7970 1 UNITED STATES OF AMERICA Before the 2 OFFICE OF THRIFT SUPERVISION DEPARTMENT OF THE TREASURY 3 In the Matter of: ) 4 ) UNITED SAVINGS ASSOCIATION OF ) 5 TEXAS, Houston, Texas, and ) ) 6 UNITED FINANCIAL GROUP, INC., ) Houston, Texas, a Savings ) 7 and Loan Holding Company ) ) OTS Order 8 MAXXAM, INC., Houston, Texas, ) No. AP 95-40 a Diversified Savings and ) Date: 9 Loan Holding Company ) Dec. 26, 1995 ) 10 FEDERATED DEVELOPMENT CO., ) a New York Business Trust, ) 11 ) CHARLES E. HURWITZ, ) 12 Institution-Affiliated Party ) and Present and Former Director ) 13 of United Savings Association ) of Texas, United Financial Group,) 14 and/or MAXXAM, Inc.; and ) ) 15 BARRY A. MUNITZ, JENARD M. GROSS,) ARTHUR S. BERNER, RONALD HUEBSCH,) 16 and MICHAEL CROW, Present and ) Former Directors and/or Officers ) 17 of United Savings Association of ) Texas, United Financial Group, ) 18 and/or MAXXAM, Inc., ) ) 19 Respondents. ) 20 21 TRIAL PROCEEDINGS FOR 11-20-97 22 7971 1 A-P-P-E-A-R-A-N-C-E-S 2 ON BEHALF OF THE AGENCY: 3 KENNETH J. GUIDO, Esquire (Not present) Special Enforcement Counsel 4 PAUL LEIMAN, Esquire SCOTT SCHWARTZ, Esquire 5 BRUCE RINALDI, Esquire RICHARD STEARNS, Esquire (Not present) 6 and BRYAN VEIS, Esquire (Not Present) of: Office of Thrift Supervision 7 Department of the Treasury 1700 G Street, N.W. 8 Washington, D.C. 20552 (202) 906-7395 9 ON BEHALF OF RESPONDENT MAXXAM, INC.: 10 FRANK J. EISENHART, Esquire 11 of: Dechert, Price & Rhoads 1500 K Street, N.W. 12 Washington, D.C. 20005-1208 (202) 626-3306 16 13 DALE A. HEAD (in-house) 14 Managing Counsel MAXXAM, Inc. 15 5847 San Felipe, Suite 2600 Houston, Texas 77057 16 (713) 267-3668 17 ON BEHALF OF RESPONDENT FEDERATED DEVELOPMENT CO. AND CHARLES HURWITZ: 18 RICHARD P. KEETON, Esquire 19 KATHLEEN KOPP, Esquire of: Mayor, Day, Caldwell & Keeton 20 1900 NationsBank Center, 700 Louisiana Houston, Texas 77002 21 (713) 225-7013 22 7972 1 ON BEHALF OF RESPONDENT FEDERATED DEVELOPMENT CO., CHARLES HURWITZ, AND MAXXAM, INC.: 2 JACKS C. NICKENS, Esquire 3 of: Clements, O'Neill, Pierce & Nickens 1000 Louisiana Street, Suite 1800 4 Houston, Texas 77002 (713) 654-7608 5 ON BEHALF OF JENARD M. GROSS: 6 PAUL BLANKENSTEIN, Esquire 7 MARK A. PERRY, Esquire of: Gibson, Dunn & Crutcher 8 1050 Connecticut Avenue, N.W. Washington, D.C. 20036-5303 9 (202) 955-8500 10 ON BEHALF OF BERNER, CROW, MUNITZ AND HUEBSCH: 11 JOHN K. VILLA, Esquire MARY CLARK, Esquire 12 PAUL DUEFFERT, Esquire of: Williams & Connolly 13 725 Twelfth Street, N.W. Washington, D.C. 20005 14 (202) 434-5000 15 OTS COURT: 16 HONORABLE ARTHUR L. SHIPE Administrative Law Judge 17 Office of Financial Institutions Adjudication 1700 G Street, N.W., 6th Floor 18 Washington, D.C. 20552 Jerry Langdon, Judge Shipe's Clerk 19 REPORTED BY: 20 Ms. Marcy Clark, CSR 21 Ms. Shauna Foreman, CSR 22 7973 1 2 EXAMINATION INDEX 3 4 Page 5 DOUGLAS LOVELL 6 Cont'd Cross-Examination by Mr. Dueffert.7976 7 Cross-Examination by Mr. Blankenstein....8055 8 Cross-Examination by Mr. Keeton..........8127 9 Redirect-Examination by Mr. Leiman.......8133 10 Recross-Examination by Mr. Dueffert......8172 11 Recross-Examination by Mr. Blankenstein..8173 12 Recross-Examination by Mr. Keeton........8176 13 14 15 16 17 18 19 20 21 22 7974 1 P-R-O-C-E-E-D-I-N-G-S 2 (10:00 a.m.) 3 4 THE COURT: Be seated, please. We'll 5 be on the record. 6 I wanted to ask the parties, what's the 7 next witness? 8 MR. LEIMAN: The next witness after 9 Mr. Lovell would be Mr. Bruce Williams. 10 THE COURT: And how long is he going to 11 take? 12 MR. RINALDI: Mr. Williams, we 13 anticipate will come on this afternoon. He's a 14 local witness. We expect that he will probably go 15 through the rest of the week or the rest of 16 tomorrow. 17 THE COURT: Well, what I was thinking 18 about is adjourning at noon tomorrow for various 19 reasons. 20 MR. RINALDI: Okay. 21 THE COURT: If he's local, I don't 22 believe that would create a problem. 7975 1 MR. RINALDI: Okay. I think it had 2 been our expectation, given where things are now 3 with Mr. Lovell, the only slippage, that 4 Mr. Williams is probably going to go over until 5 Monday anyway with the expectation that there is 6 probably going to be substantial cross-examination 7 on him. So, presumably, he may be the better part 8 of Monday if we're only going to have half a day 9 Monday. 10 MR. BLANKENSTEIN: I don't think we're 11 going to be here Monday. 12 MR. RINALDI: The first day we come 13 back. Fine. Thank you. I will. 14 THE COURT: All right. We'll adjourn 15 at 12:00 tomorrow. We'll be on the record. 16 Mr. Dueffert, you may continue. 17 MR. LEIMAN: Your Honor, before 18 Mr. Dueffert continues his cross-examination of 19 the witness, I'd just like to clarify whether 20 Exhibit T7135 was offered or introduced by 21 Mr. Dueffert, which is this document. 22 MR. DUEFFERT: This is the version of 7976 1 R-41B that the witness said was in error. So, I 2 didn't offer it or introduce it. I see no 3 evidentiary value to it. 4 THE COURT: Fine. 5 MR. LEIMAN: All right. I just wanted 6 to be certain that had not offered. Thank you, 7 Your Honor. 8 9 CONT'D CROSS-EXAMINATION 10 11 12 Q. (BY MR. DUEFFERT) Good morning, 13 Mr. Lovell. 14 A. Good morning, Mr. Dueffert. 15 Q. Will you agree with me that the 16 officers and directors of United weren't obligated 17 to rely on your personal thinking as to what 18 ideally should be in an appraisal report in 1986? 19 MR. LEIMAN: I'm going to object to the 20 question because the time frame seems to be rather 21 distorted. Mr. Lovell was never part of the 22 underwriting team, and Mr. Dueffert seems to be 7977 1 indicating that he had something to do with the 2 underwriting of the loan. 3 THE COURT: Well, he's giving testimony 4 that -- as to the safety and soundness with 5 respect to relying on these appraisal reports, and 6 I think it's a relevant question. Denied. 7 Q. (BY MR. DUEFFERT) One more time 8 Mr. Lovell. 9 Will you agree with me that the 10 officers and directors of United weren't obligated 11 to rely on or follow your personal thinking as to 12 what ideally would be in an appraisal report? 13 A. I'll agree. 14 Q. And in this courtroom, we are not 15 talking now about what could be in ideal appraisal 16 reports in an ideal world. Right? 17 A. Well, I don't live in an ideal world. 18 Q. And in this courtroom, we're not 19 talking about what could be in an ideal appraisal 20 report in an ideal world. Right? 21 A. No. 22 Q. For guidance as to what was required to 7978 1 be in appraisal reports, thrift officers and 2 directors would be expected to look to the text of 3 Memorandum R-41B, correct? 4 A. That would be reasonable, yes. 5 Q. For purposes of your testimony, are you 6 pointing the Court to any other published 7 standards of the time? 8 A. Well, I certainly have already 9 commented on the standards of professional 10 practice of the American Institute of Real Estate 11 Appraisers, which you have entered into evidence, 12 I believe. 13 Q. Is that Exhibit 11133? 14 A. I don't know what the exhibit number 15 is. Yes. 16 Q. For the record, it's located at Tab 17 841. 18 Are you pointing the Court to any other 19 published standards? 20 A. Well, I think as a matter of course, 21 what we commonly think of as being requirements in 22 the way of an appraisal report are what is a part 7979 1 of the literature, what is commonly taught. I 2 mean, clearly, the standards of professional 3 practice are not some kind of a guidebook as to 4 how you construct an appropriate appraisal report. 5 There are general guidelines as to the concept of 6 data and analyses that an appraiser is expected to 7 perform. But part and parcel, and even though 8 they aren't directly addressed in here, we would 9 commonly expect an appraiser to follow the general 10 teachings that are expounded in the appraisal 11 courses. 12 Q. For what you're saying, for purposes of 13 your opinion, are you going to direct the Court -- 14 or do you direct the Court to any other particular 15 documents you brought with you here today, 16 identified by title and date, that you think the 17 officers and directors of USAT should have relied 18 on? 19 A. Other documents that I have brought, 20 no. 21 Q. And this is your opportunity. If 22 you're going to direct the Court to any other 7980 1 published standards of the time and suggest that 2 the appraisal reports that you've looked at were 3 in violation of some objective standards, please 4 identify those documents by name and date. 5 A. Well, let me answer perhaps a little 6 bit more explanatory than you'd like. But the 7 standards of professional practice, this Exhibit 8 A11133, is fundamentally broken down into two 9 standards. There is Standard 1, which essentially 10 addresses what an appraiser is supposed to do in 11 the process of performing an appraisal assignment. 12 Standard 2 is essentially the requirements 13 relative to the written document, the appraisal 14 report, if you will. And if you'll bear with me a 15 second, we'll look at Standard 2, which starts on 16 Page 8. Now, we're talking about the written 17 standards. It says Standard 2-1, "Each written or 18 oral report or communication concerning the 19 results of an appraisal must contain sufficient 20 information to enable the persons who receive or 21 rely on the report or communication to understand 22 it properly." 7981 1 Clearly, that statement doesn't define 2 what "sufficient information" is. And clearly, 3 these professional practice standards are relying 4 upon a general body of knowledge relative to 5 appraisals. And I think it would be reasonable to 6 expect that the officers and directors who are 7 making real estate loans and making decisions 8 relative to real estate loans would be familiar 9 with the so-called body of knowledge of appraisal 10 theory. Now, we don't have the appraisal course 11 materials here, to the best of my knowledge, that 12 have been entered into evidence. 13 Q. So, you're not pointing to anything 14 else. Right? 15 A. I'm pointing to a general body of 16 knowledge out there. I mean, we can proceed 17 through Standard 2. And I would point out, for 18 example, that Standard 2 relative to written 19 reports says that you're supposed to identify a 20 definition of value that you're going to use. It 21 doesn't identify which particular definition of 22 market value you should use in an assignment. 