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

[Calvin the Airedale]

A fiduciary duty is simply the obligation for one party to act in the best interests of another party. By definition an appraiser cannot be a fiduciary because they must remain unbiased in forming their opinion.

The argument here Hamlet is not whether the appraiser has the fiduciary obligation. I have not contended as much. The argument is whether the bank does. The bank that is the source of the loan, that is charged with obtaining all paperwork needed to close the loan and transfer the title, the bank that has all the power, including making sure that the appraisal ordered is suitable. Was the sale agreement on this deal not contingent upon the appraisal? Who ordered the apppraisal?

 

[Calvin the Airedale]

I will address your challenge, and the answer is that the bank has the collateral evaluated for its own benefit, not for the benefit of the borrower and owes no fiduciary duty to the borrower regarding the evaluation of the collateral.

You are really confusing this situation with the situation where the bank is doing something on behalf of the customer, such as taking and holding the customer's deposits for safe keeping or where the bank is appointed as the trustee of a trust account, etc. In such cases, their is a fiduciary duty that clearly arises. Contrast this to the case where a customer takes out a mortgage loan from the bank. The bank is not making this loan on behalf of the customer or the customer's interests, but is, in essence, simply selling money to the customer. Clearly, the fact that the bank lends money to a customer does not establish a fiduciary realtionship, otherwise the bank would be unable to charge interest on the loan. The bank evaluates the collateral not to protect the customer or the customer's interests, but to protect the bank's interests. Thus, there is no fiduciary relationship established based upon the bank merely evaluating the collateral. In fact, regarding the collateral on a mortgage loan, it is much more arguable that any fiduciary relationship that exists would be the fiduciary relationship of the borrower to maintain the collaterall and keep it properly insured per the borrower's contractual obligations.

The Duckman is correct in that you have a complete misunderstanding of the concept of fiduciary duty as it applies in this case.

Reading just the first two pages of this case, I believe the lender owed the borrower a "standard of care" regarding the clause in the sale agreement "contingent upon an appraisal of the Premises by an appraiser acceptable to the lender for at least the sale price." (Did not the court find as much?)

Tell me Tim, what is such a standard of care called? When one party owes the other party a "standard of care" and the party owing that standard has all the power and knowledge to effect the outcome of how the standard is applied in equity, what is such a relationship called?

 

[EXSTATECERT]

The way most folks here automatically blame the appraiser, whenever someone "the public" ask's a question about the appraisal, no wonder the courts are going to hold them responsible. If a bank loans on an appraisal, that bank is out of the loop, the appraiser is completly at fault if the loan goes south and the appraisal was over inflated. However, the appraiser should be able to get back any and all attorneys fees if the case goes in favor fo the appraiser. This will stop bull crap suites. What will really happen now one knows for sure. The only truth is that the appraiser is, will be and forever be the goat here. Why you may ask?, well because we as appraisers, those such as the states and all others involved allowed this so called profession go to the dogs. There was not enough safe guards in place to stop fraud and pressure. For those of you who still think that the field will eventually change, Well guess again. For this who are retired, like Pam. Thats the only ticket out of this crap. It will never be the same. So for those of you who wish to stay in the business, my advice to you is accept all appraisals that you can get, do them as quickly as possible, make as much money as possible, and when the crap hits the fan, surrender yor licence quietly. At least you will have made some money in the next 36 months unitll you are caught.
For those of you who wish to blame Barnie and his crew, Please show you ignorance and blame them. The entire government, all involved and all of banking are at fault. As well as the appraisers out there.
Goodbye to appraisals, hello to Fannie Mae reviews, goodbye skippy mills, hello mom and pop shops, goodbye to a well paying field, hello to 'how low can you go", goodbye to my old supervisor, hello to "now who knows how to appraise", goodbye to your 250,000 a year shippy mill owner, hello to the 10,000 fines. This cant happen soon enough. I really want to see my old supervisors, both of them here in Plantation, when they see the reviews of their so called trainees work. With their signature on it.

 

[Hamlet]

Still, the definition of a fiduciary is a party acting in the best interests of another party. I don't see where a lender has such an obligation to a borrower. The borrower is requesting the funds. The bank has all the power in ordering the appraisal because they are relying on the results of the appraisal to make a risk decision based on the collateral. The bank is assuming most of the risk, not the borrower.

The reason there is a stiuplation in the sales contract that the home must appraise for at least the loan amount is to protect the buyer from having to foot the difference out of pocket. When things work like the are suppose to, it makes sense to assume that the borrower has a "cloud" of protection assuming the bank would not lend money on property not worth the amount of the loan. That being said, I still don't think the lender really has a legal fiduciary duty to the borrower. That is why borrowers are suppose to be represented by real estate agents and real estate lawyers.

 

[Hamlet]

The argument here Hamlet is not whether the appraiser has the fiduciary obligation. I have not contended as much. The argument is whether the bank does. The bank that is the source of the loan, that is charged with obtaining all paperwork needed to close the loan and transfer the title, the bank that has all the power, including making sure that the appraisal ordered is suitable. Was the sale agreement on this deal not contingent upon the appraisal? Who ordered the apppraisal?

I know that you didn't say appraisers have a fiduciary duty, but Smokey mentioned she might add a comment that the appraiser has no fiduciary duties to the home owner to her receipt.

Personally, I don't think I would do that because appraisers cannot be fiducaries.

 

[timd354]

Reading just the first two pages of this case, I believe the lender owed the borrower a "standard of care" regarding the clause in the sale agreement "contingent upon an appraisal of the Premises by an appraiser acceptable to the lender for at least the sale price." (Did not the court find as much?)
No it did not. The court made no ruling regarding the lender as the lender was not a part of the case. The court also did not rely on the concept of fiduciary duty whatsoever in their opinion.....go read the opinion that was cited and please tell where the court relies on the concept of fiduciary duty...eanyone who reads the opinion would see that this case has nothing whatsoever to do with the concept of fiduciary duty.

