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

[Terrel L. Shields]

Mr. Wiley,

You make a great point that only proves how very, very, poorly thought out contingencies hinging around a lender ordered "Appraisal" are and continue to be.

agreed. Why a Realtor would put such a contingency request in a contract is beyond me. If it specified WHO hired and paid for such an appraisal it would be different. But the lender, if half bright (a vain hope obviously), should recognize that the contingency is creating a conflict, perhaps even a conflict involving them in a federally related transaction. The lender is obliged to hire the appraiser and is not to accept a borrower selected appraiser or an appraiser who has a conflict or tie to either party. The contract is an attempt to tie the appraiser to the contract. The appraiser should make sure that they reject such contract provisions and notify all other parties via certified letter to the Realtor that they are not a party to that provision. I personally would simply reject such provisions until a new contract is submitted, but otherwise I would make sure a separate page, repeated in the text, would be attached as a cover rejecting the provision and informing that use of the report for anything but the lender is an abuse of the report and the borrower should hire their own appraiser to make that determination.

 

[Calvin the Airedale]

This is the key thing to be litigated, in my mind. The buyer and seller sign a contract with an "appraisal contingency," but then no one who is a party to the contract actually engages an appraiser to fullfill that contingency. Has the contingency been met by an appraisal ordered by the lender? It may well depend on the exact woring in the "appraisal clause" in the contract.

I agree with your post. BTW, you left out either an "h" or a "d" in the above word. IME, either letter might fit.:icon_mrgreen:

 

[timd354]

Back in 1998, my daughter landed in a very similar situation. They bid on a house (I had no hand in nor gave any advice regarding this purchase) with a financing contingency in the contract. Countrywide, their lender, had the home appraised. The value came in 10% lower than the sale price. At that point they wanted to back out of the sale (after then asking my opinion). Countrywide, hired another appraiser (one who was married to the managing office broker of the broker that had both sides of the transaction) to do another appraisal. That one came in at the sale price and my daughter was obligated to close the sale.
First of all, your daughter was foolish to be involved in a transaction where the broker had both sides of the deal, although I will say most people have no idea about the utter stupidity of doing that and would have done exactly the same thing.
Secondly, depending on how the contigency was written, she should have backed out of the sale as soon as the first appraisal came in....that was likely her legal right and she should have exercised her right to void the contract right then and there.
I have always contended that lenders in such a scircumstance (in control of the closing by virtue of their power to decide how the contingency of the sale agreement is fulfilled) breach a fiduciary obligation to the buyer in such situations.
The lender cannot decide how the contigency or whether the contingency in a contract was met, that is a question of law, which your daughter, unfortunately for her, declined to pursue, as I think as soon as an attorney had gotten involved in such a situation, the parties involved would have changed their tune very quickly and she would have been allowed to walk away from the contract.
When I read the riot act to the CW manager I was told that she had no choice, she has to take care of her brokers.

In any case, your daughter's case, where the lender apparently actively conspired with the real estate broker to manipulate the appraisal process in a deliberate attempt to affect a contract is a completely different case from the OP, where, apparently, the lender did nothing more than order an appraisal.

By the way what the lender and broker did in your daughter's case has nothing to do with fiduciary duty. The tort committed (assuming that your statement of the facts of this case is correct and that the 1st appraisal was credible appraisal) by the lender is called intentional interference with a contract, or, depending on the exact circumstances involved, just your garden variety fraud, committed in a conspiracy with the broker.

 

[Calvin the Airedale]

Calvin,

The last few posts should start to show you, clearly, why a lender never did and does not, have a "Fiduciary" duty to a buyer in this case. No buyer has any reason, or right, to believe any lender is going to order what they thought the lender was going to order. And none of them bother to check what might be ordered before they sign these stupid contingences!

If lenders really had some sort of fiduciary obligation in these cases they would be compelled to immediately contact both the buyer(s) and seller(s) to find out what in the ding dong was going through their minds when they created and signed a completely undefined "Appraisal" contingency. The lender, as an advocate, would have a duty to clear the bloody mess up before proceeding. Only it should be clear to you by the fact none of them do, never have, and I don't think have ever lost a court case based on not doing so, that they have no duty at all in that regard. The lenders order what they need for THEIR lending requirements! Not for the contracts between sellers and buyers. So where is the agency / advocacy Calvin?

