Earlier this month, a federal court awarded $11 million to a class of West Virginia mortgage borrowers who accuse Quicken Loans, Inc., and Title Source, Inc., of cheating them on home appraisals. The lawsuit completes a perfect storm of troublesome factors that culminated in massive liability for Quicken and Title Source.

The case, Alig v. Quicken Loans, Inc., began in 2012 and followed on the heels of other appraisal lawsuits and regulatory investigations against Quicken. The company had long sent appraisers estimated values as part of its standard lending procedures. In 1996, the industry started turning away from those practices, deeming them unconscionable. The problem with them, critics say, is that they wrongly pressure appraisers into exaggerating home values, which can result in borrowers owing more than their residences are worth.

In Alig, the presiding judge repeatedly bashed Quicken for its appraisal estimates, finding they served no legitimate purpose and were meant only to inflate home values. The judge not only ordered Quicken to refund all the appraisal fees borrowers had paid, but he also imposed a $3,500 penalty for each of the 2,770 transactions in the class. The opinion does not discuss Title Source’s involvement in the scheme, but nonetheless that entity was held jointly and severally liable for the entire award.

Several circumstances converged to make this outcome highly likely. Any company in a similar scenario should strongly consider the risks of continued litigation versus settlement.

  • According to the court, Quicken never offered a legitimate reason for its providing estimates to appraisers. Businesses with close-to-the-line procedures should anticipate scrutiny and have available quick answers as to why they adopted the particular policies in question.
  • Quicken faced not only civil lawsuits but also federal investigations. Regulators often engage in this sort of “swarm” litigation to increase pressure on targets. It normally succeeds.
  • During discovery, various smoking-gun emails emerged, in which, for instance, an executive admitted that the company has “a team [that] is responsible to push back on appraisers questioning their appraised values.”
  • Prior statements on Quicken’s websites were successfully used against the company. For example, its internet advertising had previously told consumers that an appraisal “will protect you from owing more on your loan than your home is worth, which is known as being underwater.” That statement later refuted Quicken’s argument, raised during litigation, that appraisals benefit lenders not homeowners.
  • Quicken never told consumers about the estimates. While that information might not have completely protected the company, it might have been enough to create problems for statute-of-limitation purposes.
  • The court found that, even though the practice of sending appraisal estimates did not violate a law, it was still unconscionable, which in turn contravened West Virginia’s consumer-protection statute. This type of finding is common in class actions. And it shows how easy it is for plaintiffs’ lawyers to find ways of creating liability for practices that have not previously been found unlawful.