7982 1 There are no -- nowhere in these requirements will 2 you find what is commonly accepted appraisal 3 practice to include things like photographs of the 4 subject property and comparable property, sales 5 location maps, all of those sorts of things. 6 Those are commonly incorporated as a part of 7 appraisal assignments, and most people who hire 8 appraisers would expect those documents to be 9 there. Professional practice standards do not, in 10 fact, require them to be there. 11 Q. You said yesterday that nothing in the 12 text of R-41B required the appraisers to present 13 an as-is value. Right? 14 A. Well, it does. It addresses it 15 specifically relative to REO and LTF. 16 Q. For purposes of the appraisal reports 17 we're looking at in this proceeding, R-41B doesn't 18 require an as-is value. Right? 19 A. For loan appraisal, there were no 20 definitions relative to as-is, as of complete, as 21 of stabilized occupancy. They simply weren't 22 included. 7983 1 Q. Looking at these standards of 2 professional practice, May 3, 1985, Exhibit 3 A11133, and even though this isn't a regulation 4 and it's not even a regulatory interpretive 5 memorandum, does anything in this document say 6 that the appraisers should have included an as-is 7 value? 8 A. To the best of my knowledge, no. 9 Q. You know the document, don't you? 10 A. We're talking the American Institute 11 standards here? 12 Q. Yes. 13 A. Yes. I mean, it's an old set here. 14 So, I haven't perused through it in depth and 15 detail to bring myself back to where we were some 16 ten plus years ago. 17 Q. In trying to figure out what should be 18 in appraisal reports, would underwriters at 19 savings and loans be expected to rely on guidance 20 from federal thrift examiners? 21 A. Could you repeat the question? 22 MR. DUEFFERT: Could the court reporter 7984 1 read the question? 2 3 (Whereupon the requested portion 4 was read back by the reporter.) 5 6 A. No, I don't think we ever expected them 7 to necessarily rely on our guidance. 8 Q. (BY MR. DUEFFERT) Was guidance ever 9 offered? 10 A. Oh, sure. All the time. 11 Q. But it was unreliable? 12 A. I don't understand the point, the 13 question. Perhaps you could rephrase it for me. 14 Q. Let me try it this way. Are you saying 15 that thrift managers couldn't rely on the federal 16 examiners' interpretation of their own regulatory 17 interpretative memorandum? 18 A. I think they could rely on statements 19 that were made by personnel. 20 Q. So, the answer is "yes"? 21 A. Well, somehow, I'm missing the question 22 here. You seem to have something about wanting 7985 1 unreliability here versus people who are 2 knowledgeable on the subject who would offer 3 advice, suggestions to thrift institution 4 managers. I don't know that every piece of 5 information that an examiner has ever passed along 6 was 100 percent accurate, no. 7 Q. Have you taken the time to look at the 8 audit files of Peat Marwick or the federal 9 examination work papers relative to these two 10 credits? 11 A. No, I have not. 12 Q. Did you agree with me yesterday that in 13 the early and mid-1980s, there was in the 14 appraisal industry widespread misunderstanding 15 about the requirements of R-41B? 16 MR. SCHWARTZ: Your Honor, I think 17 we're going over some old ground here. 18 THE COURT: Let's have it. Denied. 19 A. I think there were some 20 misunderstandings. I think we covered this 21 yesterday. But I mean, I went to great length 22 about the appraised equity capital regulation and 7986 1 what role it played bringing R-41B to the 2 forefront of both savings and loan and appraisers. 3 Q. (BY MR. DUEFFERT) In the early and 4 mid-1980s, was there in the appraisal industry 5 widespread misunderstanding about the requirements 6 of R-41B? 7 A. Could I have a date? 8 Q. Can you answer my question? 9 A. Not without defining what "widespread" 10 means and what kind of context we're talking about 11 here. Were there disagreements, perhaps? Some 12 misunderstandings? I believe I've pointed already 13 out that appraisers had misunderstandings about 14 what their own professional practice standards 15 required. 16 Q. After 1982, were there any regional 17 variations in the interpretation of R-41B? 18 A. A common misconception about R-41B. 19 Q. I don't understand. 20 A. I think that was a common 21 misconception, that there were regional 22 variations. I don't believe it. 7987 1 Q. Common among who? 2 A. Appraisers. I've heard that 3 allegation, and I don't believe it. 4 Q. Do you have any sense of what gave rise 5 to that allegation? 6 A. Do you want me to speculate? 7 Q. Could we have Exhibit A11132, please? 8 Mr. Lovell, can you identify Exhibit A11132 for 9 the record? 10 A. Well, it says it's "R-41B and the 11 Appraiser" by Dr. William Kinnard. 12 Q. What else does it say? 13 A. Society of Real Estate Appraisers, 14 copyright 1985, revised October 1985. 15 Q. Do you have any understanding as to the 16 nature of this document? 17 A. Well, it was the society's version of 18 the seminar. Bill Kinnard was the educational 19 consultant for the Society of Real Estate 20 Appraisers. 21 Q. And is it similar in nature then to the 22 seminar document we looked at yesterday? 7988 1 A. Well, obviously, it's much thicker and 2 has a lot more information in it, a lot of which 3 represents, I think, various other documents that 4 have been copied in here. 5 MR. DUEFFERT: We move the introduction 6 of Exhibit A11132. 7 MR. LEIMAN: Did Mr. Dueffert, Your 8 Honor, ask if this witness was familiar with the 9 document and had seen it before? If he has done 10 that and established that, I have no objection to 11 the document. 12 MR. DUEFFERT: Your Honor, I can 13 represent this has been produced to Mr. Leiman a 14 long time ago in depositions this summer. We've 15 been talking about it all summer in depositions. 16 I will also say that I have a witness who isn't 17 talking about documents, and I think it's fair to 18 put into the record evidence of professional 19 standards at the time. 20 MR. LEIMAN: Your Honor -- 21 THE COURT: I think he identified that 22 he knows the author of the document. Unless you 7989 1 have some reason to think that he's not the 2 author, I'll receive the document. 3 MR. LEIMAN: I'm sorry, Your Honor. 4 Did you say if he's not the author -- he's not the 5 author of this document. Is that what you said? 6 THE COURT: Well, I said if you have 7 some reason to suggest that he is not, then maybe 8 you have some grounds to object. But otherwise, I 9 think the document is received. 10 MR. LEIMAN: May I ask him, sir, if he 11 is the author? 12 Are you the author of this document? 13 THE WITNESS: No. I clearly am not the 14 author. 15 THE COURT: That's not what I asked. I 16 apologize. I was referring to Kinnard as being 17 the author of which on its face states, and he 18 seems to recognize who Mr. Kinnard is. 19 MR. LEIMAN: All right. 20 Q. (BY MR. DUEFFERT) Mr. Lovell, I'll 21 direct you to the second page of the exhibit, the 22 second paragraph, and ask you to read into the 7990 1 record the last two sentences of that paragraph. 2 A. Last two of the second paragraph? 3 Q. Correct. 4 A. "From those meetings which, 5 incidentally, are still being held on a regular 6 schedule as of this writing, there emerged a 7 realization that the provisions of R-41B were 8 widely misunderstood. It also became apparent 9 that the impact of regional variations in 10 interpretation and enforcement of those provisions 11 was widely unappreciated and unintended." 12 Q. Is that information false? 13 A. I disagree with Bill, Bill Kinnard's 14 position on that. And having had a great many 15 discussions with Mr. Kinnard over the years, I 16 think that once he understood that we were pretty 17 consistent across the board in the United States 18 in our interpretation of R-41B, that there weren't 19 these widespread regional variations. I think 20 it's very much a perception, when you have 12 21 regions, 12 districts at that point in time with 22 12 people responsible to say, "Well, everybody's 7991 1 doing it differently than one another." But I 2 don't think the facts ever bore that out. I don't 3 believe anybody ever proved it. 4 Q. Am I correct in understanding that 5 there were significant differences of opinion 6 among practicing appraisers in the early and 7 mid-1980s as to what was meant by requirements of 8 R-41B, such as the one that an appraisal report 9 be, open quote, "totally self-contained," close 10 quote? 11 A. There were questions about 12 self-contained. 13 Q. And I think at your deposition you told 14 me that practicing appraisers were presenting 15 reports that went from a range of a letter 16 appraisal to a file cabinet. Right? 17 A. Yes. I think I said from the 18 ridiculous to the sublime, quite literally. I 19 mean, I had appraisers in seminars stand up with a 20 straight face and suggest that what the Federal 21 Home Loan Bank Board thought an appropriate 22 appraisal was was some kind of a massive document 7992 1 that represented the entire body of knowledge they 2 had accumulated over their entire appraisal 3 careers. I mean, clearly, that is in the 4 ridiculous category, in my opinion. 5 Q. If you -- if that's the case, how could 6 you tell this Court yesterday that the language of 7 Memorandum R-41B was so straightforward and clear 8 that even a non-appraiser could understand what it 9 required of an appraisal report? 10 A. I don't understand what's not to 11 understand about language when we say that it's 12 totally self-contained so that when it's read by 13 any third party, they can understand the 14 appraiser's logic and reasoning. 15 Q. Is it your opinion that when the Court 16 reviews the appraisal reports that you've 17 reviewed, the Court could understand the logic and 18 reasoning? 19 A. Could you repeat that question? 20 MR. DUEFFERT: I'll withdraw it. 21 Q. (BY MR. DUEFFERT) In 1985 and 1986, 22 did you teach hundreds of seminars on R-41B? 7993 1 A. I did hundreds of seminars. 