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I hope tis the beginning of the end

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Terrel L. Shields

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May 2, 2002
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Certified General Appraiser
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Arkansas
For those who missed posts last summer over a lawsuit I in. I was sued accused of providing a fraudulent appraisal for property I appraised 6 days after it sold. The sales price was $232,000. The appraised price was $232,000. They say I inflated the appraisal and that the amount was exactly the same amount of the Sellers mortgage which was also with the same bank..I don't know wasn't any of my business and the seller was (I found out later) a cousin to the buyer. Go figure. I did not set foot on the property until 4 days after the sale. The bank had forgot to order the appraisal and when they called me to see when I would be done, found out that I had never been notified to do it. They closed on the loan anyway, and loaned a total of $258,000, the extra going to do some necesary repairs. I did this in Oct. of 1996. About a year later the father of the other plaintiff bought an adjacent farm which I did not appraise, but both parties are suing me. The lawsuit was filed in Federal Court May 28, 2002 and alledges fraud and RICO violations.

Well, the game is coming down to the wire. The ding dongs who were suing a bank, a poultry company, and yours truly, were basically rejected in Federal Court. However, they will be allowed to amend their suit to pursue a very limited course of action with regards to anti-Trust fraud.

They can still appeal, but I don't see what they will appeal. The judge ruled, basically, that the plaintiffs had plenty of time to pursue these claims during the foreclosure and subsequent bankruptcy they had previously filed. He stated that wire/mail fraud could not be held against my appraisal as they had not made the case nor did it appear that the report had been transmitted by mail or wire.

Further, the Judge argued that prior rulings do set a time limit, something even the defendants had not made or were apparently aware of (Agency Holding Corp vs Malley-Duff and Associates, Inc. 483 U. S. 143, 156 (1987). There is a federal court ruling that limited RICO provisions to a term of four years. My appraisal was performed Oct. 30, 1996. The action was filed May 28, 2002. A timely appeal would have been required by Oct. 30, 2000.

The bank's lawyers argued that the plaintiff's common law fraud claims were compulsory in the state court foreclosure action, and the plaintiff responded that their causes for action were "fraudulently concealed" until after foreclosure. The court ruled that such arguement was unsubstantiated. And as we know, the written appraisal was available to the borrowers through the bank and was not concealed.

The judge also mused over the allegation that the appraisal value had somehow been orally conveyed on an unspecified date by unidentified Bank officials prior to the sale and that this value was then later reported by me in writing. The judge obviously was not swayed by this allegation as he carefully noted the time line (Date of Sale was 6 days earlier than the date of report because the client had neglected to order the appraisal until they closed the sale.)

The judge also notes that the plaintiffs failed to show at least 2 "predicate acts of racketeering activity" and such acts must "do so twice and with particularity each time". A single fraudulent act does not constitute a pattern of racketeering.

Further, the Judge noted that 2 persons named as plaintiffs were never "presented.. any fraudulent representations or documentations." i.e.- I didn't even appraise this property! Further, the judge points out that the plaintiffs did not argue that the contract they signed was fraudulent. Plaintiff's failed to show that the Bank and the Poultry Company had a "tying contract" (i.e.- the loan and the contract were somehow an unreasonable restraint upon trade.) The borrowers could have financed with any bank they wished, or could have changed to any contract grower they wished.

Lastly, the court ruled that the pliantiffs' complaint does not reference an investment contract. The note was not a security, and not an investment vehicle. And throwing their own words back at them, noted that the plaintiffs did not "invest in a common enterprise", but rather purchased real estate and the profitability of the operation would be a function of their own efforts and not the "entrepreneurial or managerial efforts of others", a requirement under law to consider it as a security.

The court summed up by saying they were "inclined to agree wiht defendants' contentions that plaintiffs have not pled fraud with particularity, and that they should have asserted these claims in state court foreclosure actions.." But they allowed the plaintiffs the opportunity to "plead fraud with particularity and to plead facts supportive of their contention that these claims were not and could not have been "discovered" until "after foreclosure actions" as argued by the plaintiffs."

They have 10 days to amend the complaint and resubmit it. I am betting they will but the suit has been pared down to the bone and will likely never achieve Class Action Status. If the lawyers do not think they can take this to CA Status or appeal the RICO dismissal, I suspect they will be ready to fold up their tents. There is no money to be made without other class action members.

