Appraiser hired by lender owes a duty to buyer/borrower.

[Ryan Bailey]

AZ COURT OPINION:Appraiser hired by lender owes a duty to buyer/borrower.

This should open up a ton of litigation. What does everyone think??

The Arizona Court of Appeals has ruled, for the first time in an Arizona published opinion, that an appraiser hired by a lender owes a duty to the buyer/borrower in that transaction. In its decision issued April 30, 2009, the Court focused on the reality that the buyer would likely never hire a separate appraiser. For that and several other reasons, the appraiser owes a legal duty of care to the buyer/borrower.

In this case, the buyer/borrower sued the appraiser for overvaluing the home because he used the incorrect square footage, among other things. The trial court had dismissed the action concluding, under two prior Court of Appeals decisions, that an appraiser hired by someone other than the buyer/borrower did not owe any duty to the buyer/borrower. In its unanimous decision, the Court of Appeals disagreed and allowed this case to proceed. The case opens the door for buyers to sue appraisers even when the appraiser was hired by the lender.

The opinion is based on a residential case, but does this also open the door for commercial litigation as well?

Click here to see the Court's published decision.
http://www.berkmoskowitz.com/documents/CV080331.pdf

 

[moh malekpour]

This should open up a ton of litigation. What does everyone think??

The Arizona Court of Appeals has ruled, for the first time in an Arizona published opinion, that an appraiser hired by a lender owes a duty to the buyer/borrower in that transaction. In its decision issued April 30, 2009, the Court focused on the reality that the buyer would likely never hire a separate appraiser. For that and several other reasons, the appraiser owes a legal duty of care to the buyer/borrower.

In this case, the buyer/borrower sued the appraiser for overvaluing the home because he used the incorrect square footage, among other things. The trial court had dismissed the action concluding, under two prior Court of Appeals decisions, that an appraiser hired by someone other than the buyer/borrower did not owe any duty to the buyer/borrower. In its unanimous decision, the Court of Appeals disagreed and allowed this case to proceed. The case opens the door for buyers to sue appraisers even when the appraiser was hired by the lender.

The opinion is based on a residential case, but does this also open the door for commercial litigation as well?

Click here to see the Court's published decision.
http://www.berkmoskowitz.com/documents/CV080331.pdf

What is the mission of USPAP and state licensing? to protect the public interst.
Is the buyer/borrower part of the public? If the answer is yes, then the court has a point.

 

[Calvin the Airedale]

The bank has a fiduciary obligation to the borrower to extend credit in safe and sound manner, ie. in the best interests of the borrower, not just in the best interests of the bank. It obtains an appraisal as a part of this obligation.

For too many years, lenders have gotten away from this standard. This ruling is a double edged sword but one which I believe will inure to our benefit.

This has as much potential for increasing the standards of practice as any regulations we've seen in the past year.

 

[Randolph Kinney]

According to the PDF legal brief:

Important differences between the facts at issue here
and those in Kuehn support our decision to re-examine the duty
an appraiser owes to a buyer/borrower in a traditional homepurchase
transaction. While the plaintiffs in Kuehn were
contractually bound before they received the appraisal, Sage’s
contract expressly empowered her to cancel if the property did
not appraise at the purchase price or greater. Moreover, Blagg
testified that in preparing his appraisal, he reviewed a copy of
Sage’s purchase contract (although he denied noticing the
provision that granted Sage the right to cancel). Blagg also
was aware that Sage had the right to request a copy of his
report from Security and knew that, if requested, Security was
obligated by law to provide Sage with a copy of the report.

As noted, Restatement § 552 provides that a
professional such as Blagg owes a duty to a third party only
when the professional (1) intends to supply information for the
benefit of the third party or (2) knows that the recipient of
the information intends to supply the information to the third
party. Restatement (Second) of Torts § 552(1), (2)(a). We
agree with the superior court that Sage failed to offer facts
sufficient to create a material issue that Blagg intended to
supply the appraisal to her. The issue pursuant to Restatement
§ 552, therefore, is whether the facts support an inference that
Blagg knew that Security, the recipient of the information,
intended to provide the appraisal to Sage.

Where Blagg blew it, he was supplied with the purchase contract so he failed in his argument that he did not know that Sage would be a third party intended user that was relying on his work and that his work was going to Sage to be reviewed for her decision to purchase.

