Free Amended Complaint - District Court of California - California

Case 5:08-cv-00868-RMW

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1 Joseth N. Kravec, Jr.
SPE TER SPECTER EVANS
2 & MANOGUE, P.C. The 26 th Floor KOPRers Building 3 Pittsbu1Jh1 Penns! vania 15219 642- 300 Tel: ~ 4 Fax: 412 642-2309
E-mail: [email protected]
5 Michael D. Braun C667416)
6 BRAUN LAW GR UP, P.C.
12304 Santa Monica Blvd., Suite 109
7 Los An~e1es, CA 90025
Tel: ~ 10; 442-7755 8 Fax: 310 442-7756 E-mail: [email protected] 9 Ira ~iro (67641) 10 SPI 0 MOSS BARNESS LLP 11377 West 0B;m~ic Blvd., Fifth Floor II Los An~eles, A 0064-1683 Tel: ~ 10~ 235-2468 12 Fax: 310 235-2456 E-mail: [email protected] 13

L;

Janet Lindner Spielberg (221926) LAW OFFICES OF JANET LINDNER SPIELBERG 12400 Wilshire Blvd., Suite 400 Los Angeles, CA 90025 Tel: (310)392-8801 Fax: (310)278-5938 E-mail: [email protected]

14 Attorneys/or Plaintiffs 15 16 17 18 19 20 21 22 23 24 25 26 27 28 SIDNEY SCHOLL and FELTON A. SPEARS, JR., on behalf of themselves and all others similarly situated, Plaintiffs,
v.

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA - SAN JOSE DIVISION


CASE NO.: 5:08-cv-00868 (HRL) CLASS ACTION FIRST AMENDED COMPLAINT FOR DAMAGES EQUITABLE, DECLARATORY AND INJUNCTIVE RELIEF DEMAND FOR JURY TRIAL

WASHINGTON MUTUAL, INC. a Washington corporation; WASHINGTON MUTUAL BANK, FA (aka WASHINGTON MUTUAL BANK); FIRST AMERICAN EAPPRAISEIT, a Delaware corporation!' and LENDER'S SERVICE, NC., Defendants.

FIRST AMENDED COMPLAINT


Case 5:08-cv-00868-RMW

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Plaintiffs, by their attorneys, bring this class action against Defendants Washington Mutual, Inc., Washington Mutual Bank, FA (aka Washington Mutual Bank)(herein after collectively referred to as "WaMu"), First American eAppraiseIT ("EA"), and Lender's Service Inc., ("LSI") (collectively "Defendants") on their own behalf and on behalf of all others similarly situated, and allege as follows based upon the investigation of their counsel:
OVERVIEW

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1.

This is a class action against Defendants seeking relief on behalf of

Plaintiffs and a class of all consumers in California and throughout the United States who, on or after June 1,2006, received home loans from WaMu, in connection with appraisals that were obtained through either EA or LSI. Plaintiffs and the Class were ultimately responsible for paying for these appraisals, which, as described throughout this Complaint, were not performed in an independent, objective, impartial and

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the apprai sal. 2. The vast majority of home purchasers in the United States finance their

home purchase through a third party lender. The loan has traditionally been secured by the lender, who retains a security interest in the property until the loan is repaid in full. In the event of default, the lender will be entitled to sell off the security interest (i.e., the property) and recoup the loan amount. Thus, it traditionally has been critical for the lender to make sure the fair market value of the property equals or exceeds the value of the loan. l To do so, lenders require that, prior to the loan, the property be professionally appraised to determine its fair market value. 3. A real estate appraisal is supposed to be an independent, objective,

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Fair market value is the price at which a willing buyer would purchase a property and a willing seller would sell the same property, when neither party is under any compulsion to buy or sell, and each party has full knowledge of all pertinent facts relating to the sale."
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1 impartial, unbiased, credible professional estimate of the fair market value of a 2 3 4 particular property. It typically consists of a visual inspection of the interior and exterior of a property; inspection of the neighborhood; and a comparison of selling prices of comparable properties on the street or adjacent areas, among other indicia.

5 The lender (in this case, WaMu) typically undertakes to procure the appraisal on 6 7 8 9 10 11 behalf of itself and the borrower with the cost of the appraiser's services ultimately borne by the borrower. 4. If an appraisal is properly done, the appraisers perform the appraisal,

and appraisal reviewers review the appraisal report for accuracy and compliance with applicable standards to create what legal and professional standards term a "credible appraisal". Appraisers and appraisal reviewers follow federally accepted standards,

12 the Uniform Standards of Professional Appraisal Practice ("USPAP"), which govern 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 the ethical and legal aspects of the appraisal undertaking, assessment, reporting and review process, and establish the minimum standards for performing a "credible appraisal". These USPAP standards are also adopted by most, if not all, states, including California. Also they are part of the contractual undertakings expressly stated in the Uniform Residential Appraisal Report, which is the standard form that appraisers use for their appraisal reports and which were used for the WaMu loans that are the subject of this Complaint. These appraisal reports also expressly provide that they are to be provided to borrowers and acknowledge that borrowers are permitted to rely on the appraisals as part of any mortgage finance transaction between borrowers and WaMu. 5. The USPAP requirements provide that to promote and preserve the

public trust inherent in professional appraisal practice, an appraiser and an appraisal reviewer must observe the highest standards of professional ethics to perform and ensure a "credible appraisal". An appraiser and an appraisal reviewer must perform assignments ethically and competently, in accordance with USPAP and any supplemental standards agreed to by the appraiser in accepting the assignment.
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1 Under USPAP, an appraiser and an appraisal reviewer must perform assignments 2 3 4 5 6 7 with impartiality, objectivity, and independence, and without bias or accommodation of personal interests. In appraisal practice under USPAP, an appraiser and an appraisal reviewer must not perform as an advocate for any party or issue, must not accept an assignment that includes the reporting of predetermined opinions and conclusions or favors the cause of any client, must not communicate assignment results or write a report in a misleading or fraudulent manner, and must not permit an