Anyone with better legal mind could explain "particularity" to me, my abrev. Blacks did not help much. I am reading this between the lines, but I assume they mean that the plaintiff needs to explain exactly what misrepresentation occured and what document was fraudulent....i.e.- do they have another appraisal which disputes mine? Documents spirited away from my file cabinets where I was directed by some sinister force in the bank to appraise the property for X amount?

On the face of it, the notion that the bank and the company, both privately owned by the Peterson family, would defraud someone is nonsense. First, if the chicken company made it hard for the grower, the bank suffered with a foreclosure...and if the terms of the note was too harsh, the bank was only reducing the growers ability to maintain the property...The integrator wants a good healthy chicken grown with the lowest cost, as they pay for all the feed, birds, medication, etc., not the grower. Do that and the bank benefits. Both lose when a grower goes under.

I hope this is the beginning of the end of the suit, but I am still pessimistic until my lawyer says so....and the next day about 4 file cabinets of old appraisals are going to a secure incinerator and get destroyed totally.
 
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North Carolina
Terrill

I do not understand how the adjacent poultry farm is an issue, but the whole thing seems a little bizarre, but then most court cases always are a bit outrageous. What basis does the other side suggest for a class action suit?

I assume you reported the property sale six days prior in your appraisal report. Just curious about what research you did to verify the sale. Certainly you knew that it sold since the bank probably told you. Typical of our market we would check MLS and deed records, but would not go further unless a red flag came up (same last name, no taxable consideration, or the MLS data was suspect), then we would talk to one or more of the priciples in the transaction.

Was there a lot of data for comparison, or was this one of those sort of one off properties? I assume the property has resold, what did it sell for as a distressed property?

Just typical curious, none of my business appraiser questions,

I hope that the other side lets go, but ... that has never been my experience.

Regards

Tom Hildebrandt GAA
 
A

Anonymous

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Terrel,
I hope that you will sue the plaintiffs for your costs. The only way to stop this type of abuse is to hurt the abusers financially.
 

xmrdfghap

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Jan 15, 2002
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General Public
State
Florida
I'm with Walt on this. I think you should file a civil suit for them filing a frivoulus suit. They have just recently filed bankruptcy so they cannot get out of a judgement any time soon.

BTW, congratulations on being, what appears to be, the winner of this thing.......but go after them hard. It will make others think twice before doing something similar.
 

Terrel L. Shields

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May 2, 2002
Professional Status
Certified General Appraiser
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Arkansas
knew that it sold since the bank probably told you.

Once I knew there was a deed I simply went to the courthouse... I always get a deed when possible..so that deed is actually scanned into my report and in the Exhibits...at the time, I had to go to the assessors office anyway to get a copy of the tax card, this was 96' and 4 yr. before we got to go on-line.



Was there a lot of data for comparison?

Yes, there were probably 20 sales on this side of the county in the previous 2 years. From about 1998-2000 sales grew scarce, but since early 2002, I probably have 40 good poultry farm sales in a 3 county region.

What basis does the other side suggest for a class action suit?

They argued that the contract between integrators & grower was a securities fraud and illegally "tied" the grower to the bank and were seeking other Peterson or other integrator growers who had defaulted (again mainly in the 1998-2000 period which had hot summers and cold winter 99-00 which drove up energy prices. This drove up costs by $5000-10,000 per poultry barn and was the difference for some between 'making it and not". ) They argued that other poultry companies were doing the same thing with other lenders. The Judge rejected the notion that such production contracts were "securities" or investment vehicles. They are simply contracts.

I assume the property has resold, what did it sell for as a distressed property?