2 Q. And did all of those seminars have 3 anything to do with the fact that many experienced 4 credentialed appraisers could not figure out 5 exactly what R-41B required them to do? 6 A. The most remarkable thing about those 7 seminars, Mr. Dueffert, is that I would go to -- 8 before a group of perhaps 200 people and they had 9 never read R-41B. They had heard lots of things 10 about R-41B. And after I had finished with a 11 seven- or eight-hour session with them, they felt 12 very comfortable relative to R-41B because, in 13 essence, they understood our objectives where we 14 were asking for well-documented and well-supported 15 appraisal reports that were prepared in accordance 16 with the standards of practice of the leading 17 professional groups at the time. We weren't 18 asking for something unusual, unrealistic. The 19 suggestion that we were requesting appraisers to 20 routinely prepare so-called demonstration 21 appraisal reports is absolutely false. 22 Q. Whose suggestion are you talking about? 7994 1 A. I think that there were comments 2 certainly made to me in various seminars that, 3 well, what you-all seem to be suggesting are 4 demonstration appraisal reports. 5 THE COURT: What's that? 6 THE WITNESS: A demonstration appraisal 7 report is something that you're required to 8 prepare as a part of becoming a member of the 9 Appraisal Institute or the Society of Real Estate 10 Appraisers. It is supposed to be an actual 11 appraisal problem where you actually go out, do 12 solid research, and write an appraisal report, 13 render an opinion of value. Those reports are 14 subsequently graded as a part of the process of 15 obtaining the designation. And they, in fact go 16 out and check the data in the report to be certain 17 that you didn't fabricate the information, that 18 the sales are genuine, bona fide, and that the 19 appraiser followed appropriate procedure for that 20 market area and property type that he was 21 appraising. 22 THE COURT: And how does the ordinary 7995 1 appraisal differ? 2 THE WITNESS: Well, functionally, Your 3 Honor, it doesn't differ significantly from it. I 4 think most appraisers can see that the outline 5 that you follow as a part of the preparation 6 process for a demonstration appraisal report is 7 generally just a good outline to follow relative 8 to how you would create an appraisal. Probably 9 the functional difference between a demonstration 10 appraisal report is you tend to add a little bit 11 more explanation than you might, a lot more 12 exhibits, a lot more color photographs. I mean, 13 you're trying to, in part, dazzle the reader and 14 reviewer of the report to show that you've got a 15 very complete product here, extremely complete. 16 Every aspect has been considered. 17 There are certain minimum standards for 18 those assignments, as well. You have to pick 19 properties. They can't be new, for example. They 20 have to have some elements of depreciation 21 exhibited so that as an author, as the appraiser, 22 you can go through and show the techniques of 7996 1 estimating accrued depreciation in a property. 2 You have to have a property type that is such that 3 you can apply all three approaches to value on. 4 The normal recommendation is to pick something 5 fairly simple, quite honestly, to appraise. My 6 commercial property demonstration appraisal report 7 actually was a Jewish synagogue who's highest and 8 best use was to convert to office space, and that 9 was subsequently done. 10 THE COURT: Excuse me, Mr. Dueffert. 11 You may continue. 12 Q. (BY MR. DUEFFERT) As a review 13 appraiser, you saw a lot of poor quality appraisal 14 reports in 1986, didn't you? 15 A. I've seen a lot of poor quality 16 appraisal reports over my entire career. 17 Q. Including 1986? 18 A. My career covers 1986. 19 Q. That's a "yes"? 20 A. That's a "yes." 21 Q. Looking at the appraisal reports in 22 this case, were they prepared by properly 7997 1 credentialed appraisers? 2 A. They appear to be, yes. 3 Q. None of the appraisers had mail-order 4 designations, did they? 5 A. To the best of my recollection, I 6 believe they all hold MAI designations. 7 Q. Do you know if Mr. Dugger had a good 8 reputation in the appraisal community? 9 A. I really don't know anything about 10 Mr. Dugger's personal reputation or work product, 11 and I have not had occasion to review in the past 12 his work. 13 Q. Do you have any sense of the reputation 14 of his partner, Scruggs Love? 15 A. Yes. Scruggs Love is a personal friend 16 of mine and, to the best of my knowledge, Scruggs 17 has a decent reputation. 18 Q. But you nonetheless told me at your 19 deposition that the 1986 work product of that firm 20 that we've looked at was, open quote, 21 "depressing," close quote. Right? 22 A. That's true. 7998 1 MR. LEIMAN: Your Honor, excuse me. 2 I'd like to interpose an objection. If 3 Mr. Dueffert's going to inquire about very 4 specific passage in his deposition, Mr. Lovell's 5 deposition, we have the right to know where they 6 are in his deposition, as does the witness. 7 THE COURT: I believe the question was 8 answered. Are you going to pursue it further? 9 MR. DUEFFERT: No. And for the record, 10 what was your answer? 11 A. I forget the question now. 12 MR. DUEFFERT: Could the reporter read 13 back the question, please? 14 15 (Whereupon the requested portion 16 was read back by the reporter.) 17 18 A. Yes, that's what I said. True. 19 Q. (BY MR. DUEFFERT) Do I understand 20 that you know nothing about the reputations of 21 Mr. Ed Schulz and Mr. Rex Bolin? 22 A. No, I do not. 7999 1 Q. Do you know anything about Mr. Schulz' 2 resources outside of Houston? 3 A. No, I do not. 4 Q. And you don't know what was available 5 to him in San Antonio when he did his report. 6 Right? 7 A. That's correct. 8 Q. How far from Houston is San Antonio? 9 A. I don't know. I haven't looked at a 10 map in ages. A hundred miles maybe. 11 Q. Do I understand correctly from your 12 deposition that your principal criticism of the 13 1986 Love & Dugger appraisal is that it doesn't 14 contain an as-developed value and that it 15 improperly anticipates the construction of the 16 Westside Expressway? 17 A. Those are certainly some of the reasons 18 I think I cited, yes. 19 Q. Did you cite them as your principal 20 reasons? 21 A. No. I think I said that I took all of 22 these things into account together. I guess I 8000 1 didn't find one particular item that was the 2 critical key point. I think I stressed the fact 3 that the fundamental problem with the appraisal 4 reports is that they were not useful tools in the 5 loan underwriting process. I believe that's what 6 I said. 7 Q. Pages 14 and 15 of your deposition 8 dated October 21, 1997, Lines 14 through -- Line 9 14 on Page 4 through 9 on Page 15. 10 Question, "Did you reach any opinions 11 or conclusions as to whether the February 12th, 12 1986 Love & Dugger appraisal report was in 13 compliance with Memorandum R-41B?" 14 Answer, "Yes. I do have an opinion 15 about that." 16 Question, "What is your opinion?" 17 Answer, "I don't believe that the 18 appraisal report complies with Federal Home Loan 19 Memorandum R-41B." 20 Question, "Why not?" 21 Answer, "I think my principal comment 22 would be -- is if you look at R-41B, it explicitly 8001 1 states that an appraisal needs to be a useful tool 2 in the loan underwriting process. And while they 3 have presented an interesting appraisal report, it 4 unfortunately represents only a hypothetical value 5 of what the apparent raw land would be if the 6 expressway was going to be built out there. 7 Unfortunately, we have no valuation as a part of 8 this appraisal report that reveals, one, the 9 as-developed value at a subsequent date, nor do we 10 have an as-is value of the property as it 11 physically and legally exists at the date of 12 valuation." 13 Question, "So, it's something of a 14 hybrid?" 15 Answer, "It is incomplete for loan 16 underwriting purposes." 17 Does that refresh your recollection as 18 to what your principal criticisms of the 19 Love & Dugger report were? 20 A. It refreshes my recollection as to what 21 I said. Sounds accurate to me. 22 Q. And the Love & Dugger report is 8002 1 incomplete because it doesn't value the collateral 2 of Park 410 property at the end of the loan 3 process; isn't that right? 4 A. That's one of the defects, yes. One of 5 the things that would make -- you'd have to have 6 as an ingredient in underwriting that type of 7 loan. 8 Q. I think you also said when you began 9 your testimony last week on November 14th, you 10 told Mr. Leiman, "The major" -- and this is on 11 Page 7255 and 7256. "The major problem, I think, 12 with the Love & Dugger appraisal report, 13 irrespective of some of the niceties of what they 14 have done, I think this aspect of assuming the 15 existence of the freeway." 16 Does that refresh your recollection as 17 to the nature -- 18 A. It was an important ingredient. No 19 question about it. 20 Q. The major problem? 21 A. It's one of the major problems. 22 Q. You testified at your deposition that 8003 1 your principal criticism of the Ed Schulz 2 appraisal is that it doesn't contain an as-is 3 value. Right? 4 MR. LEIMAN: Your Honor, I request that 5 Mr. Dueffert refer to a specific page and line if 6 he's going to question about specific parts of the 7 deposition. 8 MR. DUEFFERT: I think it's fair to 9 question the witness as to the thrust of his 10 opinions. 11 THE COURT: Well, we'll test his 12 recollection of what he said. 13 A. Would you repeat the question? 14 Q. (BY MR. DUEFFERT) Let me try it 15 again. Is your primary reason for criticizing Ed 16 Schulz' appraisal report is that in attempting to 17 develop the property in the state of completion, 18 he fails to supply the as-is value of the land as 19 it physically and legally existed on the date of 20 valuation? 21 A. That's one of my objections to the 22 appraisal from an R-41B perspective, yes. 8004 1 Q. Is that your primary reason? 2 A. Is it the only reason? No. 3 Q. Is it the primary reason? 4 A. There are many reasons why I don't 5 believe the appraisal report was not useful. We 6 had an extensive line of questioning, I believe, 7 from you about that issue. 8 Q. Is it the primary reason? 9 A. I think we went through in great depth 10 and detail about all of the relative observations 11 that I made when I read the appraisal report. I 12 take them in total. 13 Q. Page 15 and 16 of your deposition, Line 14 23 of Page 15 through Line 16 of Page 16. 15 "Have you reached any opinions or 16 conclusions as to whether the March 19, 1986 17 appraisal report of Mr. Edward B. Schulz complied 18 with Memorandum R-41B?" 19 Answer, "I have." 20 Question, "And what is your opinion or 21 conclusion?" 