraisals are ostensibly done to protect their interests, and allowing them to choose a trusted appraiser helps further this purpose.
Under RESPA, however, when a lender requires the use of a certain appraiser, they must inform the consumer both of the relationship and of the amount they were charged by the appraiser. According to the suit, Wells Fargo sometimes disclosed the relationship between themselves and Rels, but never disclosed the price they paid for the appraisals, giving consumers no indication that they were paying as much as twice what Wells Fargo had for the service.
The suit estimates that, given Wells Fargo`s size and influence, tens or even hundreds of thousands of homeowners have been victimized by the scheme.
It brings claims under both RESPA and the Racketeer Influenced and Corrupt Organizations Act ( RICO "), since the scheme was allegedly carried out across state lines via U.S. mail and interstate wire facilities. The suit also alleges unjust enrichment against Rels and breach of fiduciary duty and unfair competition against Wells Fargo.