It was in awful shape. The buyers also put in a manf. home which was never properly installed. The septic tank and lines lay in a ditch uncovered. There was a garbage pile about 5' high in front of the trailer. The owner scooped chicken litter and instead of properly disposing it, piled it into a fetid mess. The bank got the pleasure of cleaning up the place. They bundled the two properties with another small farm they repo'd..repo'd from the cousin of the bank president, in fact. That had appraised for $200,000. So, sale prices totaled $200,000, 150,000 (the one in question), and $70,000 (the one I did not appraise) which the father of the main complaintant had bought for $130,000 in 1997. He left it in pitiful shape. The porch had fell in because they wouldn't roof it on the small house. Much of the equipment and waterers did not work due to simple things like bad plug ins, c-clamps and broken hoses..you know, $3 items. All three properties were bundled to one buyer for $420,000, who owns 4 other barns nearby. The trailer house was a mess and stunk of urine - 4 years old and a dump. The buyer had to peel out the carpet and pad and refloor the place. He repaired the barns adding tunnel ventilation, put a couple of Mexican hired hands on them, and is turning a good profit. The two farms turn over $100,000 gross annually with about 50% expenses including labor. They will pay out in 5 - 7 years unless energy prices whack them year after year. About every 3rd year has seen higher than average gas consumption coupled with high prices. This winter has seen high consumption, but propane (main heat in most broiler barns) prices have remainder low compared to say gasoline. Last week was still 85 cents per gal. 2 years ago it hit 1.30. Yeah, the chicken business is not as profitable as it was due to over-production but any good operator can make the payments. Even 80,000 birds in automated houses allow you to work a regular job, too. It takes no more than 1-2 hours per day to grow birds as long as you will dedicate a few hours on the weekend to keep the equipment in good repair. Bad birds are generally the product of not regulating the temperature correctly and, believe it or not, forgetting to order feed. Feed bins have to be filled every few days and the grower has to anticipate an empty bin by about 24 hours. Doesn't sound like a big deal, but you cannot imagine what happens when you run birds out of feed for only 12 hours. They lose weight big time. And that ruins your feed conversion...i.e.- the ratio between the bird's weight and the weight of the feed fed. Less feed more profit and more bonus to the grower.

I hope that you will sue the plaintiffs for your costs.
Pleasant thought, but this same judge ruled in another case last week that the plaintiff only had to pay the court costs of about $1,500. Legal fees of $23,000 by the defendant were disallowed.. The judge said the plaintiff had little money anyway and would default so there was no point in requiring it. It was some small business that was on the receiving end of the legal bills. This is the case I will undoubtably face. You just have to suck it up. In fact, the dad in this bunch is still holding a pick up that the bank foreclosed on. They have hired some of the best repo men in Tulsa to find this character who was supposed to be living in Collinsville. They suspect the truck is in the bottom of a limestone quarry full of water.

Also, it may not be over, thought I am hoping it is. If it is, my legal bills are not that bad, not even a good E & O premium, so far. But if it goes to depositions, that is where the attorney's consume so much time. My lawyer told me from a financial point I should not expend more than necessary in depositions. Her spin is that the bank will make a serious run at the plaintiffs there because the defendants do have deep pockets. She thought it would be cheaper simply to argue our case at the court level where she was confident we could prevail while hoping the bank would win at the deposition level. IF they win, I win.
 
Joined
Jan 16, 2002
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Thanks for the post, very informative.

Regards

Tom Hildebrandt GAA
 

Terrel L. Shields

Elite Member
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Joined
May 2, 2002
Professional Status
Certified General Appraiser
State
Arkansas
Shoulda known better...of course they refiled with even more ridiculous charges. again, the judge let stand the two plaintiffs whom I never appraised any property for....

They now claim to see the future. Argued that an unnamed person in the bank told them prior to the appraisal what my appraised value was.....mind you I never set foot on the place until 4 days after the sale closed.
 

Farm Gal

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Jan 14, 2002
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Licensed Appraiser
State
Nebraska
:evil:
Jerks.

You should get a fancy sign to hand them when this is all over which says some form of "it must suck to b u"

Karma will get them if bankruptcy don't... whadda ya want to bet that folks like that eventually get someone (who never wears a suit) mad enough to take direct action...

Maybe the plaintiffs will be found with thier pick-up truck. 8O
 

Restrain

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Jan 22, 2002
Professional Status
Certified General Appraiser
State
Florida
After seeing what you have gone through, I sure am glad I never got into that type of appraising. Homes and small businesses are enough for me.

Roger
 

Terrel L. Shields

Elite Member
Gold Supporting Member
Joined
May 2, 2002
Professional Status
Certified General Appraiser
State
Arkansas
It isn't the property type that counts. Never had even a close call before. I mean the valuation is not the issue like you might think. It's the idiotic claim that I appraised the property to a mortgage for the same amount held by the sellers. But what was the pay off? Something less if they were making their payments, right? The sales price and the appraised price are the same. It was the sellers, cousin to the buyer, who set the price in a private transaction. I was not party to it. I did not have a copy of the mortgage of the sellers.

The plaintiffs argued they did not find out the "true market value of the property until foreclosure" which was SIX years after the sale....by that time the buyers had trashed the property, so what was the value of the property at foreclosure? They never appraised it.
 
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