Bogus Appraisals to Jack up Trustee Fees

They are at it again!  Ripping off the trust beneficiaries.  Nov 16, 2015 letter from Claudia Ng, Vice President, Senior Trust Real Estate Officer at City National Bank (redacted) . . .

2015_11_21_letter_Redacted

 

My reply Nov. 24. . .(redacted)

 

xxxxxxxxxxx Trust Tri-Annual Appraisal
Participants: xxxxxxx, claudia.ng@cnb.com

Open conversation in Gmail

Larry xxxxxx Tue, Nov 24, 2015 at 10:14 PM

To:  Claudia Ng, Vice President, City National Bank

Dear Ms Ng,

On Nov. 21, 2015, I received your letter (dated Nov. 16) regarding
“Fannie Borun Trust Tri-Annual Appraisal” .

1.   Apparently you mean “triennial appraisal” (once every three years
– which is bad enough) rather than “tri-annual” (which means three
times per year).

2.   Apparently you forgot to send me a copy of the appraisal which
you are charging me for.

3.   Apparently you have misread Art. X of the trust document.  It
doesn’t say “market value” – it says “reasonable value”.   Trustee
fees are based on the “reasonable value” of the corpus of the trust
property – not on “market value” (which is obviously NOT reasonable in
the context of this trust).  The corpus of this trust is a partial
interest in real property.   Article IV, para 1, of the trust
declaration states that the trust property cannot be sold except in
case of “extreme emergency” or condemnation.   The “Market Value” –
which is ” the price which a seller of property would receive in an
open market by negotiation” cannot apply here because the property
cannot be sold.   The market value is zero.  Here, the reasonable
value of the trust property is determined by the income it produces –
something you already know from the terms of the current lease –
without the necessity of an appraisal.

4.  If you say that your trustee fees are based on the market value of
the corpus of the trust property, then your trustee fees should be
zero – because the market value is zero.

5.  Your scheme of triennial appraisals is of no benefit or service to
the trust.  There is no up-coming trust-related transaction requiring
an appraisal.  Thus, there is no basis for the recovery of unnecessary
appraisal expenses out of trust assets (see Cal.Prob.Code,sec. 15684).

6.   These unnecessary appraisal expenses must be refunded to the beneficiaries.

7.   Trustee fees based on market value need to be re-adjusted to what
is appropriate based on a “reasonable” income valuation.

Sincerely,

——————————————————-

Dec. 2 email confirming phone conversation

 

Dear Ms Ng,

This is to confirm our phone conversation yesterday afternoon (Dec. 1, 2015) regarding my Nov. 24, 2015, email to you objecting to your charging the trust for unnecessary appraisals of trust property and basing trustee fees on incorrect appraisal data.

You stated that you did receive my email.  You are sending me a copy of the appraisal by mail because it is “too large” a file to send by email.

You stated that it is the “bank policy” to do an appraisal of trust property every 3 years.

I replied that if that is the case then the bank should pay for the appraisal.  It is just to satisfy the bank’s curiosity not to benefit the trust.  Expenses that benefit the beneficiaries are chargeable to the trust – not expenses that benefit only the trustee.

Sincerely,

Larry xxxxxx

Dec. 9, I receive  a copy of the appraisal report (click here to see copy of this).

———————————————————-

Dec. 17 email sent to Claudia Ng . . .

To:  Claudia Ng, Vice President, City National Bank

Dear Ms Ng,

I received a copy of the appraisal report you sent me – following my Nov. 24, 2015, email to you (copies of these documents are at http://www.citynationalstory.com ).

1.  The report states:

“. . . the appraiser’s opinions and conclusions set fort [sic] in the report may not be understood properly without additional information contained within the appraiser’s work file.”

Please provide me with the additional information contained within the appraiser’s work file.

2.  The appraisal was done for the parking lot as a whole.  The trust has only a 1/2 interest in the parking lot.  Therefore, if anything, the trust should pay only 1/2 of the appraisal fee.  In fact, the trust should pay nothing for a report done to benefit a co-owner of the property and/or done to satisfy an extraneous bank policy of automatic triennial appraisals.

3.   The report states:

“Interest Appraised:  Fee Simple Estate “.

However the corpus of the trust is not a fee simple estate.  A fee simple estate is one in which the property is only limited by zoning laws or other similar restrictions. Here, the property is limited by a humongous restriction: it cannot be sold except in “extreme emergency” or condemnation.  Therefore, the appraisal is bogus.

4.  The report states:

” . . . the client has requested the appraisal to present the Sales Comparison to value.”
A sales comparison approach compares a piece of property to other properties with similar characteristics that have been sold recently.  It is used when evaluating properties to sell.  But, here, the property cannot be sold.  So, why did you request this?

5.  Please explain why your scheme of frequent market value appraisals is not simply a scam for the purpose of jacking up trustee fees.