If anything, or anyone, it is the real estate brokers that have real fiduciary duties that should be pulling their heads out of their asses and loudly (in writing) be immediately advising THEIR clients that they need a contract lawyer post haste! Because their clients are about to agree to an undefined contract clause that could spell trouble for everyone later on. The facts are, it is these "Agents" that are not doing so and not being trained to wake up to the fact that a real estate appraisal not only comes in many flavors, but the lender may not obtain one at all! ..

I appreciate why you want to see lenders held more accountable. At this point I think the entire country wants that. But I am at a loss to understand why it is you think any lender holds the power to decide the outcome of a contingency in a contract the lender did not create, is not a party to, and the parties that did create it don't even understand what they just created .............nor does the lender or any appraiser involved. The facts are, none of those parties have a clue what SOW means. They have no idea what, if any, SOW might be ordered by the lender. Therefore, they have no idea what they just agreed to if they expect some third party to make all the choices about it for them out of their control.

Personally, I think a good lawyer that understands the above could blow that entire contingency right out of the water as a completely invalid contractural agreement. How is either the seller or buyer going to show what was intended and that there was ever a meeting of the minds?

IME, Mr. Duck, many buyers (borrowers) believe that lenders are routinely ordering appraisals for their mortgage applications, even when this is not the case. Many buyers view the finance contingency and the appraisal they assume to be part of the process as some sort of consumer protection.

Perhaps they believe what appraisers (and others, like lenders and RE agents) have been saying for years that appraisers are third party, unbiased observers. Perhaps they believe the lender that walks them through the lending process at initial application and almost always explains that an appraisal is typically ordered for the bank's (an their) protection.

You and I know that lenders today operate for their sole benefit, damn their customers. However, it was not always so. I grew up in a lending environment that believed that saying no to a loan application was an obligation and a service to the customer that would protect their financial well being, if the circumstances so justified. I realize it no longer works that way.

It was once considered a service to both the lender and the buyer if the collateral appraised for less than the sale price, insofar as truth and honesty are a greater service to the banking public than are lies and expedience.

Apparently, I'm the only one on the forum who sees it that way nowadays. Your post underscores my anachronistic beliefs but it does not mean they are incorrect.

 

[Calvin the Airedale]

Secondly, depending on how the contigency was written, she should have backed out of the sale as soon as the first appraisal came in....that was likely her legal right and she should have exercised her right to void the contract right then and there.

The contingency was a "subject to financing contingency" and at the point that the appraisal came back, CW did not turn down the loan but immediately ordered another appraisal. My daughter had no choice, on advice of counsel (her counsel not CWs or the broker's), but to allow this.

I have always contended that lenders in such a scircumstance (in control of the closing by virtue of their power to decide how the contingency of the sale agreement is fulfilled) breach a fiduciary obligation to the buyer in such situations.

The lender cannot decide how the contigency or whether the contingency in a contract was met, (apparently they can and do, honest, I did not make up this story) that is a question of law, which your daughter, unfortunately for her, declined to pursue, as I think as soon as an attorney had gotten involved in such a situation, the parties involved would have changed their tune very quickly and she would have been allowed to walk away from the contract.

Again, an attorney did get involved and it didn't turn out as you suggest.


In any case, your daughter's case, where the lender apparently actively conspired with the real estate broker to manipulate the appraisal process in a deliberate attempt to affect a contract is a completely different case from the OP, where, apparently, the lender did nothing more than order an appraisal.

By the way what the lender and broker did in your daughter's case has nothing to do with fiduciary duty. The tort committed (assuming that your statement of the facts of this case is correct and that the 1st appraisal was credible appraisal) by the lender is called intentional interference with a contract, or, depending on the exact circumstances involved, just your garden variety fraud, committed in a conspiracy with the broker.

Finally, you and I appear to agree on something.

PS. On second thought, no, I still believe it a breach of a fiduciary obligation to fairly operate the contingency.