8 employee or other person to communicate a misleading or fraudulent report. 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 6. In or about June 2006, WaMu entered an agreement, conspiracy or

scheme with EA and LSI, two purportedly independent appraisal companies, to handle all ofWaMu's home loan appraisals. As part ofthis arrangement, EA and LSI received appraisal requests from WaMu, procured local appraisers to perform the appraisals, reviewed the appraisal reports, and requested, at the behest of WaMu, that the appraisers make changes before finalizing the reports and providing them to WaMu to transmit to the borrowers. In reality, WaMu, with the full, unfettered cooperation ofEA and LSI, controlled the process by which individual appraisers were selected, how home appraisals were performed and, ultimately, the values at which properties were appraised. EA and LSI consulted directly with WaMu and its loan officers to establish the property values they desired before EA and LSI (and its appraisers) finalized the appraisal reports. This conspiratorial conduct allowed WaMu to direct appraisers to artificially inflate home values and thus provide false appraisals in order to qualify more people for higher value loans. WaMu would then aggregate and package these home loans and sell them in the financial markets for a substantial profit. Ultimately, the higher the volume and value of these loans, the higher WaMu's profits. In 2006, WaMu made over $760 million in revenue from sales and servicing of home mortgage loans. 7. As part of the scheme, EA and LSI each received millions of dollars in

appraisal fees from unsuspecting WaMu borrowers who, despite paying for what
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1 should have been credible appraisals (i.e., done in compliance with applicable legal 2 3 4 5 6 7 and professional standards so as to provide an independent, unbiased, and objective appraisal of the fair market value of their property), instead unwittingly received biased appraisals that were neither independent, objective or in compliance with legal and professional standards. Each borrower was charged for a credible, lawful appraisal, but as a result of the arrangement between WaMu, EA and LSI, no credible, lawful appraisal was performed. WaMu borrowers (i.e., Plaintiffs and the

8 Class) were damaged thereby. 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 8. EA has its principal place of business in Poway, California and operates,

manages and directs its nationwide appraisal services and business operations from its offices in California. Likewise, LSI has two of its three nationwide operation centers in California, from which LSI operates and directs the majority, or at least a substantial proportion, of its nationwide appraisal services and business operations. A majority of WaMu's home loan portfolio are loans made in California, according to its 2006 Annual Report. It is therefore believed and averred that the agreements, conspiracy and misconduct at issue in this Complaint occurred, was conducted and/or was directed primarily from, or at least a substantial proportion emanated from, California, including, but not limited to: a) the designation and assignment of appraisers for WaMu home loans; b) the review, approval and revision of appraisals for WaMu home loans to meet WaMu's expectations; and c) the management and supervision of appraisal services for WaMu home loans to Plaintiffs and the Class. 9. Defendants' conduct violates the Real Estate Settlement Procedures Act,

12 U.S.c. section 2607, the unlawful, unfair and fraudulent prongs of California's Business and Professions Code section 17200, et seq. (the "DCL") as well as the Consumer Legal Remedies Act ("CLRA"). Defendants' conduct also constitutes an unlawful civil conspiracy. Defendants' conduct also breaches their contracts with Plaintiffs and the Class, either directly or because Plaintiffs and Class members are intended beneficiaries of the contracts, or Defendants' services, or is grounds for
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FIRST AMENDED COMPLAINT


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1 restitution on a quasi-contract/unjust emichment basis. 2 3 4 5 6 7 8 9 10 II 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 10. PARTIES Plaintiff, Sidney Scholl, is an individual who is a citizen of the State of

California, residing in Sonoma County, California. In October, 2006, Ms. Scholl entered a mortgage loan through WaMu's offices in Sonoma, California to purchase a property located at 194 Terrace, Edmond, Oklahoma. In connection with this loan, WaMu procured for itself and Ms. Scholl an appraisal on the subject property from EA and/or LSI that was performed pursuant to the scheme alleged in this Complaint. Ms. Scholl was charged for this appraisal. 11. Plaintiff, Felton A. Spears, Jr., is an individual who is a citizen of the

State of California, residing in San Jose, California. In March, 2007, Mr. Spears entered a mortgage loan with WaMu on a property located in San Jose, California. In connection with this loan, WaMu procured for itself and Mr. Spears an appraisal of the subject property from EA and/or LSI that was performed pursuant to the scheme alleged in this Complaint. Mr. Spears was charged for this appraisal. 12. Defendants Washington Mutual, Inc. and Washington Mutual Bank, FA

(aka Washington Mutual Bank)(herein after collectively referred to as "WaMu") collectively operate as a consumer and small business banking company in the United States with assets totaling $346 billion. WaMu operates in four segments: Retail Banking, Card Services, Commercial, and Home Loans. The Home Loans segment originates and services home loans, manages capital market operations, fulfills and services a portfolio of home equity loans and lines of credit, originates and purchases mortgage loans to higher risk borrowers, provides financing and other banking services to mortgage bankers for the origination of mortgage loans, and offers insurance-related products and reinsurance services. This segment offers various real estate secured residential loan products and services primarily consisting of fixed-rate home loans, adjustable-rate home loans, hybrid home loans, option ARM loans, and mortgage loans to higher risk borrowers. As of December 31, 2006,
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the company operated 2,225 retail banking stores and 472 lending stores and centers in 36 states, including California. According to the company's 2006 Annual Report, the majority ofWaMu's home loan portfolio are loans made in California.
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Defendant First American eAppraiesIT ("EA") is a Delaware

corporation with its principal place of business at 12395 First American Way, Poway, California. EA is a subsidiary of The First American Corporation and is a California corporation with its principal place of business at 1 First American Way, Santa Ana, California. 14. Defendant Lender's Service Inc. is one of the country's largest providers

of property valuation, title and closing services to the first mortgage, home equity, and subprime markets, as well as to mortgage servicers and investors. LSI is a subsidiary of Fidelity National Information Services, a corporation incorporated in Georgia and headquartered in Jacksonville, Florida. LSI maintains three operation centers, two of which, Santa Ana and Sacramento, are located in California.

JURISDICTION AND VENUE
15. Jurisdiction ofthis Court is proper under 28 U.S.C. § l331(federal

question jurisdiction) and § I367(supplemental jurisdiction). Plaintiffs assert a federal claim under RESPA, 12 U.S.C. §2607, and supplemental state law claims. 16. Jurisdiction of this Court is alternatively proper under 28 U.S.c.

§ l332(d)(2). Plaintiffs are citizens of the State of California and reside in Sonoma and San Jose, California. Defendant WaMu is incorporated in the State of Washington and has its corporate headquarters in Seattle, Washington. Defendant EA is incorporated in the State of Delaware and has its principal place of business in Poway, California. Defendant LSI has two of its three main operation centers located in Santa Ana, California and Sacramento, California. A substantial portion of the conduct at issue in this lawsuit took place in one or more of Defendants' California offices. 17. The amount in controversy exceeds $5,000,000 for Plaintiffs and Class 6
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members collectively, exclusive of interest and costs, by virtue of the combined cost of appraisals performed by EA and LSI for WaMu, and the revenue and profit reaped by Defendants from their transactions with Plaintiffs and the Class, as a direct and proximate result of the wrongful conduct alleged herein, and by virtue of the statutory, exemplary and/or punitive damages alleged herein. 18. Venue is proper within this judicial district pursuant to 28 U.S.c. §

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1391 (b), (c) and (d). Defendant EA has agents, transacts business and is otherwise found within this judicial district. Defendant LSI has agents, transacts business, and is otherwise found within this judicial district. Defendant WaMu has agents, transacts business and is otherwise found within this judicial district. A substantial

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occurred in this judicial district, a substantial portion of the affected persons and entities are in this judicial district, and Defendants have received substantial compensation from such transactions and business activity in this judicial district, including the transaction Plaintiffs entered with Defendant. Finally, Defendants inhabit and/or may be found in this judicial district, and the interstate trade and commerce described herein is and has been carried out in part within this judicial district.

