Titan case rattles valuation providers

The first instance across Europe where a claim was brought successfully against a valuation professional is having significant implications for future commercial mortgage-backed security (or CMBS) valuations. The “ground-breaking” Titan Europe 2006-3 vs. Colliers International judgment is likely to encourage other negligence claims and will prompt changes to the provisions included in new CMBS deals, according to Georgina Squire, head of the dispute resolution group at Rosling King.

In September, a UK commercial court ruled that Colliers was negligent in a €135 million valuation of a German property. Based on that Colliers’ valuation, Credit Suisse had entered into a loan secured by the building, which was subsequently transferred into a pool of assets backing the Titan Europe 2006-3 CMBS. The judge concluded that the property was overvalued by €32 million and ruled for Colliers to refund that amount (plus damages and legal costs), to be distributed down through the waterfall to noteholders.

The case, which is now being appealed by Colliers, has already set a precedent for further cases, including Windermere X vs. Warwick St. On the back of the success of the Titan case, Windermere X settled out of court for just over €9 million about a month ago.

According to Squire, the impact on the market is twofold.

“Firstly, it shows that claims can be brought against professional advisers by the issuer on behalf of the noteholders, which is very good news for all those involved in holding notes in CMBS structures where they’re seeing dramatic drops in value or losses occurring,” she told pfm.

Secondly, it was previously believed that claims had to be brought within six years of the date of the valuation, but the case sets the precedent that the claim can be brought within six years from when the loan first defaulted.

“Don’t assume you’re out of time because the loan is more than six years old. There’s a lot of money to be recovered against the professional advisers in the event that they were negligent, as is evidenced by Titan and Windermere,” said Squire.

The decisions could lead to industry bodies issuing a new best practice note on valuations, Squire noted. At the very least, the cases are illustrative of the need for those involved in CMBS to look closely at valuations and special assumptions and update property valuations from time to time.

“More issuers and special servicers are looking more rigorously at their losses to ascertain whether there could be a potential claim,” noted Squire.