New developments in litigation against property valuers are paving the way for the recovery of billions of pounds of losses suffered during the collapse in the commercial property market in recent years.Rosling King partner James Walton revealed today at the firm’s ‘Problem Properties’ breakfast seminar, that fresh cases are being brought against valuers following court judgments in favour of banks which have taken action over inflated valuations of properties.
Recent judgments have now shaped larger-scale international litigation cases, particularly in the area of commercial mortgage-backed securities. If successful, these would recover substantial losses for noteholders.
At the end of 2012, there was an estimated €154bn European CMBS debt still outstanding. Of that figure, an estimated €22.8bn was scheduled to mature this year. Whichever strategy is employed for dealing with these impending loan maturities, it is clear that more and more losses will be crystallised, both in 2013 and beyond. Against this background of loss crystallisation, investors, issuers and servicers alike are looking at ways in which they can reduce some of these losses and it is evident from recent judgments that the courts are on their side.
It is inevitable that, given the time-critical environment in which real estate professionals worked during the boom years, mistakes would be made. The residential real estate lending world has for a number of years been alive to the fact that lenders, and debt purchasers, may be sat on claims which can be pursued against negligent professionals, and, in particular, negligent valuers and solicitors.
The commercial real estate finance sector, and particularly the CMBS world, has been slow to recognise and pursue such claims. This is perhaps due to the fact that many losses have not yet crystallised, a reluctance to jeopardise relationships which are continuing to prosper, or a lack of knowledge about when and how such claims can be pursued. Whatever the reason, this could all be about to change.
Earlier this year we saw a claim for approximately £100m brought against CBRE and Warwick Street (KS) LLP (formerly King Sturge LLP) by Gemini (Eclipse 2006-3) Plc. This follows hot on the heels of the circa €79m claim being brought by Titan Europe 2006-3 Plc against Colliers International arising out of an alleged overvaluation of the former Quelle headquarters in Nuremburg. The trial of this case is set down for July next year. There will, of course, be further cases which have settled early without the need for the claimant to turn to the Courts for redress.
As the volume of CMBS-related litigation being considered by the UK Courts continues to increase, as typified by the recent cases of Torre Asset Funding v RBS and Citicorp Trustee v Barclays, it won’t be long before the expected wave of valuer negligence claims being pursued within securitisation structures becomes a reality.
One of the most common issues arising is the time-barring of claims. Many potential claimants have been under the impression they have missed the boat but the reality is that the timeframe can often begin at the moment it is realised that a claim is legitimate, rather than at the time of of the lending or the securitisation.