## Facts

- Borrowers brought a putative California class action alleging a lender and two appraisal management companies arranged for residential appraisals to be inflated for mortgage originations.
- Plaintiffs alleged the lender regularly referred borrowers to the appraisal companies, and borrowers paid the appraisal fees.
- Plaintiffs claimed the appraisal companies provided appraisals intentionally overstating property value to satisfy the lender, enabling additional loan originations and secondary-market sales.
- Plaintiffs alleged the inflated appraisals were effectively worthless, causing borrowers to overpay for homes and appraisal fees and increasing default and foreclosure risk.
- After the lender entered FDIC receivership, the FDIC was substituted as receiver and then dismissed by stipulation, leaving the two appraisal companies as defendants.
- The court ruled on one defendant’s motion to dismiss all claims and the other defendant’s motion to dismiss several federal and state claims in the first amended complaint.

## Issues

1. Whether provision of an intentionally inflated appraisal can qualify as a “thing of value” exchanged for appraisal referrals under RESPA § 8(a), 12 U.S.C. § 2607(a).
2. Whether charging appraisal fees for allegedly inflated appraisals states a RESPA § 8(b), 12 U.S.C. § 2607(b), claim for “unearned” fees when appraisal work was performed.
3. Whether the complaint pleaded defendant-specific facts sufficient to state claims, particularly as to the appraisal company against which the named plaintiffs did not allege concrete, individualized involvement.

## Decision

- Granted the motion to dismiss filed by Lender’s Service, Inc., dismissing all claims against it with leave to amend.
- Granted in part and denied in part the motion to dismiss filed by First American eAppraiseIT.
- Allowed the RESPA § 8(a) claim against eAppraiseIT to proceed, holding that an inflated appraisal could constitute a “thing of value” given in exchange for referrals.
- Dismissed the RESPA § 8(b) claim, holding that allegations of inflation did not plausibly allege that appraisal fees were wholly “unearned” where appraisal services were performed.
- Granted limited leave to amend, including leave to attempt to state a claim against Lender’s Service, Inc. and to plead a breach-of-contract theory with adequate detail.

## Legal Principles

- Under RESPA § 8(a), a “thing of value” is construed broadly and may include non-monetary consideration, including a service or other benefit provided in exchange for referrals.
- A plaintiff may state a RESPA § 8(a) claim by plausibly alleging an agreement or understanding for referrals and that the referral recipient provided a “thing of value” in return.
- RESPA § 8(b) targets charges or retained portions of charges for which no services were performed; allegations that services were performed improperly or dishonestly do not alone convert the entire fee into an “unearned” fee under § 8(b).
- Group pleading that fails to connect each defendant to the named plaintiffs’ transactions and to specific alleged misconduct may warrant dismissal with leave to amend.

## Conclusion

The court treated an inflated appraisal as potentially actionable consideration for a referral under RESPA § 8(a) but rejected the theory that appraisal fees become “unearned” under RESPA § 8(b) solely because the appraisals were allegedly inflated, and it required defendant-specific factual allegations to proceed against the second appraisal company.


Spears v. Wash. Mut., Inc., No. C 08-00868 RMW, 2009 WL 605835 (N.D. Cal. Mar. 9, 2009)