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BASIC FACTUAL ALLEGATIONS The Real Estate Mort~ge Industry
Provides Incentives for High Appraisals

19. WaMu is the country's largest savings and loan with assets totaling

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$346 billion. During the first three quarters of 2007 alone, WaMu originated $116 billion in residential mortgage loans. WaMu procures more appraisals from EA and LSI than any other single entity. 20. Traditionally, a lender such as WaMu would have an interest in ensuring

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that a borrower is able to repay a home loan, and that the loan is adequately collateralized in case the borrower defaults. Likewise, a consumer borrowing money

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1 for a home loan places their trust in the lender to procure a credible appraisal (i.e., 2 3 4 one done in compliance with applicable legal and professional standards so as to provide an independent, objective and unbiased appraisal of their home's value) and to lend them money on terms appropriate to that independent, objective and unbiased

5 assessment of that home's fair market value. Traditionally, the borrower and lender 6 7 shared a common interest in having a property independently and objectively appraised to ensure both that the borrower was not paying too much, and that the

8 property value could support repayment of the loan in the event of a default. 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 21. Because historically banks retained ownership ofthe loan and mortgage

for the life of the loan, the banks' primary interest was to make sure that the borrower paid off the principal and interest without delay or default. Whenever a borrower defaulted on a loan it would have a direct financial impact on the lender, i.e. loss or threatened loss of principal and interest on the loan. If the loan was properly based on the actual fair market value of the property, however, the lender would be able to sell the loan and recoup the outstanding principal. Accordingly, it was critical that the market value of the property was properly appraised and that the loan amount reflected that value. 22. In recent years the traditional model, whereby banks held a mortgage

loan until it was paid off, has changed. Banks such as WaMu no longer hold all, or even most oftheir mortgage loans, but instead sell them to investment banks or government sponsored enterprises such as the Federal National Mortgage Association ("Fannie Mae") or the Federal Home Loan Mortgage Corporation ("Freddie Mac"). These loans are then pooled together, securitized, and sold to the general public as mortgage backed securities, allowing lenders such as WaMu to profit from the volume and value of loans it has procured. The larger the aggregate value of the loans, the more profit for the lender. 23. The paradigm shift away from retaining a portfolio of loans towards the

sale of mortgage backed securities fundamentally altered a lender's incentive to issue
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quality loans. By selling the vast majority of their mortgage loan portfolio to other companies, banks no longer assumed the risk of a bad loan. The risk of default was passed on to other companies and eventually the investors who bought mortgage backed securities. More importantly, now bank profit directly correlated to the volume and value of loans generated, not the likelihood that a loan would be repaid. Banks were thus incentivized to offer as many loans at the highest dollar amounts that could be offered with little regard to whether the loan could be paid back. 24. In this environment, there remains little incentive for Wamu to obtain a

credible appraisal of a property's real market value and every incentive to offer the highest loan amounts possible, supporting the loans with biased, artificially inflated, false appraisals. Federal and State Laws Require Appraisal Independence 25. Despite the new economic paradigm fueling the mortgage lending

industry, state and federal regulations require that appraisals be "credible" by being independent, objective, unbiased and performed in compliance with the minimum standards set forth in the Uniform Standards of Professional Appraisal Practice ("USPAP"). These USPAP standards are incorporated into federal law, see 12 C.F .R. § 34.44, are incorporated into many, if not all, state laws, including California, see California Business and Professions Code § 11319, and are part of the contractual undertakings expressly stated in the Uniform Residential Appraisal Report, which is the standard form that appraisers use for their appraisal reports and which were used for the WaMu loans that are the subject of this Complaint. These appraisal reports also expressly contemplated that they would be provided to borrowers and acknowledged that borrowers may rely on the appraisals as part of any mortgage finance transaction between borrowers and WaMu. 26. USPAP requires appraisers to conduct their appraisals independently:

"An appraiser must perform assignments with impartiality, objectivity, and independence, and without accommodation of personal interests. In appraisal
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1 practice, an appraiser must not perform as an advocate for any party or issue. An 2 3 4 5 6 7 8 9 10 11 12 13 appraiser must not accept an assignment that includes the reporting of predetermined opinions and conclusions." USPAP Ethics Rules (Conduct). 27. USPAP requires appraisers to communicate their appraisals honestly:

"An appraiser must not communicate assignment results in a misleading or
fraudulent manner. An appraiser must not use or communicate a misleading or fraudulent report or knowingly permit an employee or other person to communicate a misleading or fraudulent report." USPAP Ethics Rules (Conduct). 28. USPAP requires that "[i]n developing a real property appraisal, an

appraiser must: (a) be aware of, understand, and correctly employ those recognized methods and techniques that are necessary to produce a credible appraisal..." USPAP Standards Rule 1-1. 29. USPAP also requires that "[e]ach written real property appraisal report

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must contain a signed certification that is similar in content to the following fonn:
I certify that, to the best of my knowledge and belief:

the statements of fact contained in this report are true and correct. the reported analyses, opinions, and conclusions are limited only by the reported assumptIOns and limitmg conditions and are my personal, imparti~l, and unbiased professional analyses, opinions, and conclusIOns.
I have no (or the specified) present or prospective interest in the property that is the subject of this report and no (or the specified) personal interest with respect to the parties involved. I have no bias with respect to the property that is the subject of this report or to the parties mvolved with this assignment.

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my engagement in this.assignment was not contingent upon developing or reportmg predetermmed results. my compensation for completinR; this assignp1ent is not con.ting~nt I.,lpon the develop-ment or reportmK oCa predetermmed value or dIrectIOn m value that favors the cause oTthe client, the amount of the value opinion, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of this appraisal. my analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of 10
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Professional Appraisal Practice." The appraisal reports for the WaMu loans that are the subject of this Complaint contained this or a materially identical certification. 30. The same or similar USPAP ethics rules, standards and certifications are

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5 required for appraisal reviewers (i.e., appraisers who perform a quality review of 6 another appraiser's report). Such appraisal reviews were performed by EA and LSI 7 appraisal reviewers on the appraisal reports for the WaMu loans that are the subject 8 of this Complaint. 9 31. Federal law mandates that appraisers involved in federally-regulated

10 transactions operate independently. See 12 U.S.C. §§ 3331 et seq. The Federal
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Regulations provide that for independent contractors or "fee" appraisers, the

12 appraiser shall "have no direct or indirect interest, financial or otherwise, in the 13 property or the transaction." 12 C.F.R. 34.45. 14 32. In 2005, federal regulators, including the Office of Thrift Supervision

15 COTS"), published "Frequently Asked Questions on the Appraisal Regulations and 16 the Interagency Statement on Independent Appraisal and Evaluation Functions." 17 With regard to appraisal independence, the statement provides: 18 19 20
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Who should be considered the loan production staff for purpose of achieving appraisal independence? Could loan production staff select an appraiser?

