A Web portal that lets lenders order property valuations online "dupes" appraisers by mining their reports to build a database of property information it resells to lenders, a lawsuit alleges.
The allegations against FNC Inc. over its AppraisalPort service are made by three appraisal firms, whose attorneys seek class-action status to represent other firms.
FNC maintains that information in its National Collateral Database is furnished by lenders, not appraisers, and that reports filed through AppraisalPort remain confidential.
"FNC was very disappointed and disturbed to hear of this complaint," the company said in a written statement regarding the lawsuit. The suit "tries to attack FNC’s core commitment of protecting the information we transmit between appraiser and lender. As a result, we believe it is entirely without merit and will defend it vigorously."
The lawsuit was filed on behalf of Harold H. Huggins Realty Inc., P.E. Turner & Co. Inc., Residential Appraisal and Consulting Inc., and all other appraisers who have used AppraisalPort.
Attorneys for FNC maintain the appraisal firms that have filed suit must pursue their claims through arbitration. All appraisers who register to use AppraisalPort agree to submit claims to arbitration as part of the site’s terms of use, the company’s lawyers said in a June 29 motion.
Many of the allegations in the May 9 lawsuit by appraisers are based on an October 2005 interview with FNC Chief Executive Officer Bill Rayburn, published in the Wall Street Transcript.
In the interview, which is posted on FNC’s Web site, Rayburn said the company had "invented a process that allows lenders to turn … collateral documents into data and images," which are extracted and warehoused. "So, just like the credit bureaus collect credit data, we have developed a national collateral database where lenders and other market participants share this collateral data building this national collateral warehouse, if you will."
Rayburn said FNC then provides analytics "that allow our customers to use this data to explain and predict what’s going on in the marketplace."
In their complaint, the appraisers complain they were charged up to $6 each time they transmitted reports using AppraisalPort.
"Not only does FNC collect fees from appraisers based on misrepresenting the service it is providing, it collects additional profits from others based on the very same data and the work of the appraisers it dupes into using its service," the complaint alleges.
FNC’s National Collateral Database "reduces the need for new or additional appraisals," the lawsuit alleges, harming appraisers who use it "because they are duped into providing wider dissemination of the information and judgments they work to compile than they otherwise would, thereby unjustly enriching FNC at their expense."
FNC’s official information policy states that the company considers all nonpublic information it receives, transmits and stores for lenders and appraisers as "owned by those parties and not FNC. FNC considers all such information confidential."
However, the company also gives lenders the option of sharing their own appraisal data for inclusion in FNC’s National Collateral Database. Not all lenders who use AppraisalPort contribute to the database, but those who do have better access to its data.
Lenders who choose to contribute to the National Collateral Database agree to "promptly, accurately and completely share all of your appraisal data with FNC, to the extent it is reasonably available" by "sharing complete copies of appraisals or other collateral valuation that you have made or obtained with respect to all of your transactions involving real property."
To comply with privacy laws, FNC says it does not disclose nonpublic information in the reports to third parties. That information includes borrower and lender name (before public recording), loan or application number, Social Security number, interior details that have not been exposed through multiple listing services, and sales prices in nondisclosure states.
The lawsuit was filed in U.S. District Court for the District of Maryland.
Harold H. Huggins Realty is based in Burtonsville, Md.; P.E. Turner & Co. is located in Richmond, Va.; and Residential Appraisal and Consulting is based in Tulsa, Okla.
Oxford, Miss.-based FNC Inc. has offered lenders its Collateral Management System since 1999.