 

[Webbed Feet]

Calvin,

So back in the good ol' days there was no such thing as a signature loan? No such thing as credit cards? I am sorry, but you are seriously confusing the degradation of banking responsibilities to their investors and depositors by today thinking it ever had anything to do with any responsibility to the financial well being of a borrower. It is a long standing tradition, going all the way back to debtor's prison terms, that lenders don't give a flying rip how badly a borrower screws themselves. No, the good ol' days you remember is when banking oversight in this country actually meant the banks could not also screw their investors and depositors. Something that seems to have gone by the wayside these last few years.... ;(

 

[Webbed Feet]

P.S.

Calvin, your daughter's story only examples my points on how absolutely terrible that contingency is. Even your daughter had no idea what it was she had signed, how undefined it was, or what affect it may have by turning over something in the contract to a third party that no primary party to the contract could remotely predict the actions of.

In my mind what your daughter had was the wrong attorney. As well as a lack of desire and funds to fight it up to the U.S. Supreme Court if need be. As to why there was no attack of a relative of an interested party to commissions on the deal being used for an appraiser... I guess is none of my business. But the bottom line is buyers cannot possibly understand what it is they are signing. Nor does the seller, nor does the lender, nor does hardly anyone involved. That is the entire point.

 

[timd354]

Calvin,

So back in the good ol' days there was no such thing as a signature loan? No such thing as credit cards? I am sorry, but you are seriously confusing the degradation of banking responsibilities to their investors and depositors by today thinking it ever had anything to do with any responsibility to the financial well being of a borrower. It is a long standing tradition, going all the way back to debtor's prison terms, that lenders don't give a flying rip how badly a borrower screws themselves. No, the good ol' days you remember is when banking oversight in this country actually meant the banks could not also screw their investors and depositors. Something that seems to have gone by the wayside these last few years.... ;(

The duck footed one gets it...Anyone who thinks that banks ever gave a rip about the customer is very naive.

 

[Webbed Feet]

<......snip.....> But the lender, if half bright (a vain hope obviously), should recognize that the contingency is creating a conflict, perhaps even a conflict involving them in a federally related transaction. The lender is obliged to hire the appraiser and is not to accept a borrower selected appraiser or an appraiser who has a conflict or tie to either party. The contract is an attempt to tie the appraiser to the contract. <.......snip......>

HMMMMM!!!! Mr. Shields, now your above statement has really peaked my interest on this... Perhaps, some bright minds, a few legal opinions, and our trade can succesfully turn such a contract clause into an unacceptable, USPAP violating, assignment condition unless the principal parties involved in the contract remove the lender selected appraiser from any legal liability of any kind.

That would be a good thing for our trade...

 

[Webbed Feet]

Webby Bright Idea! Unacceptable Assignment Condition!

P.S. ... Mr. Wiley, sharpen your USPAP pencil !!! If we go to the SOW rule, there is no possible way the appraiser can determine a proper SOW to comply with such a contract contingency, as the appraiser is clueless as to the intentions of the seller and buyer regarding the level of required SOW in order to comply with the contingency. And the lender is also and cannot properly advise the appraiser about what required information the appraiser would have to have to develop a needed SOW. As the lender / client of the appraiser is ALSO clueless what is going on in the minds of the seller / buyer when they signed that contract clause.

Therefore, the appraiser CANNOT develop a SOW for the assignment.... the unknown seller / buyer scope might require the services of an architect and measuring to the nearest millimeter for example. The seller and buyer have not disclosed this, therefore the appraiser cannot comply with the SOW Rule !!!!!!

How am I doing? This is exactly the precise issue if the legal system proceeds to tell the appraisal trades that we serve mulitple masters in one assignment because of a contract clause out of a contract we are not a party to. That would mean we MUST contact ALL masters for input regarding the SOW, for determination of same, which of course now means the bank is going to be in violation of FIRREA because the buyer just became one of the appraiser's clients providing instructions that affect the SOW.

All we need is the ASB on board with the above, and the trade just squelched that contingency as an unacceptable assignment condition involving a FIRREA involved mortgage assignment.