As a Borrower, Suing an Appraiser or an Appraisal Management Company May Not be a Wise Decision.

Eric Hartnett

by Eric Hartnett on March 25, 2011

in Civil Litigation Defense, Lending/Lender Issues, Litigation, Real Estate Law

Our office is regularly contacted by borrowers/homeowners who are struggling to make their loan payments and are now contemplating suing an appraiser or the appraiser’s management company.  The homeowners claim that their mortgage was based on an appraisal that was too high and the homeowners received a loan that they cannot afford.  We have heard this same argument from homeowners in Palo Alto, San Francisco, San Jose, Sacramento, and other cities throughout Northern California.

In most cases, the problem with the homeowners’ claim is that the homeowners were not the appraiser’s client or intended user.  The client and intended user should be identified on the appraisal report.  The appraiser works for the client/intended user.

Courts have recognized that an appraiser only owes a duty to his/her client or intended user.  (Bily v. Arthur Young & Co.; Nymark v. Heart Fed. Sav. & Loan Ass’n).  Thus, a borrower’s or homeowner’s claim for breach of a duty against an appraiser where the borrower is not listed as the client or intended user of the appraisal report will most likely be unsuccessful.

Alternatively, the borrower sometimes claims that an appraiser made a misrepresentation to the borrower.  However, in order to make this claim, the borrower must establish that the appraiser intended for the borrower to rely on the appraisal report or that the borrower belonged to a particular group or class that the appraisal report was intended to benefit (Soderberg v. McKinney; Bily v. Arthur Young & Co.).  This is a difficult obstacle for borrowers to overcome and successfully sue an appraiser or his/her management company.

While most homeowners who contact us believe the appraiser overvalued the property, we occasionally are called about an appraisal being too low.  This phone call usually occurs after the borrower obtained less favorable financing because the loan-to-value ratio was too poor to secure better loan terms.  However, even in this scenario where the appraisal directly led to the borrower being rejected for a loan, Courts have rejected borrowers’ claims.

For example, in Gay v. Broder, an appraiser selected by the Veterans Administration to appraise a property for a veteran’s application for a VA guaranteed loan was held not liable to the borrower for negligently undervaluing the property.  The appraiser was held not liable even though the appraiser’s negligence caused the borrower to be ineligible for a VA loan and forced the borrower to obtain more expensive conventional financing.   The veteran was held to have no claim against the appraiser because the sole purpose of the appraisal report was to assist the lender in deciding whether to make the loan.

If you are a borrower who hired the appraiser, a private money investor, or a lender, and believe you have a potential claim against an appraiser, please contact us.  These claims have strict statute of limitations deadlines, so do not delay in seeking advice.

If you are an appraiser who has been sued by or received a demand letter from anyone, we cannot emphasize enough the importance of contacting experienced legal counsel to discuss the merits of the allegations and decide what actions must be taken.

Our office has a wealth of experience suing and defending appraisers.  The attorneys at the Law Offices of Peter N. Brewer look forward to working with you on your real estate and lending law matters.

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{ 2 comments… read them below or add one }

avatar Sharon Curtis May 1, 2011 at 1:50 am

I am a real estate appraiser in California, and in Nov.4,2006 I did an appraisal for a broker, who was the intended user, to assist in determining whether to make a mortgage finance loan.

7 months after I did the appraisal there was a private money loan made on the property. The private loan was not made by the broker that was the intended user of my appraisal.

2 years ago, I had a complaint filed against me with the OREA, by someone I have never heard of, was not the broker(intended user), or the borrower, who said my appraisal was used for his loan, and I was the reason the market went down, and he said I over-valued the property.

this person then filed a law suit with my e&o provider, ….it has been on going for almost 2 years.

a letter of appraisal reliance was just provided a week ago, without my signature….

I am so frustrated with the attorneys from the e&o, because I keep telling them that I did not do an appraisal for the unknown person, have never heard of this company that supposedly did the hard money loan, and I think I am being scamed by this unknown person, who had a faxed copy of my appraisal, that appeared to have been tampered with, and it looked like someone had found it in a trash can, and pieced it together. They tell me I am being too emotional over it.(no kidding, it is my livelyhood, not theirs).

I now have a “ding” with the OREA, from a complaint of someone who should not have even had a copy of my appraisal.

what I need to know, is am I liable ?…help

thank you so much

avatar Norma Whelan July 29, 2017 at 1:46 pm

I was a seller of a property that came in well under the sale price of the home. It was agreed after much discussion between the lender and the listing agent that there were problems with the approach the appraiser took and the lender & underwriter agreed the property should be re-appraised. The second appraisal came in at selling price. By this time however, the buyer found another property and walked away from the deal leaving the seller without a home sale.
If the lender and underwriter and another consulting appraiser found negligence in the first appraisal and it subsequently resulted in a lost sale, what recourse could the seller have if any.

Thank you,

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