Tell me Tim, what is such a standard of care called? When one party owes the other party a "standard of care" and the party owing that standard has all the power and knowledge to effect the outcome of how the standard is applied in equity, what is such a relationship called?

The lender was not a party to the sales contract and, therefore, owed neither the buyer nor the seller any standard of care based upon that contract, so I simply reject the premise of your whole argument.

In any case, even if there isd a duty of care between 2 individuals or entities, that does not mean that their is is a fiduciary relationship. Everytime we drive an automobile, we have a duty of care to drive in a non-negligent manner, but that does not mean that we have a fiduciary duty to other drivers, passengers, or pedestrians. The fiduciary relationship, in a legal sense, only arises when there is a trust/trustee or agent/agency type of relationship involved and this is clearly not the case between a loan applicant or borrower and the bank.

Regarding the court....what a complete joke....they ignored their own precedent (which was only 4 or 5 years old in order to allow the deep pockets (in this case the appraiser's E&O insurer) to take the hit.......this is just another example of why no one can rely on the so-called justice system in many states.

 

[Calvin the Airedale]

The lender was not a party to the sales contract and, therefore, owed neither the buyer nor the seller any standard of care based upon that contract, so I simply reject the premise of your whole argument.

Regarding the court....what a complete joke....they ignored their own precedent (which was only 4 or 5 years old in order to allow the deep pockets (in this case the appraiser's E&O insurer) to take the hit.......this is just another example of why no one can rely on the so-called justice system in many states.

In this particular case, was not the "standard of care" that the court found was due from the appraiser by extension of the fact that the lender selected the appraiser and was responsible for the product which resulted?

Also, was that sale agreement not a road map as to how the sale, and thereby the loan, should be closed? That being the case, did not the bank owe a standard of care insofar as the sale was dependent upon the appraised value?

When one talks of a party owing another party a standard of care, is such a relationship not typically one of fiduciary?

What is this non-sense going around that banks should not make loans to people that they believe not might be able to pay them back? On what principle is this notion founded if not fiduciary obligation?

 

[timd354]

In this particular case, was not the "standard of care" that the court found was due from the appraiser by extension of the fact that the lender selected the appraiser and was responsible for the product which resulted?

Also, was that sale agreement not a road map as to how the sale, and thereby the loan, should be closed? That being the case, did not the bank owe a standard of care insofar as the sale was dependent upon the appraised value?

Why do you keep coming back to the lender? The lender was not even a party in this case and was not sued by the plaintiff.....the fact that the plaintiff's attorney apparently did not even see any liability on the part of the bank shouls tell you something.

The sales contract is nothing more than that, a contract between the buyer and the seller. The lender undoubtedly considered that sales contract in the underwriting process, but so what? How does the fact that the lender may have considered the provisions of the sales contract as part of its underwriting decision cause the lender to owe some sort of duty the buyer or the seller based upon the provisions of that sales contract when the lender is not a party to the contract?

None of this really matters anyhow, so I don't know why I am even bothering to argue this point......the only thing that really matters in this case is that the court in Arizona has decided in its infinite wisdom to greatly increase the potential liability of appraisers by allowing a whole new class of individuals (borrowers and sellers of real estate), who were previously unable to succesfully sue appraisers, to now be able to potentially succesfully sue appraisers. This is despite the fact that there was no contractual relationship between the appraiser and the borrower.
This is very disturbing to me as I am well aware that this will lead to massive increase of frivolous lawsuits againts appraisers in Airzona and any other state that has courts that take a similar stance.

Even more disturbing is the fact this would be any easy thing for appraisers to avoid by including appropriate language in their appraisal reports, but cert. #23 by Fannie Mae in the new forms will not allow appraisers to protect themselves by including any such language since Fannie Mae apparently feels they have the right to stick their nose into the business relationships of appraisers even though this has nothing to do with value. I also think that Fannie purposely included the language in cert. #23 in purposeful effort to broaden the appraiser's liability and it looks like the language of that cert. is achieving its intended purpose.

I would advise all appraisers to include appropriate language addressing 3rd parties relying on the apprasial in their appraisal reports despite certification #23. You can couch the language as part of the SOW explanation and not run afoul of cert #23 IMHO. All appraisers should consult their E&O insurers and an attorney in their state to draft appropriate language to cover their particular jurisdiction.

I would also advise any appraisers not to perform appraisals involving purchases when the purchase contract has provisions allowing the buyer to void the contract based on the appraisal, etc. unless they have significantly increased their fee to cover the increased liability involved in doing such appraisals and, if at all possible, have had the both the buyer and the seller sign a waiver of liability prior to doing the appraisal.

 

[Webbed Feet]

not so. blanket contracts can cover multiple assignments.

In a sense, yes. One engagement contract can encompass more than one assignment. Assignment phasing would be a good example. But you are talking about a contract the proceeds and affects a second nonexistent contract and after the satisfaction of a second contract continues to exist and affect all future additional contracts that don't yet exist. All before and after their creations and conclusions regardless of the content of the additional contracts.

At this point, I really think we need a lawyer before proceeding with that idea.

 

[Hamlet]

Also, was that sale agreement not a road map as to how the sale, and thereby the loan, should be closed? That being the case, did not the bank owe a standard of care insofar as the sale was dependent upon the appraised value?

The lender is not a party to the sales contract. The clause to make the sales contract contingent upon appraised value is really to protect the buyer from having to come up with the difference out of pocket between appraised value and sale amount if it falls short.