Therefore purchase contracts that are worded similar to Sage carries weight as to the intended user and that federal law requires the lender to deliver the appraisal to the borrower if they paid for it.

If all purchase contracts were worded as in Sage's case, the appraiser would be liable for any negligence, omissions and errors.

It is a total different story on refinance transactions.

 

[Hamlet]

I disagree with this decision, not in principle but in reality. Yes, if the lenders were truly held accountable for that fiduciary obligation to the borrower I would agree. Until the time comes that the banks are held to that accountability, why should the appraiser bear the brunt of the responsibility?

I do believe that most of the bad subprime loans were made with appraisals performed by bad appraisers. However, I feel that this ruling will not only affect those bad appraisers, but opens the door for any disgruntled homeowner to come back on the appraiser.

It always amazes me why people choose to take the cheap route and not invest in their own professional services of an attorney, home inspector, Realtor and appraiser to advise them when making the largest and most emotional investment of their life.

 

[Smokey Bear]

Let's see - the real estate agent told Sage to recommend the appraiser to the lender. He blew it before he ever got the job. They all blew it on that one.

Now it goes back to the lower courts to determine whether he measured and valued it correctly. It will be interesting to see how that comes out. Should only take about 3 or 4 years to work it's way through the court system again.

 

[Elliott]

An Arizona Appeals court can try to establish a precedent in AZ, but
will probably be trumped by decisions in other states, and those
decisions are trumped by US District and Appeal Courts. Its not
a very strong precedent.

I wonder if Mr. Appraiser has E/O or retained a hack attorney who
did a poor job defending him. There might be some 'federal' issues
when dealing with a federally related mortgage.

 

[Terrel L. Shields]

The bank has a fiduciary obligation to the borrower to extend credit in safe and sound manner, ie. in the best interests of the borrower, not just in the best interests of the bank. It obtains an appraisal as a part of this obligation.

Banks have no such obligation. They are obliged to operate in a responsible manner to protect the assets of the bank, not the interests of borrowers.

For too many years, lenders have gotten away from this standard. This ruling is a double edged sword but one which I believe will inure to our benefit.

No it hurts us badly. We already practice enough "defensive" appraising. No one can promise that exactly X is THE VALUE...no matter what. Too low we hurt the seller. Too high, we hurt the buyer. Even the Bible says you cannot serve two masters. Appraisers will learn to appraise these properties for EXACTLY the sales price to avoid being sued by one or the other parties.

Sage’s contract expressly empowered her to cancel if the property did not appraise at the purchase price or greater

The issue of Privity was compromised in the contract. I have been refusing to go along with contracts that have this appraisal caveat in them...ie.- that is they are depending upon the banks appraiser to determine the sales price. I bet your E & O insurance will counsel against appraising under such conditions. I would appeal to Federal court if possible.
If I encounter such provisions, then I will not appraise the property. The bank is my client and no one else.

 

[Mike Kennedy]

Excellent case side bar also to those who routinely "appraise" based solely on Assessment Property Cards sans actual measurement - time to start flying straight and do the job - measure the damn house - or get out of the business before, or after, you get sued.

 

[Mike Kennedy]

Appraisers will learn to appraise these properties for EXACTLY the sales price to avoid being sued by one or the other parties.

Too late thousands already do and cannot appraise credibly without the $$Bullseye. Many BANK LENDERS (and now their AMC's ) make sure they get THE number despite the fact it was never mandatory under Title XI, OCC, FDIC, or the Inter-Agency Guidelines - which simply state .....they MAY if they wish, provide a copy of a contract - NOT MUST.

Further interesting is the number of postings on AF, and other boards, by Appraisers who report many Smaller or Regional Banks NEVER provide or REFUSE to provide a contract because they WANT what they pay for - AN INDEPENDENT, OBJECTIVE, Opinion of Value.

Of equal interest are the GSEs and the number of LARGE BANKS which went under, got taken over, or are about to be - versus the minimal number of Smaller and Regional Lenders who bit the dust. The Majority of them are profitable, portfolio lenders growing steadily, do Banking the Ol' Fashioned, Common Sense, Way and OPT OUT of the $$$ Number Game.

RE: The bank is my client and no one else.

here! here!! Terrel.