22 Answer, "My opinion is that the 8005 1 appraisal does not comply with R-41B, again, 2 because it is not a useful tool in the loan 3 underwriting process." 4 Question, "What is the basis for that 5 opinion?" 6 Answer, in Mr. Schulz' appraisal 7 report, he attempts to develop the value of the 8 property in the state of completion but fails to 9 supply the as-is value of the land as it 10 physically and legally existed on the date of 11 valuation." 12 Question, "Any other reasons?" 13 Answer, "That's sufficient." 14 Question, "Is that your primary 15 reason?" 16 Answer, "Yes." 17 Was your response in your deposition 18 truthful? 19 A. Yes. Would you have reason to believe 20 otherwise? 21 Q. Do I understand that your principal 22 criticism of the Rex Bolin appraisal on the 8006 1 Norwood property is that it also doesn't contain 2 an as-is value and that it fails to consider some 3 proposed changes to US Highway 183 that would make 4 it more of a limited-access highway? 5 A. Those are certainly ingredients of why 6 I would object to it, yeah. I believe we had an 7 extensive amount of questioning that involved the 8 market study involving that property. 9 Q. So -- is it your testimony that 10 appraisers are obligated not to communicate with 11 their clients orally about value ranges in the 12 course of putting together appraisal reports? 13 A. Appraisers will discuss with their 14 clients the nature of the assignment. 15 Q. Was it -- and there is nothing 16 prohibited about oral communications about values 17 between appraisers and their clients. Right? 18 A. Not that I'm aware of. 19 Q. It was common in the industry in 1986, 20 wasn't it, for clients to give appraisers an idea 21 of the value that would be needed to make a 22 transaction work? 8007 1 A. Appraisers were required to be very 2 cautious when a client would request a specific 3 value estimate. It was common practice to talk in 4 terms of perhaps some generalized ranges as to 5 where the assignment was going. And the reason 6 for that is the standards of professional practice 7 did not want appraisers rendering value opinions 8 without having done the proper research. So, 9 generally speaking, from a professional practice 10 standards point of view, the appraiser, if he was 11 rendering an opinion of value, needed to have 12 completed the assignment work prior to making his 13 pronouncement of what his opinion of value was. 14 Q. Was it common in the industry for 15 clients to give appraisers an idea of the value 16 that would be needed to make a transaction work? 17 A. Sure. They would try to steer 18 appraisers. 19 Q. And it was common? 20 A. It was done. 21 Q. Was it ever done for a reason other 22 than to try to steer appraisers? 8008 1 A. I imagine it was. I mean, I guess I'm 2 sitting here trying to fathom other reasons. But 3 certainly, there were people who would direct 4 appraisers, make it clear that "We need a number 5 of X number of dollars in order to make the deal 6 work." 7 Q. Did that communication, that type of 8 information, ever happen for a reason other than 9 to steer a number? 10 A. I'm aware of it. I have personal 11 experience in my own professional practice with 12 this sort of thing. 13 Q. On large projects, wasn't it common for 14 appraisers to call up the client halfway through 15 the project and indicate roughly the range they 16 were going to come to? 17 A. If they had done the assignment, if 18 they had sufficient information to have analyzed 19 to have already arrived at that conclusion. 20 Professional practice standards prohibit them from 21 doing so unless they have, in fact, completed the 22 appraisal. 8009 1 Q. Was it common on big projects for 2 appraisers, halfway through the process -- not -- 3 before they have a final report. They get a 4 range. It's going to come in between, you know, 5 20 and 22 or 118 and 120. They call up their 6 client and they say, "Here's the range I think I'm 7 going to come to." 8 Did that happen commonly? 9 MR. SCHWARTZ: I object to the 10 hypothetical. Just a minute, please. I believe 11 it's an incomplete hypothetical. We don't have a 12 time frame, and Mr. Dueffert is now changing from 13 halfway through a project to some point in the 14 project. If he's going to give a hypothetical 15 which is completely appropriate, it should be a 16 complete one. That's my objection, Your Honor. 17 THE COURT: Did you understand the 18 question? 19 THE WITNESS: I guess I'd like to 20 explain, perhaps for your benefit. It was common 21 for appraisers to violate their practice 22 standards. This was occurring. This is one of 8010 1 the reasons why we had hearings that went on in 2 1985 relative to the impact of faulty and 3 fraudulent appraisal reports. 4 THE COURT: And you're saying that that 5 would be fraudulent or -- 6 THE WITNESS: It was considered 7 improper practice. It's a violation of your 8 professional practice standards to cite a value 9 estimate prior to actually having done the 10 analyses and the appraisal report. 11 THE COURT: So, he would have to 12 complete -- 13 THE WITNESS: He would have to have all 14 of the analyses work completed. Now, the report 15 might not be physically, literally completed in 16 the preparation process; but he had to have gone 17 far enough to have had adequate information to 18 formulate that opinion before sharing it with the 19 client. 20 Q. (BY MR. DUEFFERT) Sir, do you know 21 who Jay Massey is? 22 A. Yes. 8011 1 Q. Is he -- has he been designated as an 2 appraisal expert by the OTS in this case? 3 A. I believe they have retained him for 4 some reason, yes. 5 Q. And you have reviewed his report, have 6 you not? 7 A. I have read, I think, one of the 8 documents that he prepared. I don't know what 9 else he may have prepared. 10 Q. Do you know if his report was filed 11 with this Court? 12 A. I do not know. 13 Q. Pages 118 and 119 of Mr. Massey's 14 deposition, Line 4 on Page 118 through Line 18 on 15 Page 119. 16 MR. LEIMAN: Your Honor, Mr. Massey's 17 deposition is not in evidence. Mr. Massey has not 18 been called as a witness in this matter. It's 19 completely inappropriate to test this witness 20 unless he's testing him in connection with 21 specific questions that Mr. Massey may have been 22 asked and the answers -- with respect to the 8012 1 answers that this witness may give. If that's the 2 purpose of this, that's fine. But I object to him 3 being tested and quizzed on documents he's never 4 seen and read. 5 THE COURT: Well, if another person has 6 given an opinion, he can be asked -- Mr. Lovell 7 can be asked whether he agrees with it, I think. 8 MR. DUEFFERT: Thank you, Your Honor. 9 Do we have the transcript? 10 Q. (BY MR. DUEFFERT) The question on 11 Page 117, Line 25, "Did R-41B appraisals in Texas 12 as of early 1986 commonly address all of those 13 different questions?" 14 Answer, "Mine did. The people I 15 associate with did. Absolutely." 16 "Very quickly, from 1984 till about 17 1986, I had trouble getting my experience credits 18 because at least 50 percent of the reports that I 19 wrote were never completed." 20 Question, "Why?" 21 Answer, "It was traditional in the 22 market at that point in time to get half the fee 8013 1 up front, to pay the other half or receive the 2 other half upon completion of the report. I begin 3 the report and focus on typically the income 4 capitalization approach for an improved property 5 or for a proposed improved property. And when I 6 got to where I figured I'm within a reasonable 7 range of what the rest of the report is going to 8 point to, we call the client and tell them, "Man, 9 here's the range. We're going to be somewhere in 10 here once this thing is concluded." And they'd 11 say, "Stop what you're doing. Box it up and send 12 it to us. Keep the up-front money." 13 Question, "Why would they tell you 14 that?" 15 Answer, "Because it wasn't the number 16 they wanted. Easily half that I couldn't get. I 17 had trouble getting experience credits for because 18 of stopping midway through the analysis because it 19 couldn't hit their number. Their number didn't 20 make no damn sense." 21 Question, "Did you commonly know what 22 their number was before you made the call?" 8014 1 Answer, "Sure." 2 Question, "How did you learn of the 3 number?" 4 Answer, "Oh, they would tell you 5 directly or indirectly. Or write it on a scrap of 6 paper or whatever, you know. I mean, they needed 7 the number to make the deal work to do the 8 financing and to get started to acquire the land 9 and get moving, you know. I usually knew what it 10 was they -- or if they didn't tell me directly or 11 indirectly, hell, I can figure it out, you know, 12 because I know what their -- I have to have some 13 indication of what their pro forma of rents were 14 and expenses." 15 Mr. Lovell, do you feel that Mr. Massey 16 was violating ethical rules when he was dealing 17 with his clients? 18 A. Well, it certainly sounds like he's 19 telling on himself. 20 Q. Can you answer my question? 21 A. Which is? 22 MR. LEIMAN: Your Honor, I object to 8015 1 the question because it doesn't contain a specific 2 example. If there is a specific example that 3 Mr. Dueffert would like to talk about and he would 4 like to render an opinion, that's fine. 5 THE COURT: There is a practice 6 described there in some detail. I think the 7 witness can give us his opinion on whether it's 8 proper. 9 Q. (BY MR. DUEFFERT) Is it your opinion 10 that Mr. Massey, in engaging in the conduct he 11 described in his deposition, was violating ethical 12 rules? 13 A. I don't think he's supposed to tell 14 them about the number. So, I guess from what he's 15 saying here, the indication is -- without looking 16 at the rest of the context the statement is made 17 in -- but the indication certainly is here that he 18 was perhaps violating the Appraisal Institute 19 standards. 20 Q. It remains today a common practice, 21 does it not, for appraisers to discuss orally 22 possible valuations with their clients before any 8016 1 report is issued? 