Verdict on Lehman Bros vs. Passarelli & Potts

[Joyce Potts]

Here's the link to the thread where I first posted this update after Mr. Brown's accusatory comment.

http://appraisersforum.com/showthread.php?t=138121&page=10

Many have been asking me as to what happened, so here's an update.

Lehman Bros. vs. Passarelli & Potts, Fred Passerelli, individually, et al = ZERO $0 verdict.

The entire Order is attached below as a PDF.

As a side bar, if Lehman appeals this verdict to the U.S. Appellate Court, 11th Circuit, it puts the lower court's ruling on the 'intended user' question back into play, or so I'm told. 'We' feel the Judge's ruling on the 'intended user' was totally, unequivocally, flat-out wrong. It was a matter of law for the court to decide, not the jury.

That said, I suggest every appraiser read it and try and comprehend exactly what kind of precedent was set here as to the 'intended user', unless it's overturned on appeal. Our E&O company has no intention of appealing a ZERO verdict over the 'intended user' aspect, even though they think the Judge made a grievous error. Why spend the money to appeal a ZERO verdict?

Keep in mind, the reports in question WERE NOT DONE ON THE FNMA FORMS that contained Cert 21. These reports were done back in 2003 and 2004 and also contained additional, specific language within the appraisal restricting the intended user(s) and/or any subsequent or third-party reliability. They were done for a particular, clearly identified lender with no subsequent assignment or release to Lehman Bros. by the appraiser. Good job, USPAP!

*USPAP - Written by the lending industry, for the lending industry.

*Appraising is an art, not a science--until, of course, big money can be made off of AVM's.

 

[Mike Kennedy]

6-93, Cert.#10........."the mortgagee, its' successors, or assigns".

"The Passarelli Defendants argue that they clearly expressed their intention to limit their liability to any third-party users of the appraisal reports
through language in the reports that prohibited anyone but the intended user to rely on them. The appraisal reports indicated that the intended user was Interlachen Residential Mortgage Company, LLC only. Such contractual clauses that clearly limit liability are valid, and they
argue, the Court should give effect to the plain meaning of the clause, finding that they owed no duty to Plaintiff.​

The Court rejects this argument and concludes that there was substantial evidence for the jury to conclude that the Passarelli Defendants knew that a lender would rely on the appraisals for mortgage-lending purposes. Although the appraisal reports did not identify Plaintiff as the
“intended user,” the appraisals clearly stated that they were for “mortgage-lending purposes,” and Passarelli testified that he knew the appraisals would be used for mortgage financing.​

Accordingly, upon consideration of the entirety of the evidence presented at trial, the Passarelli Defendants’ motion and Plaintiff’s response, and the arguments presented by counsel during the February 14th hearing, the Court concludes there was substantial evidence to support the jury’s verdict. The Passarelli Defendants’ renewed motion under Rule 50 (Doc. No. 354) is DENIED."​

 

[Terrel L. Shields]

appraisals clearly stated that they were for “mortgage-lending purposes"

Incredibly bad ruling on several levels if I am reading between the lines correctly.

Privity is denied and USPAP Statement 9 is meaningless in this court.

he knew the appraisals would be used for mortgage financing.

Really? I wouldn't want to admit that. I would rather say that the appraisal is used by the client to make a decision about mortgage financing. I am going to look over my own purpose and certifications to see if I can distance myself from that interpretation.

Clearly, especially if a jury trial, the writing is on the wall. If you appraised a property in 2003 - 06 then today that property, being worth less...makes every appraisal done in that timeframe "over-valued". This gun is pointed at us all.

 

[Fred]

Good job, USPAP!

Privity is denied and USPAP Statement 9 is meaningless in this court.

Who said that USPAP was meant to establish privity? What if there were no USPAP and the report contained the same words? Who's fault would it be then that the judge applied the "reasonable forseeability" standard?

In USPAP, the purpose of identifying the intended use and users is that it is the key part of determining other elements of the problem (like what definition of value is needed) and the key part of determing the scope of work (like whether inspection is necessary or what kind of inspection). Can someone find the part of USPAP where it sets forth a purpose of limiting appraiser liability or gives clues on how to do that?

 

[Joyce Potts]

As usual, Mike, you love to interject your own facts. Go look at the Small Income [Rev. 10/94] FNMA form and show me Cert #10. Here's what the certification on that appraisal said:

Limited Reliance
By acceptance of the appraisal report, the client, assignee, authorized user, or any person subsequently receiving this report, agrees and understands that the appraisers' liability is limited to the amount of the appraisal fee charged for preparing this appraisal report. This appraisal report is an economic study for value, and is not an engineering or architectural study. Anyone other than the 'client' as stated within the report is not considered an authorized user unless written permission is obtained. All others are considered to be informed as to 'limited reliance'.

