With regard to products liability, a defendant is liable when the plaintiff proves that the product is defective, regardless of the defendant’s intent. It is irrelevant whether the manufacturer or supplier exercised great care; if there is a defect in the product that causes harm, he or she will be liable for it.
This is the only industry where a consumer pays for a product, in this case $650.00, and if that item is defective and or causes harm, the appraiser is allowed to CYA out of it.
Let's talk about what you did as a consumer, and what the terms and conditions were in that transaction.
What you actually paid for was a loan. The lender collected some of their costs from you and used some of those fund to offset some of their costs, including the appraisal and the title search and various other junk fees and such, but that doesn't alter the point that what you bought from the lender and FHA was a loan. Which you have received and which you are now enjoying the proceeds.
Sometimes the value of the property that the loan encumbers increases in value. Sometimes it decreases in value. Sometimes things break. The terms of the loans the lenders make don't include any assurances of the property attributes or any warranty of those attributes. The lenders arguably don't owe the borrowers anything as to those attributes. What they agreed to do was to provide and service their loan as per the terms and conditions of the loan, just as the borrowers also don't owe anything else to the lenders except to perform on their end.
You paid for a loan and you got a loan. They now own the mortgage position, which includes the risk for either getting all their money back or getting only part of their money back. You own the equity position which includes the potential for either profit or loss. All you bought was a loan, not a warranty that they will cover your losses in the event the property loses value or something breaks.
You and the appraiser didn't enter into any agreement with one another. You entered into an agreement with the lender as a consumer, and the appraiser entered into an agreement as a vendor, no different than if the lender had engaged or employed an attorney or an accountant or a environmental consultant or home inspector of whatnot. If/when engaged these other employees or contractors activities are aimed directly and solely at assisting the lender to evaluate the property insofar as their attempts to make a loan and subsequently profit by the repayment thereof. None of these due diligence services are made for the purpose or with the intent of protecting the borrower from the unknown, nor is the lender selling such protection to the borrower as part of their loan.
It appears these are among the reasons that the lender is telling you they are not responsible for the condition or the value of your property. You didn't purchase such assurances from them. They are performing on their end of the loan and they expect you to perform on your end of the loan.
The appraiser made errors but IRL the lender is only going to go after them if the loan defaults and the lender loses money. You did not engage the lender to protect you from any losses or to collect damages for you. If you sue the appraiser and win by alleging and proving that the appraiser owes you a new sewer and well then the appraiser's E&O probably comes into play. If you allege and prove the appraiser committed fraud then the appraiser may have to pay it all out of pocket. The judge has issued legal rulings as per their read of the laws as they are written - and to which you strongly disagree. You can appeal these rulings but at this point that's your primary barrier - the judge's read of the law as written.