6.  Please remember that the trust was not created to enrich the trustee.    The trustee has a duty to administer the trust solely in the interest of the beneficiaries. ” (California Probate Code Sec. 16002).  “The most fundamental duty owed by the trustee to the beneficiaries of the trust is the duty of loyalty. . . .  A trustee is in a fiduciary relation to the beneficiaries of the trust. There are other fiduciaries, such as guardians, executors or administrators, receivers, agents, attorneys, corporate directors or officers, partners, and joint adventurers. In some relations the fiduciary element is more intense than in others; it is peculiarly intense in the case of a trust. It is the duty of a trustee to administer the trust solely in the interest of the beneficiaries.” (IIA SCOTT, The Law of Trusts, 4th ed. Sec.170).

Therefore, improper appraisal expenses must be refunded to the beneficiaries and  trustee fees based on market value need to be re-adjusted to what is appropriate based on a “reasonable” valuation.

Sincerely,

————————————————————————-

Email sent to the appraiser on December 20, 2015 . . .

Bogus Appraisal – 401-03 Spring Street

To:

Stephen D. Smith, MAI, SRPA, MRICS
President, MERIDIAN Appraising & Consulting, Inc.
515 S. Flower Street, Suite 3600
Los Angeles, CA 90071
(P) 213 236.3669 (F) 213.232.3256
(E-mail) meridianappraising@yahoo.com
California License #, AG001616 (05/15/16)

Dear Mr. Smith,

I am an income beneficiary of the Fannie Borun Trust (“trust’) which owns a 1/2 interest in the real property (a parking lot) at 401-03 South Spring Street in downtown Los Angeles (“parking lot”).

City National Bank, Trustee of the Fannie Borun Trust, recently employed you to appraise the parking lot. I have an interest in your appraisal because payment for your services comes out of my trust income and also because City National is using your appraisal as a basis for determining their trustee fees (which also comes out of my income).

I received a copy of your appraisal report for the parking lot, which you sent on November 1, 2015, to Claudia Ng, Vice President/Senior Trust Real Estate Officer City National Bank
(a copy is at http://citynationalstory.org/blogstuff/2015_appraisal.pdf).

1. The report states:

“. . . the appraiser’s opinions and conclusions set fort [sic] in the report may not be understood properly without additional information contained within the appraiser’s work file.”

Please provide me with the additional information necessary to properly understand the opinions and conclusions of the report.

2. The appraisal was done for the parking lot as a whole. The trust has only a 1/2 interest in the parking lot. Therefore, if anything, the trust should pay only 1/2 of the appraisal fee. How much was your total appraisal fee and how much of this was paid for by the trust?

3. The report states:

“Interest Appraised: Fee Simple Estate “.

However the property of the trust is not a fee simple estate. A fee simple estate is one in which the property is only limited by zoning laws or other similar restrictions. Here, the property is limited by a humongous restriction: it cannot be sold except in “extreme emergency” or condemnation. Therefore, please explain why the appraisal should not be considered as completely bogus.

4. The report states:

” . . . the client has requested the appraisal to present the Sales Comparison to value.”

A sales comparison approach compares a piece of property to other properties with similar characteristics that have been sold recently. It is used when evaluating properties to sell. But, here, the property cannot be sold. Therefore, your conclusion (“Sales Comparison Approach: $5,600,000”) is completely false.

I’ve been informed by a professional appraiser at the California Department of Consumer Affairs, Bureau of Real Estate Appraisers, that a market value appraisal is NOT appropriate for appraisal of a property that cannot be sold. The market value of a property that cannot be sold is zero.

I am hereby demanding that you correct your appraisal by changing the appraised value as per market value approach from $5,600,000 to $0.00 (at least for the 1/2 interest owned by the Fannie Borun Trust) which is the correct market value for the trust’s 1/2 interest in the real property.

Sincerely,

—————

March 9, 2016 I sent the following email to Stephanie Wheeler (above forwarded copy of March 2, 2016 email to her) . . .

To:   Stephanie Wheeler, Sr. Vice President, City National Bank Trust & Estate Dept.
Dear Ms Wheeler,
Questions:
1.  Why is the March 2016 distribution ($1805.32) much less than the February 2016 distribution ($1986.56) ?
2.  Did you receive the email I sent to you on March 2 (see below) ?
Thanks,
———————

March 9, 2016 reply email from Stephanie Wheeler . . .

Thank you for your email.   Claudia Ng has already responded to your inquiries regarding the appraisal of the property held in the trust, answering the reason for the appraisal and methodology.  Consequently, your income distribution is affected temporarily by the cost of the appraisal and going forward, because of the increase in market value of the property, the trustee fees paid from income of the trust.   The income reserved for the appraisal cost affected each beneficiary’s income temporarily, but that has now been accounted for, so your distributions going forward will increase.

We will continue to follow our policy and fiduciary responsibility of having real estate assets in trusts appraised as outlined in our policies.

Sincerely,

Stephanie Wheeler

Stephanie L. Wheeler, CTFA
Senior Vice President, Trust Team Leader

City National Trust & Estate

18111 Von Karman Ave., Suite 450

Irvine, CA 92612

Direct: (949) 223-4087
Fax: (949) 862-7022
stephanie.wheeler@cnb.com

Visit us at www.cnb.com

Posted in 2015 Appraisal | Leave a comment