Answer:
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The loan production staff consists of those responsible for generating loan volume or approving loans, as well as their subordinates. This would include any employee whose compensation is based on loan volume. Employees responsible for credit administration function or credit risk management are not considered loan production staff. Loan 11
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production staff should not select appraisers.

When selecting residential appraiser, may loan production staff use a revolving pre-approved appraiser list, provided the list is not under their control?

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Answer:

Yes, loan production staff may use a revolving board approved list to select a residential appraiser, provided the development and maintenance of the list is not under their control. Staff responsible for the

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development and maintenance of the list should be independent of the loan production process. Further, there should be periodic interval review of the appraiser selection process to ensure that appropriate procedures are being followed and that controls exist to ensure independence.
(Emphasis added).

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LSI and EA Conspired With WaMu to Provide Artificial Appraisals
33. In 2006, responding to these federal regulations, as well as threats of

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strict federal enforcement of appraiser independence in the mortgage lending

24 industry, WaMu attempted to insulate itself from criticism and federal oversight by 25 entering into an agreement with two purportedly independent Appraisal Management

26 Companies ("AMCs"), First American eAppraiseIT and Lender's Services, Inc., 27 whereby WaMu would procure appraisals from these two AMCs on behalf of 28 borrowers for all or nearly all WaMu residential loans nationwide, with the cost of
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I the appraisals being charged to the borrowers at the time of the closing of their loans. 2 These two AMCs were engaged to oversee the appraisal process and provide a barrier 3 of independence between WaMu (the lender) and those hired to appraise properties 4 on which it would provide mortgage loans. In theory, these AMCs were to select 5 appraisers independent of WaMu, serve as the sole contact with the appraiser, review 6 the appraiser's report, and communicate the unbiased results and report to WaMu. 7 WaMu would in turn communicate the appraisal results and reports to WaMu 8 bOITowers so both the borrower and lender could rely on them in entering the 9 mortgage loans. Under this arrangement, WaMu would theoretically not be able to 10 improperly influence the appraiser or the ultimate value placed on a property. II 34. Both EA and LSI tout themselves as unbiased appraisers who abide by

12 USPAP requirements. As reported on its website, EA assures consumers that it uses 13 "only the services of appraisers licensed or certified by the state in which a subject 14 property is located" and "customers can be assured that Uniform Standards of 15 Professional Appraisal Practice and Financial Institutions Reform Recovery and 16 Enforcement Act ("FIRREA") guidelines are followed and that each appraisal is I 7 audited for compliance." Likewise, LSI assures consumers that its appraisals 18 "conform to USPAP requirements." 19 35. In or about June 2006, WaMu retained EA and LSI to administer

20 WaMu's appraisal program. Since this time, EA and LSI have performed nearly all 21 of WaMu's appraisals. WaMu borrowers quickly became both EA's and LSI's 22 largest source of revenue. Since June 2006, EA alone has received over $50 million 23 in fees from borrowers who received loans through WaMu. 24 36. Prior to being retained by WaMu, EA and LSI used a combination of

25 internal staff and third party appraisers to service Wamu borrowers. Although the 26 independence of the appraiser is critical to the appraisal process, soon after retaining 27 EA and LSI to administer the WaMu appraisal program, WaMu identified certain 28 appraisers ("Preferred Appraisers") that WaMu requested conduct residential 13
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1 property appraisals for its loans. At first these preferred appraisers were simply 2 added to the list of possible appraisers to conduct appraisals for WaMu loans, but 3 eventually WaMu demanded that all of its appraisals be done by the Preferred 4 Appraisers. Despite USPAP and FIRREA requirements that appraisers be 5 independent, EA and LSI acquiesced to WaMu' s demand to staff appraisals with 6 Preferred Appraisers. 7 37. Additionally, WaMu encouraged EA and LSI to hire former Wa.\![u

8 employees as staff appraisers and appraisal business managers, the latter of which 9 had authority to override and/or revise the values reached by third party appraisers. 10 Both LSI and EA agreed to WaMu's request and took on new employees who 11 12 formerly worked for WaMu as its appraisers and regional managers. 38. Moreover, pursuant to contractual agreements between WaMu and the

13 AMCs, WaMu had the right to challenge an appraiser's conclusions by requesting a 14 "reconsideration of value" (also known as a "ROV" or "rebuttal") when WaMu did 15 not like the appraised value of a home. This rebuttal system gave WaMu a direct way 16 to request that EA or LSI reconsider an appraiser's report and to raise the value 17 assigned to a given home. WaMu frequently used this "reconsideration of value" 18 technique to get EA and LSI to provide higher appraisal values on homes to enable 19 its loan origination staff to close the loans. 20 21 39. In addition to WaMu's contractual ability to request a re-appraisal of

property valuation, the AMCs' Appraisal Business Managers, hired at the request of

22 WaMu, were given unfettered authority to ovelTide the values prescribed by third 23 party appraisers. According to a complaint fIled by the New Yark Attorney General 24 ("NYAG") against EA, a WaMu executive defined the role ofEA's Appraisal 25 Business Managers in terms of value disputes in the following way: 26 27 28 ... the four appraisers/reviewers would be directly involved in escalations dealing with: ROVs, Valuation issues where the purchase price and appraised value differ with no reconciliations/justifications by 14
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the appraiser, Value cuts which we continue to receive from your third party reviewers (Wholesale), proactively making a decision to

override and correct the third party appraiser's value or reviewer's value cut, when considered appropriate and supported...

5 Through these Appraisal Business Managers, WaMu sought to, and did, ensure that 6 home valuations would be sufficient to support the loan WaMu wanted to provide.
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Guaranteed High Appraisals Were Facilitated Through Instituting WaMu's Preferred Appraiser List
40. Soon after entering its arrangement with EA and LSI, WaMu's loan

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origination staff began complaining about the appraisals performed by these AMes

12 having property values too low for the proposed loans. WaMu's loan origination 13 staff received commissions based on the value and volwne ofloans generated. Their

14 dissatisfaction was based on desire to close loans at amounts higher than the 15 16 appraisals justified. 41. For example, according to the NY AG's complaint, as early as August 9,

17 2006, WaMu's internal staff admonished EA for not providing appraisals at the 18 values they wanted. In response to this acknowledged, improper pressure coming
19 from WaMu's loan origination staffwho desired the higher appraisals, EA's

20 Executive Vice President capitulated to WaMu's demands by giving its Appraisal 21 22 23 Business Managers discretion to raise the value of homes up to $50,000. 42.