2 A. No. What's common today is that they 3 will take on an assignment where a client perhaps 4 needs a particular number as a part consulting 5 assignment where they will go through and work to 6 a particular point where the appraiser can tell 7 whether or not there is any likelihood that the 8 value estimate the client is looking for makes 9 some sense or not. At that point, then the 10 assignment, if it does make sense, would be 11 converted into an appraisal assignment. And 12 before the appraiser would come up with a finished 13 file number that he would cite in the appraisal 14 report, he would finish all of the rest of the 15 work. 16 So, nowadays, the way the standards of 17 professional practice course suggest appraisers to 18 handle this kind of situation is that they should 19 literally break the assignment down into phases to 20 avoid the appearance of being directed to produce 21 a particular estimate. 22 Q. I'm sorry. I don't understand your 8017 1 answer. 2 Does it remain today a common practice 3 for appraisers to discuss orally possible 4 valuations with their clients before a report is 5 issued? 6 A. I don't think it's accepted standards, 7 unless you've done the work, to cite a value 8 estimate for the property. 9 Q. So, you're saying it's not a common 10 practice? 11 A. Well, what's common practice versus 12 what the standards say you're supposed to be doing 13 may be at variance with one another. I've already 14 pointed that out. 15 Q. I'm not asking about standards. 16 A. I think standards are very important. 17 Q. I know that. Was it -- is it a common 18 practice today? 19 A. It happens. 20 Q. Is it a common practice today? 21 A. I'm not sure how common it is anymore. 22 Q. Mr. Lovell, your deposition, Page 115, 8018 1 Lines 16 through 22. "Despite CEBA" -- which I 2 understand was passed in 1987 -- right? 3 A. Yeah. 4 Q. "Despite CEBA, did appraisers 5 commonly" -- no. I'm sorry. "Despite CEBA, did 6 appraisers continue commonly to get target numbers 7 from lenders?" 8 Answer, "I think that it's probably 9 common practice for lenders to at least tell 10 appraisers what type of number is necessary." 11 Is your testimony at your deposition 12 truthful? 13 A. I said it, and you reported it 14 accurately. 15 Q. Was it truthful? 16 A. Yes, it's truthful. 17 Q. We talked yesterday about as-is versus 18 as-developed. I'd like to move on. Perhaps this 19 is a good time for a break. 20 THE COURT: All right. We'll take a 21 short break. 22 8019 1 (A short break was taken 2 at 11:01 a.m.) 3 : 4 THE COURT: Be seated, please. We'll 5 be back on the record. 6 Mr. Dueffert, you may continue. 7 MR. DUEFFERT: Thank you, Your Honor. 8 (11:20 a.m.) 9 Q. (BY MR. DUEFFERT) Mr. Lovell, in your 10 career, have you ever been based in Texas? 11 A. I'm not sure what you mean by "based." 12 Q. I think it's a clear question. Have 13 you ever been based in Texas? 14 A. If the question is have I ever done 15 work in Texas, the answer would be yes. 16 Q. No. I want you to answer the question. 17 A. Have I worked for an employer and had 18 this as my residence, the answer would be no. 19 Q. I'd like you to answer the question I 20 asked so the record is clear. 21 Have you ever been based in Texas? 22 MR. LEIMAN: Your Honor, maybe if we 8020 1 could cut it short, perhaps -- perhaps the 2 question might be phrased if it was ever his duty 3 stationed for any period of time, such as in 4 excess of two weeks. Perhaps that might -- put in 5 that clarification. Would you like to -- 6 MR. DUEFFERT: I think I have a right 7 to ask the questions I would like to ask. 8 THE COURT: Well, you've got your 9 answer. So, I think we'll have to go to the next 10 question. 11 MR. DUEFFERT: Okay. 12 Q. (BY MR. DUEFFERT) Do you recall that 13 you criticized the Love & Dugger and Schulz 14 appraisals for hypothesizing the construction of 15 the Westside Expressway? 16 A. Yes. I see that as a problem. 17 Q. Did they anticipate the construction of 18 the expressway, or just its four lanes of access 19 roads? 20 A. I believe there was some type of 21 construction work, it's my understanding, going on 22 on the access roads. But the contracts had not 8021 1 been let for the main driving lanes for the 2 freeway. 3 Q. My question is: Did the appraisers 4 anticipate the construction of the expressway, all 5 eight lanes or whatever it eventually would have, 6 or did they anticipate the construction of its 7 four lanes of access roads? 8 A. Their analyses anticipated the eventual 9 completion of the freeway within a very short time 10 frame. 11 Q. And how do you define "freeway"? 12 A. Well, most people would define 13 "freeway" as being a limited-access facility. 14 Q. You just said that the appraisers 15 anticipated the construction of the freeway. 16 Right? 17 A. Their report is predicated on the 18 assumption that the freeway is going to be built. 19 Q. And when you say that, are they 20 predicating the assumption on the four lanes of 21 access roads to be built or something more? 22 A. No. I think it was part and parcel of 8022 1 the access roads, including the freeway itself. 2 Q. So, they predicated their valuation 3 estimates on the assumption that all eight lanes 4 would be built in the next two years? 5 A. Well, I don't know how many lanes were 6 intended to be built. I haven't ever seen the 7 specifications for the freeway. But they were 8 anticipating that the freeway and any access roads 9 and the like were going to be built, including 10 other roads in the vicinity. It's my 11 understanding that there were other proposed roads 12 that were part and parcel of this whole area. 13 Q. You've criticized the appraisers for 14 anticipating the opening of the freeway. Right? 15 A. I don't criticize them for anticipating 16 the opening of the freeway. 17 Q. I thought we had about a day and a half 18 of testimony in which you routinely criticized 19 them for anticipating the freeway. 20 A. There is no problem -- and I think I 21 made this clear -- for the appraiser to recognize 22 that the freeway is going to be built. But from 8023 1 an institution's perspective, they need to know 2 what it is worth on the date they extend the money 3 on the property. And we didn't have a freeway, 4 it's my understanding, when that was being done, 5 when the loan was being underwritten. And I do 6 think it makes a big difference in the value of 7 the property. It's my understanding, I believe, 8 they cite several thousand feet of highway 9 frontage were going to be on this proposed 10 freeway. 11 Q. Could we have Exhibit T7143, please? 12 Also at Tab 711. 13 MR. LEIMAN: Could you identify what 14 that is, Mr. Dueffert? What specific appraisal is 15 that? 16 MR. DUEFFERT: I'm sorry. This is the 17 1986 Love & Dugger appraisal report. 18 MR. LEIMAN: Thank you. 19 Q. (BY MR. DUEFFERT) Mr. Schulz, could 20 you turn briefly to Page 34 and 35 with me? 21 A. Mr. Schulz? 22 Q. I apologize. I was looking -- I'm 8024 1 reading too many appraisals. 2 Mr. Lovell, could you turn to the 3 bottom of Page 34, please? Are you with me? 4 A. Okay. Page 34. 5 Q. Could you read into the record the last 6 line on Page 34 that carries onto the top of 7 Page 35? 8 A. It says, "G, capital improvement 9 projects and annexations. The growth and amount 10 of activity" -- 11 Q. No, sir. Just the last line. 12 A. Excuse me. "This 10.1-mile 13 thoroughfare will cost approximately 100 million 14 to build." 15 Q. And the next line? 16 A. "At the present, the State Highway 17 Department has approved the low bid by H.B. Zachry 18 Company to construct approximately 5 miles of 19 access roads between Loop 410 and 1604." 20 Q. Could you read the next line? 21 A. "Initial site work started 22 January 1986. Additional bids for construction of 8025 1 bridges, as well as interchanges, will be let 2 June 1986." 3 Q. The Love & Dugger report at that point 4 is talking about access roads. Right? 5 A. Let me read the rest of it. No. I 6 believe it talks about the Westside Expressway, as 7 well as the access roads. 8 Q. And it distinguishes between the two. 9 Right? 10 A. Yes. On Page 34, it says "To date, the 11 most important transportation plan" -- I mean, 12 most important -- "is that of the Westside 13 Expressway." 14 Q. As of early 1986, did market prices for 15 properties in the neighborhood of Park 410 reflect 16 the belief that the access roads would be 17 completed in the near future? 18 A. I don't know if I know the answer to 19 that for sure. 20 Q. You have no opinion? 21 A. I don't know that I have adequate data 22 to make that judgment. It certainly is possible, 8026 1 but... 2 Q. Is it anything more than possible? 3 A. I don't understand the question. 4 What's "more than possible"? There is some 5 quality here I'm missing. 6 Q. This is a blowup of the Park 410 area 7 between the Northwest Loop 410 and Loop 1604. It 8 is from Exhibit T7084, which is located at Tab 9 709. For the record, it is located -- it is the 10 page marked OW015432. 11 To your understanding, is this a fair 12 representation of the land in the Park 410 area as 13 it existed in early 1986? 14 A. It's a representation. 15 Q. Do you have any reason to challenge it? 16 A. Well, I'm not sure how accurate it is. 17 I mean, frankly, it's a picture that was, I guess, 18 in the appraisal report. 19 Q. Is a copy of -- is it your testimony 20 that the Park 410 land's value in early 1986 21 didn't reflect the market's anticipation that four 22 lanes of access roads would be built between Loop 8027 1 410 and Loop 1604? 2 A. It would have been something to 3 consider. 4 Q. Wouldn't an appraiser actually be 5 obligated to reflect the market's anticipation 6 that that highway would be built? 7 A. He can certainly consider it. There is 8 no problem with that. 9 Q. Well, if, indeed, the market is valuing 10 the property higher because it's been announced 11 that there is going to be the freeway, the 12 appraiser has to take that into consideration. 13 Right? 14 A. That's fine. But, you know, from a 15 lender's perspective, he still has to recognize 16 that until the freeway is there, we don't have a 17 freeway. It's an important element of the value 18 of the property. This situation isn't any 19 different than a zoning change. If you can 20 achieve the zoning on a particular tract, then 21 perhaps it will be valuable or more valuable than 22 it currently is. But until the zoning has become 8028 1 consummated, until the change has occurred, you 2 don't have reality there. And you do have 3 considerable risk in this type of loan. 4 Q. In reality, doesn't the price of 5 property change if everyone in the market is 6 anticipating that a major freeway will be built 7 between loop -- two loops in a city? 8 MR. LEIMAN: Object to the hypothetical 9 as being incomplete. Is he talking about Park 410 10 or just some other hypothetical property? 