Definition of Client
Neither all nor any part of the contents of this report shall be conveyed to any person or entity, other than the appraiser’s or firm’s client (the client is defined as the person or firm ordering the appraisal from the appraiser or, in the case of a management company, their assignee), through advertising solicitation materials, public relations, news, sales, or other media without the written consent of approval of the authors, particularly as to valuation conclusions, the identity of the appraiser of the firm with which the appraiser is associated, or any reference to (affiliation with any professional appraisal organization) or (designation). Further, the appraiser or firm assumes no obligation, liability, or accountability to any third party. If this report is placed in the hands of anyone but the client, client shall make such party aware of all assumptions, limiting conditions and limited reliance of the appraisal in whole or in part.

If I seek a legal opinion from an attorney and he writes me one that specifically states that his opinion is strictly for my benefit and no one else's, restricting any other third-party reliance and I go and hand it to my neighbor who runs with it and as a results suffers damage, does he have a right to sue that attorney?

Do attorneys and/or appraisers have the right under the law to restrict their liability? Apparently not.

Based on this case, please explain to me what good the 'intended user' means exactly? Then also tell me why any borrower who's NAME appears on the appraisal, but not as a client or intended user can't sue the appraiser if they rely on an appraisal and suffer damages? Or can they now?

Perhaps if they did, it would have helped weed out the 'skippies' long ago.

Think about why USPAP is written the way it is. It afford the lending industry carte blanche, IMO.

 

[Mike Kennedy]

As usual Joyce, you neglected to cite, and the Court's pdf does not state, which FANNIE form (or narrative) was used. As it was done on a Fannie Form, did your addendum cite the Intended Use was for a FRT? or further define "mortgage lending" ?? Did the report include the Multi-purpose addendum???

​

​

This Multi-Purpose Supplemental Addendum for Federally Related Transactions was designed to provide the appraiser with a convenient

way to comply with the current appraisal standards and requirements of the Federal Deposit Insurance Corporation (FDIC),
the Office of the Controller of Currency (OCC), The Office of Thrift Supervision (OTS), the Resolution Trust Corporation (RTC)
and the Federal Reserve.​

This Multi-Purpose Supplement Addendum is for use with any appraisal. Only those
statements which have been checked by the appraiser apply to the property being appraised.​

MULTI-PURPOSE SUPPLEMENTAL ADDENDUM​

FOR FEDERALLY RELATED TRANSACTIONS​

PURPOSE & FUNCTION OF APPRAISAL
EXTENT OF APPRAISAL PROCESS
SUBJECT PROPERTY OFFERING INFORMATION
​

​

​

​

​

 

[PropertyEconomics]

Joyce,

I have been informed by my attorney that placing a statement as to limiting your libablity to the fee received .. is in fact worthless. His reasoning is that you cannot commit fraud causing the client great loss .. and then stand behind a statement that you are only liable for the amount you were paid.
I am not accusing anyone here of fraud .. but merely pointing out that the inclusion of the liablity statement is in fact not sustainable to the appraiser if the client is harmed far greater than the fee. A court will simply not allow that kind of nonsensical verbage to stand.
An appraisers liability stands to the amount they may have harmed the client, intended user, or other users of the report.

 

[Fred]

Joyce,

I have been informed by my attorney that placing a statement as to limiting your libablity to the fee received .. is in fact worthless. His reasoning is that you cannot commit fraud causing the client great loss .. and then stand behind a statement that you are only liable for the amount you were paid.

What does you attorney say if the client agrees to the stipulation? Just kidding. I already know the answer.

 

[Joyce Potts]

No doubt the 'fee' part would probably not anywhere, but what harm is there in including it? None.

Mike, you're the one who jumped the Cert #10 conclusion--admit it.

What I'm not reading from you guys is what good is the 'intended user' in our reports good for?

 

[CANative]

If you roll up a firecracker in a Tootsie Roll wrapper and put some writing on it stating that it's only intended for use by Bobby (the bully down the street) but Timmy picks it up, unwraps it and blows off a couple of fingers and his lips I would think Timmy would have solid grounds for litigation.

In other words, intended use statements should only protect the appraiser from unusual and/or client specific peculularities. If a non-intended user is harmed by something pecular then the intended use statement should apply. If the appraisal is deficient in what a typical user group might expect and that is what harmed them then all the intended user statements in the world should have no bearing.