The Arizona Banker - Jan/Feb 2013 - page 10

10
The Tricky
Relationship Between
Banks, Borrowers and
Appraisers
By
ZACHARY L. LAPRADE
, Ryley Carlock & Applewhite
or during deficiency litigation, a big
mess. So, what remedies do banks and
borrowers have against the appraiser
if he provides a faulty appraisal? The
answer depends.
Generally speaking, an appraiser’s
liability is limited to damages caused
to “the person or one of a limited
group of persons for whose benefit
and guidance [the appraiser] intends
to supply the information or knows
that the recipient intends to supply it”
and extends only to those transactions
“that he intends the information to
influence or knows that the recipient
so intends.” Further, the appraiser
does not need to know the identity of
the third-party at the time he supplies
the appraisal, as long as the third
party falls within a distinct group or
class of persons the appraiser intends
to reach and influence with the ap-
praisal. Conversely, the appraiser
has no duty to a third party who is
just a member of the larger class who
“might reasonably be expected sooner
or later to have access to the infor-
mation and foreseeably to take some
action in reliance upon it.” Similarly,
if the circumstances show that an
appraiser and the named recipient of
the appraisal regard the identity of the
recipient as “important and material”
and that the appraiser “understands
that his liability is to be restricted to
the named person” only, the appraiser
owes a duty toward the named indi-
vidual. Here are a couple examples
of how this rule plays out.
In one case, an appraiser was re-
tained by a bank to appraise a home
in connection with the granting of a
purchase-money mortgage. The court
held the appraiser liable to the pro-
spective buyer for failure to exercise
reasonable care in performing the
appraisal, even though the bank en-
gaged the appraiser. In another case,
an appraiser was hired by a lender to
determine the value of a residential
parcel “for use by [the lender] for a
mortgage finance transaction only”
and did not owe a duty to the home-
A
P
PRAISALS ARE TRICKY IN LITIGA-
TION. OVER THE LAST COUPLE OF
YEARS, A BORROWER IN LITIGA-
TION WITH A BANK
typically makes two different argu-
ments related to the bank’s appraisal.
A borrower often asserts that “the
bank’s appraiser overvalued the col-
lateral at origination of the loan,” or
that “the bank’s appraiser undervalued
the collateral when it sold at a foreclo-
sure.” From the bank’s perspective,
the most frustrating part about these
arguments is the bank is not providing
an opinion of value. The appraiser is
an independent third-party providing
an opinion of value. There are strict
federal regulations, including the Fi-
nancial Institutions Reform, Recovery,
and Enforcement Act, that separate
the bank from the appraiser. Usu-
ally, the borrower’s argument about
the appraisal is a delay tactic. But in
some cases, the appraiser is negligent,
and a faulty appraisal makes all the
hard work during loan origination,
COUNSELOR’S CORNER
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