insured REST
Protecting your business
and yourself
By Peter
christensen,
General Counsel,
Liability
Insurance
Administrators
KNOW YOUR RIGHTS
FOR THE LAST FEW YEARS, THE
MAJORITY OF LAWSUITS AGAINST
APPRAISERS have been filed by borrowers,
sellers and other parties who generally are not
identified as clients or intended users. Borrowers
account for most of these claims. In the current
economic and legal climate, there is no end to
the inventiveness of such parties when they seek
money damages from appraisers.
Several of the causes of the increased
frequency of borrower and other third-party
claims are obvious but beyond an appraiser’s
control. The prime cause, of course, has been the
mortgage crisis. More loan defaults mean more
claims by distressed borrowers. Another factor
has been greater social acceptance of lawsuits
relating to mortgage and real estate matters,
and more of the public is now aware of the work
performed by appraisers in connection with
mortgage lending. In the residential context, the
Home Valuation Code of Conduct ensures that
almost all borrowers will receive the appraiser’s
report, which magnifies the likelihood of a claim.
These factors are beyond an appraiser’s
day-to-day control, but there is one area of third-
party claims that appraisers can control to some
degree: limiting the ability of non-clients and
non-intended users — especially
borrowers — to claim that they
reasonably relied on an appraisal
or that the appraiser expected
them to do so. These concepts
apply directly to the two most common legal
claims asserted against appraisers: professional
negligence and negligent misrepresentation.
Avoiding liability problems caused
by erosion of the concepts of client,
intended use and intended users
LEGAL CLAIMS PERSIST
Unfortunately for appraisers,
these concepts are subject to
constant attack and have eroded
in some jurisdictions. In Arizona,
for example, a state appellate
court in April 2009 paved the
way for more borrower lawsuits
in a case titled Sage v. Blagg
Appraisal Company. In that case,
a homeowner sued an appraiser
who had provided an appraisal
to a lender for a purchase money
