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.