In order to guarantee WaMu would get the high appraisals it wanted,

without having to go through the delay of the rebuttal system, by the winter of2007,

24 WaMu insisted that EA and LSI use WaMu's "Preferred Appraisers" for all of 25 WaMu's home loan appraisals. These appraisers were individuals whom WaMu was

26 confident would appraise properties at a high inflated value to ensure WaMu could 27 quickly close the loan at a desired amount, and get as much value from the 28 transaction as possible. 15
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1

43.

According to the NYAG's complaint, both EA and LSI were complicit

2 with WaMu's demands to exclusively use Preferred Appraisers. In an email dated 3 February 22,2007, EA's President explained to senior executives at EA's parent 4 corporation, First American, that: 5 6 7 8 9 10 11 12 13 14 WaMu's "Preferred Appraiser List" Included Only Appraisers
Selected and Controlled by WaMu's Loan Origination Staff
44. The individuals on the "Preferred Appraiser List" were hand selected by We had ajoint call with Wamu and LSI today. The attached document outlines the new appraiser assigning process. In short, we will now assign al1 WaMu's work to WaMu's "Proven Appraisers" ... We wil1 pay their appraisers whatever they demand. Performance ratings to retain position as a Wamu Proven Appraiser will be based on how many come in on value, negating a need for an ROV. (Emphasis added).

15 WaMu's loan origination staff. Requests sent to WaMu's AMes for the addition of 16 specific appraisers to the approved list were often sent by WaMu's loan origination 17 staff themselves. WaMu's Vice President of "Appraisal Oversight" - the division of 18 WaMu that is supposed to be responsible for ensuring that no undue influence is 19 exerted by WaMu's loan origination staff on appraisers - stated in an email to EA 20 regarding one ROY for a "low value," that "[t]his is an example of the issue that has 21 22 caused sales pushing for a 'proven appraiser' process." 45. In an email dated March 5, 2007, WaMu confirmed the role of its loan

23 origination staff in choosing specific appraisers for WaMu's "Proven Appraiser 24 List:" 25 26 27 28 Proven Appraiser List is being created. This wil1 replace the WaMu preferred list. The initial list of names will be provided by lending with a minimum of two appraisers per area/county. The list will then be reviewed and approved by the Appraisal Business Oversight Team and 16
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1 2 3 4 5

will be checked against our most recent ineligible list. Final list will be provided to VMC's [vendor management companies]. Majority of work must be assigned to the appraisers on the Proven Appraiser List on a Priority Basis. (Emphasis added). 46. Any review and approval by WaMu's Appraisal Business Oversight

6 Team was a facade. If an AMC went to WaMu's Appraisal Business Oversight team 7 to discuss the pressure being put on it by WaMu's loan origination staff to provide 8 higher home appraisal values, WaMu responded by telling the AMC to work the 9 issue out directly with the lending staff. WaMu insisted that its loan origination staff 10 have direct contact with appraisers so they could get the appraisals at the value they 11 wanted. Both EA and LSI permitted this direct involvement to occur. 12 47. Appraisers were also aware that the Proven Appraisers were being

13 selected by WaMu's loan origination staff, and that the only way for an appraiser to 14 get onto the list was by giving WaMu's origination staff the appraisals they sought. 15 According to the NYAG's complaint, in an email sent on April 17,2007 to EA's staff 16 appraisers to explain why staff appraisers were removed from WaMu's Proven 17 Appraiser List, EA's manager acknowledged WaMu's loan origination staffs 18 involvement in the selection of appraisers to perform WaMu's appraisals: 19 20 21 22 23 24 25 26 27 28 I thought I [sic] pass on my thoughts regarding the recent message that we all received for [sic] Peter last weekend. I will be glad to tell you what I know. I have been told that the lending folks at Wamu and [sic] were unhappy with the AMC's and felt they were not receiving a good level of appraisal work. They therefore decided to construct their own appraisal panel, now known as the wamu proven panel, and instructed the AMC's to utilize appraisers from this panel whenever possible. The end result is that if you are not on this proven panel it is very unlikely you will receive wamu work. 48. The involvement ofWaMu's loan origination staff in selecting 17
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1 appraisers to perform WaMu's home loan appraisals was readily apparent to all 2 parties involved and evidenced by emails sent by WaMu's origination staff to EA and 3 LSI requesting the addition of specific appraisers to the Proven Appraiser List. In an 4 email identified in the NYAG's complaint, EA's Executive Vice President informed 5 EA's President that "currently WAMU is controlling the appraisal panel. They are 6 selecting appraisers and calling them 'proven' appraisers. These appraisers are being 7 chosen by their sales force. First American eAppraiseIT (FA eAppraiseIT) is 8 obligated to use these appraisers." The stated reason WaMu insisted on only using 9 its 'proven' appraisers was because EA's appraisers provided WaMu with "low 10 values." 11 49. In addition to selecting which appraisers were on the Proven Appraiser

12 List, WaMu's loan origination staff was responsible for removing appraisers from the 13 list who did not comply with staff expectations or requests for high appraisals, or 14 who performed desk evaluations of other appraisals and reduced another appraiser's 15 valuation of one ofWaMu's customer's properties.
16 WaMu's Proven Appraiser List is Illegal

17

50.

The Code of Federal Regulations provides that for independent

18 contractors or "fee" appraisers, the appraiser shall "have no direct or indirect interest, 19 financial or otherwise, in the property or the transaction." 12 C.F .R. 34.45. In 20 addition, the Uniform Standards of Professional Appraisal Practice ("USPAP") are 21 incorporated into federal law, see 12 C.F.R. § 34.44, are incorporated into many, if

22 not all, states' laws, including California, and are expressly incorporated as part of 23 the Uniform Residential Appraisal Report used as the standard form for the appraisal 24 reports for the WaMu loans that are the subject of this Complaint. USPAP requires 25 appraisers and appraisal reviewers to provide and ensure "credible" appraisals by 26 complying with USPAP and other applicable legal and professional requirements, 27 which include, among other things, the requirement that appraisals and appraisal 28 reviews be conducted independently and without bias: "An appraiser must perform 18

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1 assignments with impartiality, objectivity, and independence, and without 2 accommodation of personal interests. In appraisal practice, an appraiser must not 3 perform as an advocate for any party or issue." USPAP Ethics Rules (Conduct). 4 51. Despite the requirement that appraisers be unbiased, independent, and