11 THE COURT: This is an expert. He can 12 answer the question. 13 A. Not only will it change; but if the 14 freeway isn't built, it will change in reverse. 15 Q. (BY MR. DUEFFERT) At the point when 16 all the contracts are let, after the State Highway 17 Department has announced that the freeway will be 18 built, doesn't that change market values in the 19 neighborhood? 20 A. It can affect it, but not necessarily 21 so. 22 Q. Is it your opinion that the Park 410 8029 1 property, as it sat there in early 1986, would 2 have been worth the same if no Westside Expressway 3 had been announced? 4 MR. LEIMAN: I object to that as an 5 incomplete hypothetical. The same as what? 6 THE COURT: Did you understand the 7 question, Mr. Lovell? 8 THE WITNESS: Well, I think value, 9 since it's dependent on a particular point in time 10 and condition that we're looking at, I think we 11 need to be a little bit more specific about the 12 "whens." 13 Q. (BY MR. DUEFFERT) We'll get back to 14 it later. 15 Last week, you told the Court, open 16 quote, "As I guess I understand it, it hasn't been 17 built to this day," close quote. 18 Do you recall that? 19 A. That's what I understand. 20 Q. And where did you get that 21 understanding? 22 A. At this point, I'm not sure because 8030 1 we've covered so much language. It seems like I 2 remember from perhaps Brian Schuler's testimony 3 and it might have been Auvy McBride's deposition 4 that I read. Somewhere in there, it appeared. 5 But to be perfectly frank, I don't recall at this 6 point. 7 Q. Perfectly frankly, might it have come 8 from Mr. Leiman or Mr. Schwartz? 9 A. Well, I have seen, I believe, what is 10 an aerial photograph of the property at the 11 present time, or recent photograph of it. 12 Q. Before you said in court that you guess 13 you understand it hasn't been built to this day 14 and created that impression, did you verify that 15 information anywhere? 16 A. I have not been out there to the 17 property. 18 Q. Could we have Exhibit B3854, please? 19 Before you created an impression in this courtroom 20 that the freeway had never been built, did you 21 look in an atlas? 22 A. No, I did not. 8031 1 Q. What type of road does the atlas 2 signify -- I think it's called US Highway 151 -- 3 now is? 4 A. I'll be honest with you, Mr. Dueffert. 5 My eyesight isn't as good as it used to be, and 6 the copy here is not the best. Perhaps you can 7 point me to a page. 8 Q. No. We'll move on. Do you know if a 9 1987 Love & Dugger appraisal report discloses the 10 fact that the four lanes, indeed, were completed 11 in 1987? 12 A. As I recall -- and perhaps I should 13 refer to it. I don't know that I have it here. 14 As I recall, I think they commented something 15 about that. 16 MR. LEIMAN: Let me object on the basis 17 that the question is not clear as to which four 18 lanes we're talking about, Mr. Dueffert. Could 19 you clarify that, please? 20 Q. (BY MR. DUEFFERT) Let me just try it 21 again. As an appraisal expert, do you know if a 22 1987 appraisal report by Love & Dugger discloses 8032 1 the fact that four lanes of access roads, indeed, 2 were completed in 1987? 3 A. I'd like to refer to it. May I have a 4 copy of it? 5 Q. Have you looked at a 1987 Love & Dugger 6 appraisal report on the Park 410 property? 7 A. I have looked at an update report, yes. 8 Q. The '87 Love & Dugger appraisal? 9 A. I believe that's the date. 10 Q. You don't recall if it disclosed that 11 the highway, in fact, was completed? 12 A. I would prefer to refer to the specific 13 document to be certain. 14 Q. Perhaps later. 15 How far was Sea World from Park 410? 16 A. Not far. 17 Q. How far? 18 A. I'd have to refer to the appraisal. I 19 think they do site some relative distances there. 20 Q. It is an important fact regarding the 21 valuation of the Park 410 property, is it not, the 22 distance between it and the proposed Sea World? 8033 1 A. There was certainly a fair amount of 2 perception created, I think, from the appraiser's 3 commentary that Sea World was going to be of 4 benefit to the Park 410 property. 5 Q. Do you think that impression was 6 reasonable at the time? 7 A. No, I don't. 8 Q. What was the best available projection 9 in 1986 regarding how many visitors a year were 10 expected to visit Sea World after it opened? 11 A. I don't recall. 12 Q. Any idea? 13 A. Nothing comes to mind. 14 Q. You've read the appraisal reports, have 15 you not? 16 A. Yes. I've read the appraisal reports. 17 Q. Was that a significant prediction to 18 your analysis? 19 A. What? The attendance at Sea World? 20 Q. Well, if you recall, we talked about 21 San Diego and Orlando and San Antonio. And I 22 think you were critiquing Mr. Dugger's appraisal 8034 1 report because he looked at San Diego instead of 2 Orlando. Right? 3 A. Well, I'd have to refer back. I don't 4 know that Mr. Dugger went to San Diego. I think 5 we have a market study, a Tremar market study that 6 went to San Diego and comments on it. 7 Q. Looking at the Love & Dugger appraisal 8 that you critiqued, do you recall that you focused 9 on the Sea World section because you were saying 10 it wasn't comparable in San Antonio to San Diego. 11 Right? 12 A. I don't think that the market areas are 13 comparable, no, I don't. 14 Q. So, when you were focusing on that 15 section, did you also focus on the predictions as 16 far as Sea World attendance? 17 A. No. 18 Q. Because it wasn't relevant to you? 19 A. I don't see Sea World as being this 20 very important significant factor relative to this 21 particular property. 22 Q. And it's not significant to the 8035 1 neighborhood between Loop 1604 and Loop 410 on the 2 Westside Expressway? 3 A. Well, I can tell you this, 4 Mr. Dueffert. Sea World and Orlando, for example, 5 would never have been built, unless Disney World 6 had been built. 7 Q. Sir? 8 A. It isn't a stand-alone -- 9 Q. I'm not asking about Orlando. Can we 10 turn back to T7143, please, which is the 1986 11 Love & Dugger report? If you turn to Page 36, 12 towards the bottom -- are you with me? 13 A. Impact of Sea World. 14 Q. I believe it it's the second full 15 sentence. Could you read it out loud for the 16 record? 17 A. Where we start "upon its completion"? 18 Q. That's a good sentence, yes. 19 A. "Upon its completion, Sea World is 20 projected to attract 3 million tourists a year, 21 making it the largest theme park in the state." 22 Q. Did you focus on that sentence as you 8036 1 were looking at the reasonableness of whether Sea 2 World would, in fact, impact values in the area? 3 A. No. I take it for what it says. It 4 will be the largest theme park in the state. 5 Q. Is it your understanding that the 6 developments around Sea World, the land was 7 largely raw land between Loop 1604 and Loop 410 8 along the proposed Westside Expressway? 9 A. My understanding, there was a great 10 deal of undeveloped land, I believe, some 11 9,000 acres in that particular direction of town. 12 Q. If you're having 3 million visitors a 13 year attending the proposed Sea World site, they 14 are going to have to get there, at least many of 15 them, from the downtown area. Right? 16 A. I don't know that to be true. 17 Q. Would the fact that 3 million tourists 18 a year were visiting the neighborhood of Sea World 19 suggest that some reasonable developers might 20 think that that part of town would support gas 21 stations and motels and perhaps some retail? 22 A. Well, I'm sure developers would think 8037 1 that it would support something. 2 Q. Developers who would be willing to put 3 some of their own money on the line? 4 A. They might even actually come up with 5 some money and put it down. 6 Q. Would you say that the people who 7 invested in developments near Sea World were being 8 foolish with their money? 9 MR. LEIMAN: I'm going to object to the 10 question. There was no testimony as to whether or 11 not the people that might have invested in 12 surrounding areas around Park 410 were foolish or 13 not foolish or whether it was a good investment or 14 otherwise. 15 THE COURT: Well, that's the question. 16 Let's have the witness' answer. 17 A. Well, I think if they paid too much, 18 they were foolish. 19 Q. (BY MR. DUEFFERT) I didn't have that 20 in my question. 21 MR. DUEFFERT: Could you read back my 22 question, please? 8038 1 2 (Whereupon the requested portion 3 was read back by the reporter.) 4 5 A. I don't know. I don't know how much 6 they paid. 7 Q. (BY MR. DUEFFERT) Sir, do you agree 8 that it would be reasonable to expect that even in 9 light of soft market conditions in San Antonio, 10 substantial development would occur in the 11 vicinity of a theme park that was expected to draw 12 3 million visitors a year? 13 A. Could you repeat the question for me, 14 please? 15 THE COURT: Reporter, could you read 16 the question back? 17 18 (Whereupon the requested portion 19 was read back by the reporter.) 20 21 A. I don't see development in the face of 22 the oversupply going on as being necessarily a 8039 1 reasonable thing to have done. 2 Q. (BY MR. DUEFFERT) I'm not asking 3 about not necessarily reasonable. Could you -- do 4 you agree that it would be reasonable to expect 5 that despite soft market conditions, substantial 6 development would occur in the vicinity of a theme 7 park that was expected to draw 3 million visitors 8 a year? 9 MR. LEIMAN: Asked and answered, Your 10 Honor. He already has an answer to the question. 11 He's arguing with the witness and wants a 12 different answer. 13 MR. DUEFFERT: I don't think he 14 answered my question. 15 THE COURT: All right. Can you answer 16 it again? 17 A. I would anticipate that some foolish 18 development might occur, yes. 19 Q. (BY MR. DUEFFERT) Did you ever hear 20 of the Hill Country Hyatt? 21 A. No. 22 Q. This, I think, is the aerial photo you 8040 1 referred to a couple minutes ago. It is marked 2 but not admitted as Exhibit B3851. Perhaps it 3 might refresh your memory. 4 Do you know if there is a large hotel 5 operation immediately across the Westside 6 Expressway from Sea World called Hyatt Regency 7 Hill Country Resort? 