First American Corporation (First American) and First American eAppraiseit (EAI) (together, Defendants) move to dismiss a complaint brought back in late 2007 by New York Attorney General Andrew Cuomo. The Complaint, as previously reported by Mortgage Fraud Blog, alleges that EAI, a subsidiary of First American, in a scheme detailed in numerous e-mails, caved to pressure from Washington Mutual to use a list of preferred “Proven Appraisers” who provided inflated appraisals on homes. The e-mails also show that executives at EAI knew their behavior was illegal, but intentionally broke the law to secure future business with WaMu.
Specifically, the AG alleged that, in the course of its relationship with Wamu, Defendants permitted EAI‘s appraisers to be pressured into changing appraisal values that were too low in order to allow certain loans to proceed to closing. This conduct allegedly compromised EAI‘s independence in providing unbiased valuations, to the detriment of consumers, and amount to deceptive business practices under New York and federal law.
The Defedants moved to dismiss the AG’s complaint on the grounds that it is preempted by federal banking law and regulations, and for failure to state a cause of action (the “Motion”). The Motion raised the issue of the preemptive effect of federal banking regulations on state law claims that seek to enforce standards of real estate appraiser independence and for fraudulent business practices arising out of the violation of those standards.
Specifically, Defendants moved to dismiss the complaint on the ground that through two comprehensive federal statutes, the Home Owners Loan Act and the Financial Institutions Reform, Recovery and Enforcement Act, Congress broadly empowered the federal Office of Thrift Supervision to promulgate and enforce federal regulations governing all aspects of federal savings and loan activities, including the manner in which appraisals are conducted in connection with mortgage loan transactions. On this basis, Defendants argue that the federal regulations so thoroughly occupy the legislative field as to impliedly preempt the AG’s cause of action for violation of General Business Law § 349.
The Court concluded that federal regulation does not occupy the entire field with respect to real estate appraisal regulation and denied Defendants’ Motion. The Court also ordered the Defendants to serve an answer to the complaint.