5 have no direct or indirect interest in the home mOligage transaction, the agreements 6 between WaMu and EA and LSI establishing WaMu's Proven Appraiser List put in 7 place an appraisal system that was anything but unbiased and independent. Those 8 appraisers willing to provide WaMu with its desired high appraisals for home 9 mortgage transactions were paid an additional 20% WaMu preferred appraisal fee for 10 each appraisal. Those appraisers unwilling to bend to WaMu's, EA's and LSI's 11 desire to provide WaMu with high appraisals were removed from the Proven

12 Appraiser List by WaMu's loan origination staff, and were thereafter prohibited from 13 providing appraisals for WaMu by EA or LSI. Appraisers, therefore, had a stake in 14 each and every appraisal they performed for WaMu. They were rewarded financially 15 for providing high home appraisal values through the 20% premium for each WaMu 16 appraisal performed, and were rewarded by staying on WaMu's "Proven Appraiser 17 List" for future WaMu appraisals. 18 52. EA and LSI likewise had a financial incentive to provide WaMu with the

19 specific appraisers WaMu wanted. If either EA or LSI did not agree to provide 20 WaMu with appraisers from WaMu's Proven Appraiser List, they faced losing 21 22 millions of dollars of business on WaMu's loans. 53. EA recognized that WaMu's Proven Appraiser List was unlawful, but

23 chose to go along with WaMu and continued providing illegal appraisal services in 24 order to reap millions of dollars from unsuspecting borrowers. According to the 25 NYAG's complaint, in an email from EA's president to senior executives of First 26 American dated April 17, 2007, EA described the relationship with WaMu as 27 follows: "In short, the issuers are using their designated appraisers as mandated by 28 the WaMu production force at 20% gross margin and bypassing our panel. We view 19

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1 this as a violation of the OCC, OTS, FDIC and USPAP influencing regulation." 2 (Emphasis added). In support ofEA's conclusion that its agreement with WaMu was 3 illegal, EA's Executive Vice President prepared a summary of the guidelines 4 regarding appraiser independence and, compared to WaMu's Proven Appraiser List, 5 concluded the following: 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 Based on our conversations we have had with the WAMU oversight as well as the questions and answers initiated by our competitor LSI, it is our interpretation that the loan production staff has a great deal to do with selecting appraisers. The PAL [Proven Appraiser List] has been selected by the loan production staff and the continued use of these appraisers is being monitored by the loan production staff. For example, on the LSI question # 1 "Does WAMU want to be updated transactionally on every order we can not assign to a PAL7", WAMU' s answer is "Yes, we need a short sentence in the message log so that we can monitor, - AND most important -lending can see why you didn't assign to a PAL service provider. Not using a PAL appraiser will be an issue so we need to ensure we've covered our bases as to why they're not utilized." This appears to be directly in contradiction to the interagency guidelines unless you have a different interpretation. (Emphasis added). 54. Both EA and LSI knew that what WaMu was doing, by having its loan

22 origination staff personally select apprai sers, was illegal, and that by agreeing to 23 provide WaMu with its "Proven Appraisers" EA and LSI were acting as co 24 conspirators. According to the NYAG's complaint, in an email dated April 17, 2007, 25 EA' s Executive Vice President wrote to EA' s President and Chief Operating Officer 26 regarding EA's liability on this: 27 28 OTS and OCC only control lenders. However, there is the legal concern about collusion. For example, let's say it is discovered that a lender 20
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1 2 3 4 5 6 7 8 9 10 11

(loan officer at a lender) is being collusive with an appraiser that is on OUR (WAMU) panel. That is, our reps and warrants apply. Then we are liable I would say because we have gone along with it.... In addition, I think it will tarnish our reputation in the appraisal community because we are allowing WAMU to pick appraisers based on their loan officers.
It makes us look complicit. So [it] may not be actionable

legally but would hurt our reputation. So those are two bad things offthe cuff. There may be more if we think about it and use creative paranoia. 55. Despite increasing regulatory scrutiny, rather than abandon the Proven

Appraiser List, WaMu sought to obfuscate its misfeasance by changing the name of

12 its Proven Appraiser List to the "WaMu Select" panel. WaMu stated that the, "Name 13 change from 'proven appraiser' and/or use of the moniker "PAL" list is discontinued, 14 under direction of the WaMu legal department. We are utilizing a more generic tenn 15 acceptable w/in regulatory guidelines and industry standards." 16 56. As a result ofWaMu's, EA's and LSI's arrangement, conspiracy and

17 scheme, thousands ofWaMu borrowers who collectively paid millions of dollars for 18 "independent, unbiased, and credible" appraisals, failed to receive what they paid for 19 and were damaged thereby. 20 21 57.
PLAINTIFF SIDNEY SCHOLL

Plaintiff, Sidney Scholl, is an individual who is a citizen ofthe State of

22 California, residing in Sonoma County, California. 23 58. In October, 2006, Ms. Scholl entered a mortgage loan through WaMu's

24 offices in Sonoma, California to purchase a property located at 194 Terrace, Edmond, 25 Oklahoma. See Exhibit 1 (Settlement Statement). 26 59. In connection with this loan, WaMu procured for itself and Ms. Scholl

27 an appraisal on the subject property from EA and/or LSI. See Exhibit 2 (appraisal 28 report). The appraisal report, utilizing the Unifonn Residential Appraisal form, 21
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1 certifies that it was completed in compliance with the USPAP standards, including 2 being performed in an independent, objective and unbiased manner. Id. It also 3 acknowledges that the appraisal was performed for WaMu and EA and provided to 4 them and LSI, and was contemplated to be disclosed to and could be relied upon by 5 the borrower, Ms. Scholl, in her mortgage loan transaction with WaMu. ld. Ms. 6 Scholl was charged $255.00 for this appraisal. 7 60. Ms. Scholl understood she was purchasing a credible, lawful appraisal

8 and had no reason to doubt the certification in the appraisal report and therefore 9 believed that the appraisal done on her property was performed independently, 10 objectively, without undue influence or bias to affect the value of the home, and was 11 otherwise a credible, lawful appraisal done in compliance with applicable law. It was

12 upon this appraisal that Ms. Scholl and WaMu entered her loan. 13 61. Contrary to Ms. Scholl's belief and unbeknownst to her until shortly

14 before filing this Complaint, the appraisal for the property that was the subject of her 15 WaMu loan was created pursuant to the scheme described in this Complaint and 16 therefore Ms. Scholl did not receive the independent, objective, unbiased and 17 credible appraisal done in compliance with applicable law for which she paid, since 18 no such appraisal was performed by WaMu, EA, LSI or their agents. Ms. Scholl has 19 been damaged thereby. 20 21 62. PLAINTIFF FELTON A. SPEARS JR. Plaintiff, Felton A. Spears, Jr., is an individual who is a citizen of the

22 State of California, residing in San Jose, California. 23 63. In March, 2007, Mr. Spears entered a mortgage loan with WaMu on a