8 A. I don't know anything about it. 9 Q. And you don't know -- 10 A. And if it was there on the date the 11 appraisal was written, it's not clear from either 12 of the appraisals or from the market study that 13 that facility was there. 14 Q. You don't know when it was built? 15 A. No. 16 Q. You don't know how successful it is? 17 A. I do not. 18 Q. Is it your -- is it your opinion that 19 if that facility was, in fact, built in the late 20 1980s, its developers were being foolish? 21 A. It might be questionable. It's my 22 understanding that the Sea World San Antonio 8041 1 property has had some financial difficulties. 2 Q. I'm asking about the developers of the 3 Hill Country Hyatt. Were they being foolish with 4 their money? 5 A. I don't know what they had in mind. 6 Q. You also used the term in your 7 testimony last week, "no man's land." Right? 8 A. Yes, that's true. 9 Q. And I think the thrust of your 10 testimony is that major corners, major 11 intersections of freeways and highways are often 12 bad because they are just too busy. Right? 13 A. Frequently, there is too much traffic, 14 that's correct. Congestion. 15 Q. Hypothetical for you. I drive around 16 Houston's loop, as I did over the weekend, and I 17 noted that wherever the Loop joins up with a 18 significant highway, I don't see warehouses. I 19 see retail. I see gas stations. I see shopping 20 malls. Am I to assume that all of the developers 21 of those properties were foolish? 22 A. Well, I see a lot of questionable real 8042 1 estate, too, as I drive around the expressway 2 system. Some of it's good and some of it's 3 indifferent. I don't know whether they are 4 foolish or not. 5 Q. So, you would suggest to me that I 6 should assume that most of the investors in all of 7 those projects are throwing away their money? 8 A. I don't know whether they are throwing 9 away their money or not. 10 Q. Is it your view that no reasonable 11 developer would construct a multi-use development 12 at a site like Norwood or Park 410 because there 13 is just too much traffic? 14 A. Well, I think that would be an 15 important consideration to look at because of 16 known problems with those types of properties. 17 Q. But you don't have an opinion. Right? 18 A. Relative to what? 19 Q. You say it raises a consideration. 20 You're not here to talk about raising 21 considerations. Right? You're here to testify as 22 to what you know? 8043 1 A. A developer -- a reasonable developer 2 would proceed very cautiously with the development 3 of a property of this type. 4 Q. Would want to do due diligence? 5 A. A lot of due diligence and would want 6 to phase the project, probably, because of its 7 size. 8 Q. And is that view based on your reading 9 of Memorandum R-41B? 10 A. I think it relates to prudent 11 underwriting. 12 Q. But you haven't seen the loan files in 13 this case. Right? 14 A. I've already testified to that effect. 15 Q. You criticize Mr. Bolin's report, I 16 think, for failing to anticipate certain changes 17 to US Highway 183, or was it the AAA report that 18 Mr. Minch had? 19 A. No. The study -- the market study that 20 we have on it, mentions -- 21 Q. The Burke, O'Hara? 22 A. The Burke, O'Hara study mentions the 8044 1 fact that we have a freeway or likelihood that 183 2 is going to be converted into a limited-access 3 highway. And our appraiser, the Rex Bolin 4 appraisal says within the body of the appraisal 5 that he's relied upon the data contained in that 6 study, even incorporated -- went so far as to 7 incorporate portions of the report, the market 8 report, in his appraisal. 9 Q. Did those proposed changes involve curb 10 cuts? 11 A. I don't believe it's defined. Curb 12 cuts from the expressway? 13 Q. I'm just asking because we've had some 14 questions in this courtroom about curb cuts, and 15 I've never been able to quite figure out where 16 that was coming from. 17 Do I understand that you fault 18 Mr. Dugger and Mr. Schulz for anticipating the 19 construction of a four-lane expressway or at least 20 four lanes of access roads in San Antonio but then 21 you fault Mr. Bolin for failing to anticipate 22 whatever changes were going to be made in US 8045 1 Highway 183? 2 A. I think it reflects on -- 183 reflects 3 on the future utility of the property. Certainly 4 you'd want to look at it. If we're projecting 5 that go we're going to have access for certain 6 commercial uses and then we're perhaps going to 7 lose that access, that would be an important 8 consideration. 9 Q. But the Westside Expressway would not 10 be an important consideration with Park 410? 11 A. The Westside Expressway is an important 12 consideration. Again, going back to loan 13 underwriting, however, from the lender's 14 perspective of what information he needs to make a 15 rational credit decision here, he needs to proceed 16 very cautiously because until that expressway is 17 built, an important component that might affect 18 the value of that property is lacking. 19 Q. I understand that. But you're here to 20 talk about the appraisal reports. Right? 21 A. That's true, yes. 22 Q. Do you know if United or its borrowers 8046 1 evaluated whether the Norwood property would 2 become a no man's land suitable only for 3 warehouses because there were just too many cars 4 there? 5 A. I believe I've stated I have not 6 reviewed the loan file. 7 Q. Could we have Exhibit B564, please? 8 Sir, for the record, would you identify this 9 document? 10 A. It is a traffic impact analysis for 11 Deauville, August 1985. 12 MR. DUEFFERT: Your Honor, I move 13 Exhibit B564 into evidence. 14 MR. LEIMAN: Your Honor, I think that 15 the witness should -- additional foundation should 16 be laid in connection with this because I don't 17 know that the witness has ever seen this before. 18 MR. DUEFFERT: Your Honor, this is 19 outrageous. We are being accused of insufficient 20 due diligence and insufficient underwriting. And 21 we have a witness who comes in here and talks 22 about no man's land. I then present the witness 8047 1 with documents from the files that show that this 2 property was evaluated for traffic. Mr. Leiman's 3 putting in articles from newspapers, and I want to 4 put in a document that evidences thought about 5 this property. 6 MR. LEIMAN: If Mr. Dueffert is 7 finished, Your Honor, may I respond? 8 MR. KEETON: Your Honor, could we ask 9 Mr. Leiman to speak a little bit louder? 10 MR. LEIMAN: May I respond, Your Honor? 11 THE COURT: Yes, you may. 12 MR. LEIMAN: Mr. Lovell has testified 13 that the purpose of his review of these appraisal 14 documents was to determine whether they were 15 self-contained and in and of themselves would have 16 provided adequate underwriting tools for USAT. He 17 has not stated he has looked at every shred of 18 evidence that the underwriters considered. He has 19 not stated that he has looked at every conceivable 20 document that might have been available. And one 21 of the reasons he would not have seen this 22 document was because it was not attached, Your 8048 1 Honor, to the appraisal document itself, which 2 indicates further it wasn't self-contained. 3 So, the fact that Mr. Dueffert is 4 complaining about the fact that I have some 5 objections to failure to lay some foundation for 6 this as to whether or not he's an appropriate 7 sponsor for the document, to me seems somewhat 8 disingenuous. 9 MR. DUEFFERT: Your Honor, we're not 10 talking about handwritten notes. We're talking 11 about an integrated document that reflects due 12 diligence that was done. 13 MR. LEIMAN: Your Honor, there is no 14 indication what file this came from. There is no 15 suggestion that it was ever used by anybody. For 16 all I know, it may be a new document with a new 17 page. 18 MR. DUEFFERT: Your Honor, the Bates 19 stamp reflects, as I understand it, that it was 20 produced by the parties. I think, to my 21 understanding, OTS has a copy, as they have the 22 originals of most of these documents. And it's a 8049 1 box labeled "Norwood." 2 MR. LEIMAN: Your Honor, might I add 3 that this, as we saw earlier in this case, is the 4 mark that was provided by the respondents in their 5 imaging of this or their so-called imaging. Where 6 they got this document, how these numbers appeared 7 on here, since they did not provide us with a copy 8 of their diskette that contained these documents, 9 we have no way of knowing. If Mr. Dueffert would 10 like to proffer the document and ask questions, 11 that's appropriate. But I don't believe that this 12 is a proper sponsor for this document. 13 MR. EISENHART: Your Honor, the bar 14 code label would indicate that it came from the 15 OTS files. 16 MR. LEIMAN: That's what Mr. Eisenhart 17 is suggesting, and I don't necessarily agree with 18 it. I don't have any reason to think that that's 19 true. 20 THE COURT: Well, the witness hasn't 21 seen it; and he can't testify as to who did see 22 it. You're representing that it came from the 8050 1 loan files; is that right? 2 MR. DUEFFERT: As I understand it, Your 3 Honor. The problem is we have a great many 4 documents that OTS has custody of, and they are in 5 boxes. And some things have letters on top. But 6 a lot of due diligence documents don't have 7 enclosures. That's not the way I did things. So, 8 we see these documents and, there is a room full 9 of this kind of stuff. 10 MR. LEIMAN: Exactly the point, Your 11 Honor. There is a room full of this kind of 12 stuff. Whether USAT ever considered this 13 document, whether any appraiser ever looked at it, 14 there is no way of knowing. 15 MR. DUEFFERT: Your Honor, "this stuff" 16 is a traffic impact analysis for the property 17 that's at issue. 18 THE COURT: Well, I don't think this 19 witness can help us. 20 MR. DUEFFERT: I'll withdraw this 21 exhibit for this witness. 22 Q. (BY MR. DUEFFERT) I will ask you, 8051 1 Mr. Lovell: Before you ventured your opinions 2 about no man's land or no man's lands, did you ask 3 Mr. Leiman or Mr. Schwartz or any of the other 4 enforcement attorneys if any due diligence or 5 studies had been done on that subject? 6 A. No, I did not. 7 Q. And they didn't provide you with such 8 information? 9 A. No. I have never seen this before. 10 Q. And if I were to show you a deed, land 11 deed, regarding the Westside Expressway that is 12 taken from the Park 410 closing binder, you 13 wouldn't have any -- you wouldn't have seen that 14 either. Right? 15 A. That's correct. 