about

Real Estate Appraiser Liability to Third Parties

Type Matter:  Real Estate Appraiser Liability to Third Parties
Issue:  Are secondary market Lenders entitled to rely upon a Real Estate Appraiser’s appraisal report even though that Lender is not the intended user of the appraisal report and the Appraiser has no knowledge of the secondary market Lender where there are mixed statements regarding such usage?
Answer:  Probably

Facts:  1) Appraiser is engaged by mortgage Lender to appraise a parcel of real property in connection with mortgage Lender’s intent to make a mortgage loan for the purchase of the real property. 2) Appraiser prepares and issues an appraisal report to the mortgage Lender as the Appraiser’s only client and as the only intended user of the appraisal report. 3) The appraisal report expressly states that only the Client/intended user of the appraisal report may rely upon the appraisal report, but also states that the Client/intended user may distribute the appraisal report to others, such as secondary market Lenders without first obtaining the approval of the Appraiser. 4) After the mortgage Lender makes a mortgage loan against the real property at issue, the mortgage Lender provides a copy of the appraisal report to a secondary market Lender who eventually purchases the loan from the mortgage Lender. 5) The Borrower eventually defaults on the mortgage loan and the secondary market participant brings a claim for negligent misrepresentation against the Appraiser based on an allegation that the appraisal report negligently misrepresented the value of the real property.

Results:  The Court allowed the claim for negligent misrepresentation to proceed based on the position that because the appraisal report states that the Client may distribute the appraisal report to other Lenders, such as secondary market Lenders, it should be foreseeable by the Appraiser that other Lenders may receive and rely upon the appraisal report, despite the fact that the appraisal report states only the Client may rely upon the appraisal report.

Lesson:  If you intend to limit the use and users of your appraisal report, you must make sure to be consistent and specific in the manner that you express limitations of use and users in your appraisal reports. Giving mixed signals gives a potential Plaintiff a hook upon which to hand a litigation hat.

Both comments and pings are currently closed.

Comments are closed.