On June 30, 2017 the U.S. District Court for the District of Minnesota approved the ResCap Liquidating Trust’s request to utilize a new and different AVM methodology to support its value-based breach allegations.
The reason ResCap sought permission to utilize this new methodology stems from an ongoing shift in how courts around the country view AVM methodology. Courts have begun to hold, generally, that, what are described as “commercially available, off-the-shelf black-box AVMs,” are no longer acceptable or admissible to prove and support value-based breach allegations. This is because, as ResCap itself pointed out and attested to in its motion seeking approval of the new methodology, commercial AVMs are “proprietary” and commercial AVM providers “generally do not publicly reveal information about the AVMs’ design, operation, limitations, analyses, algorithms, coding, data, or validation.” Furthermore, commercial AVM providers “are generally unwilling to produce individuals knowledgeable about the inner workings of a commercial AVM to answer technical questions, or to give deposition testimony.” Courts have found this troubling as those seeking to use commercial AVMs to support value-based breach allegations must essentially ask courts to “take their word” that the AVM methodologies are accurate and/or reliable. Now, ResCap has retained a non-commercial AVM “expert” who can testify about the specifics of his individual AVM method. Finally, ResCap has also indicated that this new methodology results in fewer value-based breach allegations.
This is not only a major development in the ongoing litigation but could also have a significant effect on the numerous pre-litigation demands that ResCap has issued. If your company has received a pre-litigation demand from ResCap that includes an allegation of value misrepresentation based on a commercial AVM report and would like to discuss this issue with us further, please know that AMLG has represented well over twenty (20) lending institutions that have received claims from ResCap, both in and out of court, and we would be happy to discuss your particular situations. To learn more, please feel free to contact Jack Valinoti.