A real estate developer can’t hold an appraiser liable for overvaluing property if an appraisal wasn’t conducted on the developer’s behalf, a Spokane-based Washington state appellate court panel unanimously has reaffirmed in a case involving disgraced developer Greg Jeffreys.
The ruling upholds a lower-court decision dismissing claims filed by real estate development companies in which Jeffreys, convicted of wire fraud, was involved. The claims were brought against an appraiser, Value Logic LLC, that the appeals court says negligently reported the values of two West Plains properties to be significantly higher than their true values.
Court records say Greg and Kimberly Jeffreys operated a real estate development company called Sundevil Development LLC, and Greg Jeffreys started negotiations in mid-2006 to purchase the 51-acre and 39-acre properties.
Jeffreys contacted Spokane Realtor Brian Main. He told Main he had the two properties under purchase, knew someone who wanted to buy them, and the project would “turn quickly and not financially expose Mr. Main,” the appeals court writes.
Jeffreys said he would find financing for the purchases and put the documents together, and asked Main to find investors, and Jeffreys selected RiverBank, of Spokane, to finance the purchases, the appeals court ruling says in a background description of the case.
Sundevil had agreed to acquire the properties for $475,000 and $300,000, respectively, and Value Logic, hired by RiverBank, soon thereafter reported the value of the properties at $4.5 million and $4.25 million, respectively.
The appeals court panel says members of plaintiffs RockRock Group LLC and RussellRock Group LLC—investors recruited by Main—relied on the reports, although the reports were intended only for RiverBank’s use. The appeal court says there was no evidence Value Logic intended to supply RockRock or RussellRock the reports, nor was there evidence that Value Logic knew RiverBank would supply the reports to the two limited liability investment companies. They filed a negligent misrepresentation claim against Value Logic in June 2011, the court documents say.
Greg Jeffreys is currently serving an eight-year prison term. He pleaded guilty in 2013 to wire fraud and other charges in a series of real estate schemes from 2006 to 2013.
Jeffreys was ordered to pay $9.3 million in restitution to his victims. Prosecutors tied the Jeffreys and, Greg Jeffreys’ girlfriend at the time, Shannon Stiltner, to several real estate scams around town including the redevelopment of the Ridpath Hotel downtown.
The 51-acre RockRock and adjoining 39-acrea RussellRock properties are located on the north side of U.S. 2 east of Airway Heights and east of Russell Road. The undeveloped, partially wooded properties include some wetlands and are zoned for light industrial and rural traditional use, court documents say.
Jeffreys and Main solicited investors to buy memberships in the two investment companies, court documents say. They say Jeffreys called John Bart Johnson, who later agreed to be the manager of both companies. Jeffreys told Johnson he was getting a group of people together to buy some property near Airway Heights.
The court says Jeffreys reportedly told Johnson, “An idiot could come into these properties and make a quarter-million dollars.” The court went on to say that Jeffreys described the venture to Johnson as, “short-term, get in, buy it, turn around and sell it.”
Jeffreys and Johnson visited the properties, and Jeffreys showed him copies of the appraisals. However, the appellate court says there is no evidence how Jeffreys came into possession of the appraisal reports.
RockRock investors bought 75 percent of the 51-acre property. Another group of investors formed RussellRock and bought 75 percent of the 39-acre property. The sale closed on Jan. 12, 2007, court documents say.
But as time passed, the properties failed to generate sales, and by late 2009, balloon payments of the various financial notes were becoming due. That’s when the LLCs applied to another bank to refinance a portion of the obligations, the documents say.
A September 2009 appraisal performed by Value Logic valued the 51-acre property at $3.375 million and the 39-acre property at $2.55 million. The reduction in values was attributed to mostly to a depressed real estate market, court documents say.
Subsequent appraisals ordered by RiverBank found the properties to be valued at a fraction of those sums.