16 Q. And although you are presenting 17 testimony as an underwriting specialist, you 18 wouldn't testify in this courtroom as to the 19 significance of such a document? 20 A. I wouldn't know what the significance 21 is without taking it into context of all the other 22 facts that may be present. 8052 1 Q. In talking about a no man's land, are 2 you really challenging the highest and best use 3 conclusions in those appraisals? 4 A. Well, I think it obviously enters into 5 the highest and best use analysis. Highest and 6 best use is, you know, sort of the heart and soul 7 of the appraisal process. 8 Q. So, are you saying the three or four 9 appraisers that you've looked at were all wrong in 10 their highest and best use conclusions? 11 A. I think they were overly optimistic 12 about this property. 13 Q. Are you challenging whether they were 14 wrong in their highest and best use conclusions? 15 A. I don't believe their best use 16 conclusions were supported. 17 Q. So, that means they are wrong? 18 A. I don't believe they made -- they 19 created or evaluated and presented enough 20 information to make it clear that the bases that 21 they came up with was a rational one. 22 Q. They didn't make their case to you? 8053 1 A. Yeah. They didn't make the case. 2 Q. And do you know if there were other 3 appraisals of the property in the 1980s that you 4 haven't looked at? 5 A. I am not aware of other appraisals. 6 That's not to say they probably don't exist. 7 Q. Did you seek them out to see what their 8 highest and best use conclusions were? 9 A. I have not looked at them, if they do, 10 indeed, exist. 11 Q. Well, if, indeed, they do exist, would 12 you be surprised if I told you that there were 13 others out there that agreed with the highest and 14 best use conclusions of the appraisals you looked 15 at? 16 MR. LEIMAN: Your Honor, if 17 Mr. Dueffert would like to show the witness some 18 additional appraisals, that would be fine. But in 19 this case, he's giving him an incomplete 20 hypothetical. 21 THE COURT: Well, he can answer that 22 question without having another appraisal. 8054 1 A. I guess the source of the other 2 appraisals, you know, were they part of the loan 3 file? 4 Q. (BY MR. DUEFFERT) All I'm saying is 5 as an expert -- I'm just trying to find out the 6 nature of your opinion. If I were to stack up a 7 few more appraisal reports in front of you that 8 reached similar highest and best use conclusions, 9 would that influence your testimony? 10 A. Not if I didn't see anything better 11 documented and supported than I've seen thus far. 12 Q. And the four appraisals you've looked 13 at all were not well documented in that regard? 14 At least not well enough? 15 A. Not what I would consider well enough 16 for the scale of property we're talking about. 17 Q. And if different appraisers looked at 18 the same properties and reached similar value 19 conclusions, would that signify anything to you? 20 A. No. 21 MR. DUEFFERT: I would say I have about 22 half an hour more. 8055 1 THE COURT: All right. We'll adjourn 2 until 1:30. 3 4 (Luncheon recess taken at 12:05 p.m.) 5 6 THE COURT: Be seated, please. Okay. 7 We'll be back on the record. 8 Mr. Dueffert, you may continue. 9 MR. DUEFFERT: Yes, Your Honor. 10 Actually, I have no further questions for this 11 witness. 12 MR. BLANKENSTEIN: Your Honor, I have 13 some cross-examination. 14 THE COURT: All right. 15 16 CROSS-EXAMINATION 17 18 (1:35 p.m.) 19 Q. (BY MR. BLANKENSTEIN) Good afternoon 20 Mr. Lovell. My name is Paul Blankenstein, and I 21 represent Jenard Gross, one of the respondents in 22 this case. 8056 1 Although we've been together in the 2 courtroom for a few days now, Mr. Lovell, we've 3 never really met or spoken before now; isn't that 4 right? 5 A. Not that I'm aware of. 6 Q. I wasn't there when Mr. Dueffert 7 deposed you in this case about a month ago on 8 October 21st; isn't that right? 9 A. That's correct. 10 Q. Did you make an effort during that 11 deposition to be careful in answering 12 Mr. Dueffert's questions? 13 A. I certainly tried to be. 14 Q. Did you try to tell the truth as best 15 as you could at the time? 16 A. I tried to be responsive to the 17 questions and tell what I knew of the subject. 18 Q. Well, did you try to tell the truth, 19 Mr. Lovell? 20 A. Yes. 21 Q. Were you also careful in answering the 22 questions posed to you during your testimony in 8057 1 this courtroom? 2 A. I think I was reasonably careful, yes. 3 Q. Did you also do your best to tell the 4 truth during your testimony? 5 A. Yes. 6 Q. The reason I ask, Mr. Lovell, is that 7 I'm confused about your testimony concerning the 8 general awareness in the appraisal industry of 9 R-41B during the 1982 to 1986 period. If you 10 remember, at your deposition, you and Mr. Dueffert 11 engaged in the following exchange: Question, "So, 12 to your knowledge, there was no difference in the 13 understanding of the appraisal industry of R-41B 14 between, say, 1982 and 1986?" 15 Answer, "I think there was a general 16 unawareness of the memorandum." 17 Question, "When?" 18 Answer, "From 1982." 19 Question, "Until?" 20 "Even as late as 1986." 21 Do you remember that? 22 A. Yes, I do. 8058 1 Q. Do you remember yesterday when 2 Mr. Dueffert asked you: "So, you're saying that 3 even after that date in 1982, there was a general 4 awareness of R-41B in the appraisal industry" and 5 you answered "You bet you"? 6 Do you remember that? 7 A. I think that was in the context of 8 something that went much further than that. 9 Q. The question, "So, you're saying after 10 that date in 1982, there was general awareness of 11 R-41B in the appraisal industry?" 12 "You bet you." 13 Do you remember that testimony? 14 A. I think the reference conversation 15 pertained to my discussion of the appraised equity 16 capital regulation that -- and I was proceeding 17 from my general awareness that it was either late 18 '82, '83. But it was after that, I believe, I 19 explained at some depth and detail that R-41B 20 became widely aware of its existence. 21 Q. So, it was after October of 1982 that 22 there was a general awareness of R-41B in the 8059 1 appraisal industry? 2 A. Well, it's either '82, '83. I don't 3 remember the precise date on the appraised equity 4 capital. 5 Q. At your deposition, you said that there 6 wasn't a general awareness, that there was a 7 general unawareness until 1986; is that right? We 8 just read that. Do you want me to read it to you 9 again? 10 A. I guess I'm trying to understand the 11 significance of -- 12 Q. Can you answer my question? You said 13 at your deposition, correct, that there was a 14 general unawareness of R-41B in the appraisal 15 industry even as late as 1986? 16 A. There were some appraisers who clearly 17 were unaware of R-41B as late as '86. I've said 18 that. 19 Q. There was a general unawareness; isn't 20 that right? That's what you said. You didn't say 21 "some." You said there was a general unawareness. 22 A. What does "general" mean? 8060 1 MR. LEIMAN: Your Honor, perhaps we can 2 get a page reference. 3 MR. BLANKENSTEIN: It's Page 42 of the 4 deposition, Lines 8 through 16. 5 Q. (BY MR. BLANKENSTEIN) Were you 6 telling the truth at your deposition when you said 7 that there was a general unawareness in the 8 appraisal industry as late as 1986 of R-41B? 9 A. We have a continuum of awareness that 10 occurred from the release of R-41B until it was 11 discontinued in 1986. There certainly was a key 12 period there following the appraised equity 13 capital regulation, which I believe is what I've 14 testified to. 15 Q. Mr. Lovell, maybe my question wasn't 16 clear. 17 Were you telling the truth at your 18 deposition when you said that there was a general 19 unawareness of R-41B as late as 1986? Is that 20 question clear to you? 21 A. There was unawareness. 22 Q. Is that question clear to you? 8061 1 A. There was some unawareness. 2 Q. A general unawareness, correct? 3 MR. LEIMAN: Mr. Blankenstein, why 4 don't you ask him what he meant by "general 5 unawareness" rather than trying to trap him into 6 some kind of untruth? 7 Q. (BY MR. BLANKENSTEIN) When you said 8 there was a general unawareness in -- at your 9 deposition -- as late as 1986 and you testified 10 yesterday that there was a general awareness in 11 1982 and 1983, did you change the definition of 12 awareness in answering those questions? 13 A. No. 14 Q. You used the same definition. Right? 15 Now, can you go back to my question? 16 A. Uh-huh. (Witness nods head 17 affirmatively.) 18 Q. Can you tell me whether you were acting 19 carefully, were you speaking carefully at your 20 deposition when you said that as late as 1986, 21 there was a general unawareness in the appraisal 22 industry of R-41B? Were you speaking carefully? 8062 1 A. I think that I covered this whole 2 subject of the awareness of R-41B and its 3 evolution at considerable depth and detail. 4 Q. Can you answer my question? Can you? 5 Is it possible for you to tell me whether you were 6 speaking carefully or not at that time when you 7 made those statements? 8 A. I think I was speaking carefully, yes. 9 Q. Were you speaking carefully yesterday 10 when you said that there was a general awareness 11 of R-41B in the appraisal industry in '82 or '83? 12 Were you speaking carefully then? 13 A. Well, you have to recognize the context 14 in which all of these comments are made. I'm 15 trying to -- 16 Q. Mr. Lovell, can you answer my question? 17 A. Pulling out a statement of the middle 18 of an overall discussion seems -- 19 Q. Is it possible -- 20 A. -- cumbersome to me. 21 Q. Is it possible Mr. Lovell, for you to 22 answer my question? 8063 1 A. I don't think it is. 2 Q. Okay. Were you telling the truth 3 yesterday when you testified -- 4 A. I was telling the truth, yes. 5 Q. So, which time were you telling the 6 truth? At the deposition or yesterday? 7 A. I was telling the truth both times. 8 Q. Okay. Would you agree with me, 9 Mr. Lovell -- when you say you were telling the 10 truth both times, did you consider as you 11 testified yesterday that you were just answering 12 the same question in different ways; is that 13 right? 14 A. There is certainly different ways of 15 looking at the same problem. 16 Q. So, a "yes" and a "no" answer are just 17 answering the same questions in different ways; is 18 that right? 19 A. Well, it depends on how the question is 20 phrased. 21 Q. Now, would you agree with me