24 property located in San Jose, California. See Exhibit 3 (Closing Statement). 25 64. In connection with this loan, WaMu procured for itself and Mr. Spears

26 an appraisal on the subject property from EA and/or LSI. It is believed that the 27 appraisal report, utilizing the Uniform Residential Appraisal form, certifies that it 28 was completed in compliance with the USPAP standards, including being performed 22

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1 in an independent, objective and unbiased manner. Id. It is also believed that the 2 appraisal report acknowledges that the appraisal was performed for WaMu and EA 3 and provided to them and LSI, and was contemplated to be disclosed to and could be 4 relied upon by the borrower, Mr. Spears, in his mortgage loan transaction with 5 WaMu. Id. Mr. Spears was charged approximately $361.00 for this appraisal. 6 65. Mr. Spears understood he was purchasing a credible, lawful appraisal

7 and had no reason to doubt the certification in the appraisal report and therefore 8 believed that the appraisal done on his property was performed independently, 9 objectively, without undue influence or bias to affect the value ofthe home, and was 10 otherwise a credible, lawful appraisal done in compliance with applicable law. 11 66. Contrary to Mr. Spears' belief and unbeknownst to him until shortly

12 before filing this Complaint, the appraisal for the property that was the subject of his 13 WaMu loan was created pursuant to the scheme described in this Complaint and 14 therefore Mr. Spears did not receive the independent, objective, unbiased and 15 credible appraisal done in compliance with applicable law for which he paid, since no 16 such appraisal was performed by WaMu, EA, LSI or their agents. Mr. Spears has 17 been damaged thereby. 18 19 67.

DEFENDANTS' CONCEALMENT OF ITS SCHEME
WaMu's, EA's and LSI's scheme to conduct and charge Plaintiffs and

20 the Class for appraisals for WaMu home loans that were neither independent, 21 objective, impartial, unbiased, credible or in compliance with USPAP and applicable

22 law was never disclosed to Plaintiffs or any Class member by Defendants. 23 68. Nor did Defendants give Plaintiffs or the Class any reason to suspect

24 that there were any problems with their appraisals. Indeed, EA and LSI were 25 recognized, experienced appraisal companies who retained certified appraisers who 26 prepared reports that on the surface appeared to have all of the earmarks of 27 legitimate, independent, objective, unbiased, credible and lawful appraisals. The 28 appraisal reports even included the appraiser's certification that the report was done 23

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I independently, objectively, impartially and in compliance with USPAP standards and 2 applicable law. 3 69. Moreover, it was traditional that lenders, like WaMu, would obtain

4 appraisals of properties in connection with the home loans and would provide the 5 appraisal reports to borrowers and would charge the borrowers for the reports. In 6 other words, without disclosure of Defendants' arrangement, Plaintiffs and the Class 7 could not have reasonably suspected that there was anything wrong with the appraisal 8 for which they were each charged. 9 70. The first time Defendants' scheme was publically revealed was in the

10 Fall of 2007 when the New York Attorney General announced its investigation and II complaint against EA for conspiring with WaMu to create false appraisals for WaMu

12 home loans. It was only upon and after the New York Attorney General's 13 announcement in the Fall of2007 that Plaintiffs became aware of Defendants , 14 scheme, and that Class members could have become aware of Defendants' scheme. 15 16 71. CLASS ACTION ALLEGATIONS Plaintiffs bring this action on behalf of themselves and on behalf of all

17 other members ofthe Class ("Class"), defined as all persons in the United States who 18 received a home loan with WaMu and received an appraisal performed by EA or LSI. 19 Excluded from the Class are WaMu's, EA's, and LSI's officers, directors and 20 managerial employees, and any ofWaMu's, EA's, or LSI's subsidiary or affiliated 21 22 entities and any of the judges of the Court before which this case is pending.
72.

There are thousands of class members who are geographically dispersed

23 throughout the United States, including California. Therefore, individual joinder of 24 all members of the Class would be impracticable. 25 73. Common questions oflaw or fact exist as to all members of the Class.

26 These questions predominate over the questions affecting only individual class 27 members. These common legal or factual questions include: 28 a. Whether WaMu entered into an agreement with EA and/or LSI to 24
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1 procure appraisal services that were not performed by independent, unbiased 2 appraisers as required by law; 3 b. Whether Defendants had and have policies, practices, or

4 procedures that undermine the possibility that Plaintiffs and the Class received 5 credible appraisals done in compliance with USPAP and applicable law; 6 c. Whether WaMu, through its agreement with EA and/or LSI, was

7 able to control the appraisal process, by its loan origination personnel or otherwise, 8 by having either EA or LSI provide higher appraised values for homes than EA's or 9 LSI's appraiser had initially concluded or than was the actual fair market value of 10 the home; 11 d. Whether EA and/or LSI agreed with WaMu to provide WaMu

12 with appraisers who were selected by WaMu to be on WaMu's Proven Appraiser List 13 (or the WaMu Select panel); 14 e. Whether WaMu controlled and/or manipulated the pool of

15 appraisers on WaMu' s Proven Appraiser Li st; 16
f.

Whether the agreements between WaMu, EA and LSI constitute a

17 civil conspiracy; 18 g. Whether Defendants' actions described herein violate the Real

19 Estate Settlement Procedures Act, 12 U.S.C. §2607; 20 21 22 h. Whether Defendants' actions described herein violate California's

Business and Professions Code, sections 17200 et seq.;
1.

Whether Defendants' actions violate California's Consumer Legal

23 Remedies Act, California Civil Code sections 1750 et seq.; 24 25 the Class; 26 27 74. k. The appropriate measure of damages and/or restitution.
J.

Whether Defendants breached their contracts with Plaintiffs and

Plaintiffs' claims are typical of the claims of the Class, in that Plaintiffs

28 took out home mortgage loans with Defendant WaMu and their home appraisals were 25

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1 procured for them by WaMu through EA and/or LSI. Plaintiffs, therefore, are no 2 different in any relevant respect from any other Class member, and the relief sought 3 is common to the Class. 4 75. Plaintiffs are adequate representatives of the Class because their

5 interests do not conflict with the interests of the class members they seek to represent, 6 and they have retained counsel competent and experienced in conducting complex 7 class action litigation. Plaintiffs and their counsel will adequately protect the 8 interests of the Class. 9 76. A class action is superior to other available means for the fair and

10 efficient adjudication of this dispute. The damages suffered by each individual class 11 member likely will be relatively small, especially given the burden and expense of

12 individual prosecution of the complex litigation necessitated by Defendants' conduct. 13 Thus, it would be virtually impossible for the class members individually to

14 I effectively redress the wrongs done to them. Moreover, even if the class members 15 could afford individual actions, it would still not be preferable to class wide 16 litigation. Individualized actions present the potential for inconsistent or 17 contradictory judgments. By contrast, a class action presents far fewer management 18 difficulties and provides the benefits of single adjudication, economies of scale, and 19 comprehensive supervision by a single court. 20 21 77. In the alternative, the Class may be certified because Defendants have

acted or refused to act on grounds generally applicable to the Class, thereby making

22 appropriate preliminary and final equitable relief with respect to the Class as a whole.
23 24 25 FIRST CLAIM FOR RELIEF
(Against Defendants' for Violation ofRESPA, 12 U.S.c. §2607)
78. Plaintiffs hereby incorporate the foregoing paragraphs of this Complaint

26 and restate them as ifthey were fully written herein.
27

79.

