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Why you HAVE to have E&O Coverage

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Restrain

Elite Member
Joined
Jan 22, 2002
Professional Status
Certified General Appraiser
State
Florida
The following is from the Ft. Worth Star Telegram.

The bottom line is that even if your innocent, it can cost you big bucks and loss of business. You have to have E&O coverage. According to the appraiser, it cost her over $60K for her defense.



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Posted on Thu, Jan. 09, 2003

Federal housing fraud case dismissed
By Toni Heinzl
Star-Telegram Staff Writer

FORT WORTH - In a rare case of a federal indictment falling apart, federal prosecutors in Dallas acknowledge that mistakes were made in the investigation of a Fort Worth minister, his wife and two others suspected of running a $1 million housing scam.

Instead of years behind bars and potentially $5.75 million in fines, Joann Reyes faces probation and about $9,000 in restitution.

As part of the plea agreement with Joann Reyes, the government will dismiss all charges against Orlando Reyes, pastor of Grace Outreach Church, and Kenneth Gaillard, of Albuquerque, N.M., Joann Reyes' brother-in-law, at the time of sentencing. Charges against real estate appraiser Sharon Auffet of Grapevine were dropped Oct. 4.

Auffet, who has 20 years' experience in real estate brokerage and appraisals, was accused of inflating appraisal prices.

She said publicity about the indictment cost her at least 50 percent of her business. The Federal Housing Administration temporarily placed her on a disbarment and suspension list, which kept her from doing FHA appraisals and from providing brokerage services to buyers seeking an FHA-backed loan. And she spent more than $60,000 in attorney fees to defend herself against charges that were ultimately dismissed.

"I was well-known as a pretty conservative appraiser," Auffet said. "I did not push the limits, never inflated appraisals in my life."

Defense attorneys commended a new prosecutor, Assistant U.S. Attorney Phillip Umphres, for taking a fresh look at the case and recognizing that no criminal charges are warranted against three of the four defendants.

Federal prosecutors in Dallas declined to comment in detail about the investigation and their review of the original indictment because sentencing for Joann Reyes is pending.

"Further development of the case after it was indicted yielded information that caused us to review our initial decisions," Kathy Colvin, a spokeswoman for U.S. Attorney Jane Boyle, said in a prepared statement. "It's our responsibility to do justice in every case based on facts and circumstances that we have determined."

On Dec. 30, Joann Reyes pleaded guilty to providing false information to the City of Fort Worth in an application for a federally funded closing cost assistance grant for a Fort Worth couple. Sentencing is set for March 17.

According to the plea agreement, Joann Reyes admitted that she falsely stated in three loan applications that the buyers had provided $500 of their own funds as a down payment, a requirement under the federal grant program. The seller of the property, King's Land Development, paid the $500.

"It's not that they're slapping Joann on the wrist: She's pleading to what she actually did," Fort Worth attorney Tim Evans said. "The reason this case was pleaded out is that they couldn't prove all the stuff they alleged in the original indictment, all these allegations that home appraisals were inflated. First, they said the damage was $1 million, later it was $400,000, and now it stands at $9,000 for purposes of restitution."

Dallas defense attorney Barry Sorrels, who represented Auffet, said this is the first time in his career that a federal indictment against one of his clients has been dismissed.

"What went wrong? Federal agents misinterpreted appraisals made by my client and drew some wrong conclusions that were not supported by evidence," Sorrels said.

He said he took a real estate appraisal course and studied more than a dozen books and manuals to be able to scrutinize the facts of the case.

"What went right is that we got a new prosecutor who was honest and fair enough to take a fresh and objective look at the evidence," Sorrels said.

The indictment returned in November 2001 accused the Reyeses, Gaillard and Auffet of defrauding a federal housing program in a scheme of selling homes at inflated prices to unqualified buyers in some of the city's poorest neighborhoods.

When the charges were filed, Special Assistant U.S. Attorney Robert Kemins told the Star-Telegram that low-income buyers were targeted in the Stop Six and Polytechnic Heights neighborhoods, who paid as much as three times the actual value of dilapidated homes and obtained mortgages they could not afford.

Kemins alleged that the scheme cost the government about $1 million that had to be paid to lenders after several buyers stopped making mortgage payments and lost their homes to foreclosure.

Kemins was a special prosecutor with an Arlington-based housing fraud task force investigating programs administered by the Department of Housing and Urban Development in the Metroplex.

He has left the task force and could not be reached for comment Wednesday.

The dismissed indictment said that appraisals were inflated and that paperwork was doctored. It focused on the business of King's Land Development, a real estate development firm incorporated by Orlando Reyes in 1989. Joann Reyes oversaw the company's operations, and Gaillard later became the operations manager. In addition to her role with King's Land Development, Joann Reyes also operated a loan processing business called Royal Lending.