Under 12 U.S.C. §2607(b) ofRESPA, "[n]o person shall give and no

28 person shall accept any portion, split, or percentage of any charge made or received 26

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I for the rendering of a real estate service in connection with a transaction involving a 2 federally related mortgage loan other than for services actually performed." 3 80. Plaintiffs and the Class entered federally related mortgage loans with

4 WaMu on or after June 1,2006. 5 81. In connection with these WaMu loans, Plaintiffs and the Class were

6 charged for appraisals WaMu procured for them through EA and LSI that were 7 certified in the appraisal report to be credible, independent, objective, unbiased, and 8 performed in compliance with USPAP and applicable law. As described throughout 9 this Complaint, no such appraisals were performed by Defendants and the appraisals 10 for which Plaintiffs and the Class were charged by Defendants were neither II independent, objective, unbiased or performed in compliance with USPAP or

12 applicable law, in violation of 12 U.S.C. §2607(b) ofRESPA. As such, the 13 appraisals Plaintiffs and the Class received from WaMu, EA and LSI were not 14 appraisals at all in that they could not be relied upon at all since they had not been

IS performed in compliance with the applicable legal and professional standards. In
16 other words, the appraisals Plaintiffs and the Class received were not worth the paper 17 on which they were printed and were otherwise valueless. 18 82. Plaintiffs and the Class never received the appraisal service for which

19 they were charged by Defendants and have been damaged thereby. 20 83. Under 12 U.S.C. §2607(a) ofRESPA, "[n]o person shall give and no

21 person shall accept any fee, kickback, or thing of value pursuant to any agreement or 22 understanding, oral or otherwise, that business incident to or part ofa real estate 23 settlement service involving a federally related mortgage loan shall be referred to any 24 person." 25 84. As described throughout this Complaint, WaMu entered into an

26 agreement or understanding with EA and LSI specifYing that in exchange for WaMu 27 steering to EA and LSI all, or most, of the appraisal business for WaMu residential 28 loans, EA and LSI would cooperate with WaMu to ensure that the appraisals 27
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1 established property values sufficient to support the WaMu residential loan amounts 2 regardless of the true market value of the properties that were the subject of the 3 WaMu home loans. 4 85. To facilitate WaMu's, EA's and LSI's agreement or understanding, EA

5 and LSI agreed to use (for WaMu home loans) appraisers that WaMu's loan 6 origination staff selected to be on its Proven Appraiser List based on these 7 individuals providing WaMu with sufficiently high appraisals to financially benefit 8 both WaMu and its loan origination staff. In return, WaMu demanded that EA and 9 LSI pay appraisers on its Proven Appraiser List a 20% premium over what EA's and 10 LSI's staff or third party appraisers were paid. Those appraisers who did not provide 11 WaMu with the desired high appraisal values were removed from WaMu's Proven

12 Appraiser List by WaMu's loan origination staff, and were thereafter prohibited from 13 providing appraisals for WaMu, and could not get the 20% appraisal premium. 14 Appraisers on WaMu's Proven Appraiser List have a financial interest in each and 15 every WaMu home loan mortgage transaction that they perform appraisal services 16 for, both for the immediate 20% additional fee, as well as future appraisals for WaMu 17 at the additional 20% fee. 18 86. WaMu benefitted from this arrangement by securing more high value

19 home mortgages that it could bundle and securitize for substantial profits, and EA 20 and LSI benefitted from this arrangement by securing a steady stream of appraisal 21 work on WaMu home loans. Appraisers on WaMu's Proven Appraiser List who

22 were retained by EA and LSI to perform appraisals for WaMu home loans benefitted 23 from this arrangement by receiving a 20% premium in return for their participation in 24 this unlawful arrangement with WaMu, EA and LSI. 25 87. Plaintiffs and the Class were damaged by Defendants' arrangement in

26 that they never received the appraisal service for which they were charged by 27 Defendants and instead unwittingly received unreliable, biased appraisals that were 28 the basis of the mOligage transactions they entered with WaMu. 28
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1
2

SECOND CLAIM FOR RELIEF (Against Defendants for Unfair Business Practices in Violation of Business & Professions Code §§17200, et seq.)

3
4

88.

Plaintiffs hereby incorporate the foregoing paragraphs of this Complaint

5 and restate them as if they were fully written herein. 6 89. The UCL defines unfair business competition to include any "unlawful,

7 unfair or fraudulent" act or practice. Cal. Bus. & Prof. Code §17200. 8 90. A business practice is "unlawful" under the Unfair Competition Law if it

9 is forbidden by law, including state or federal laws or regulations. 10 11 91. The Code of Federal Regulations provides that for independent

contractors or "fee" appraisers, the appraiser shall "have no direct or indirect interest,

12 financial or otherwise, in the property or the transaction." 12 C.F .R. 34.45. In 13 addition, the Uniform Standards of Professional Appraisal Practice CUSPAP"), 14 which are incorporated into federal law by 12 C.F.R. § 34.44, and into the state law 15 of many, if not all states, including California (see California Business and 16 Professions Code § 11319) requires appraisers to perform a credible appraisal done in 17 compliance with USPAP standards, which includes requiring that their appraisals be 18 conducted independently: "An appraiser must perform assignments with impartiality, 19 objectivity, and independence, and without accommodation of personal interests. In 20 appraisal practice, an appraiser must not perform as an advocate for any party or 21 22 issue." USPAP Ethics Rules (Conduct). 92. USPAP also requires that "[e]ach written real property appraisal report

23 must contain a signed certification that is similar in content to the following form: 24 25 26
27

I certify that, to the best of my knowledge and belief: the statements of fact contained in this report are true and con·ecl. the reported analyses, opinions, and conclusions are limited only by the reported assumptIOns and limitmg conditions and are my personal, imparti~l, and unbiased professional analyses, opinions, and conclUSIOns.

28

29
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1

2
3

I have no (or the specified) present or prospective interest in the property !hat is the .subject of this report.an4 no (or the specified) persona Interest wIth respect to the partIes Involved. I have no bias with respect to the property that is the subject of this report or to the parties Involved with this assignment. my engagement in this.assignment was not contingent upon developing or