Through Royal Lending, Joann Reyes assisted prospective home buyers in preparing loan applications, obtaining documentation and forwarding the completed loan packages to the lenders' underwriters.

Evans said he suspects that the task force agents were pushing for indictments with single-minded zeal.

"Sometimes, when you get special-issue task forces, they're out to solve a problem and they don't accept alternative explanations," Evans said.


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Toni Heinzl, (817) 390-7684 [email protected]
 

Claudia Cullen

Sophomore Member
Joined
Dec 18, 2002
Professional Status
Licensed Appraiser
State
Massachusetts
I couldn't agree more that we always need to protect ourselves! I would also like to sugggest that anyone like me who subcontracts work from any appraisal firm including AMC's make sure to have insurance, even though you are told that you are "covered" under that firm's policy. Why, you ask? Well, as an instructor in one of my appraisal classes said, "There's nothing to stop them (the appraisal firm/s) from coming after you if there has been a problem!

Claudia
 

Joe Sloan

Sophomore Member
Joined
Feb 17, 2002
Professional Status
Certified Residential Appraiser
State
Texas
Heard recently of an appraiser in the Houston market sued for $5,000,000 for residential subdivision appraisal that went bad. Appraiser had E&O insurance, but has since been dropped by his E&O. Imagine answering the "Have you ever been sued?" question after that.
 

Terrel L. Shields

Elite Member
Gold Supporting Member
Joined
May 2, 2002
Professional Status
Certified General Appraiser
State
Arkansas
Don't know if even E & O will protect us from govt prosecutors. I suspect the best defensive tact is to NOT DO BUSINESS WITH FHA, VA, FSA, or any other government backed loan program. Let THEM hire their own in house, government salaried appraisers to appraise properties they are insuring. Take the whole process out of the independent fee appraiser's realm. You only invite economic suicide by dealing with a government.
 

Jim Bartley

Senior Member
Joined
Jan 20, 2002
Professional Status
Certified Residential Appraiser
State
Virginia
"What went wrong? Federal agents misinterpreted appraisals made by my client and drew some wrong conclusions that were not supported by evidence," Sorrels said.

He said he took a real estate appraisal course and studied more than a dozen books and manuals to be able to scrutinize the facts of the case."

Now THAT is scary. For everyone that welcomes this kind of attention, just remember that real guilt or innocence could have little to do with who they go after. Whatever happened to expert witnesses?
 

Mike Simpson

Senior Member
Joined
Jan 30, 2002
These kind of stories terrify appraisers. I've a friend who's a review appraiser--does only reviews (glutten for punishment). He once told me, "I can tear any appraisal appart...even a good one."

I've always said, "anyone of us could be culled from the herd." All it's gonna take is some over zealeous prosecutor--out to save the world--or justifying their existence, and were screwed! If things go wrong the appraiser's the scapegoat & our insurance companies the target.

Insurance carriers can always deny a claim--"there is no insurance for fraud," and I believe appraisal inflation is considered fraud. They're surely gonna drop the appraiser regardless--like health insurance.

I think what bothers me the most about this story is the fact there was no expert witness hired. That's beyond bizarre. The guy "took a class & studied more than a dozen books." C'mon, this is rediculous--what a wonderful system!

-Mike
 

Restrain

Elite Member
Joined
Jan 22, 2002
Professional Status
Certified General Appraiser
State
Florida
One reason I do appraisal reviews is so I can better review my own reports and insert additional comments/disclaimers. I can always learn something from a report I'm reviewing, even if it is trash.

Roger
 

Non Sequitur

Elite Member
Supporting Member
Joined
Feb 14, 2002
Professional Status
Certified Residential Appraiser
State
Louisiana
One reason I do appraisal reviews is so I can better review my own reports and insert additional comments/disclaimers. I can always learn something from a report I'm reviewing, even if it is trash.

Roger

Amen.

/Nitpick/ The OP should include a link to the story with maybe a small quote. To repost the whole article is a copyright violation.
 

Julie Phillips

Freshman Member
Joined
Dec 12, 2002
Hello,

I am a newbie and just got a job with a small firm as a 1099. Their policy does not cover me. I'm located in Atlanta, GA.

Do any of you have any suggestions on the best company to seek quotes for E&O?

Is it worth joining an organization like NAIFA to get a possible discounted policy?

I know there are a lot of variables in calculating the rate, but in general, what is the average monthly cost (even a range would be helpful)?


Thank you!
 

Mike Simpson

Senior Member
Joined
Jan 30, 2002
Try Liberty Insurance Underwriters Inc.
61 Broadway, 32nd Floor
New York, NY 10006

Annual Premium: $381.00

It may be a little more for a newbie...I dunno. Mine has actually gone down over the years.

-Mike
 
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