insured REST
Protecting your business
and yourself
By Peter
Christensen,
general
counsel, LIA
Administrators
& Insurance
Services
FULL COURT PRESSURE
Several recent lawsuits could
significantly affect appraiser liability
IN RECENT YEARS, AUSTRALIAN
“VALUERS” HAVE PAID AS MUCH AS
7 PERCENT of their gross revenue for professional liability insurance — about 10 times higher
than most U.S. appraisers pay. From this side of
the equator, it appears their situation stems from
appraisals essentially being treated as guarantees of value for lenders, mortgage insurers and
borrowers. Fortunately, U.S. appraisers aren’t
facing that kind of crisis, but there are a number
of cases working their way through the courts
that warrant attention.
the appraisers’ reports and, in
some cases, not even parties the
appraisers could have imagined
would receive the reports. In
fact, a majority of legal claims against appraisers
are filed by parties who are not the appraisers’
clients or identified as intended users.
The case concerns loans and appraisals for
loans to the developers of four luxury projects in
Idaho, Montana, Nevada and the Bahamas. The
plaintiffs aren’t the appraisers’ clients or anyone
the appraisers might have imagined as report
users, but rather an alleged class of approximately
3,000 individuals who purchased lots or homes in
the resorts built by the developers to whom lender
Credit Suisse loaned money.
The cases discussed here highlight significant
liability issues and potential financial ramifications that appraisers may have to cope with in
the future.
GIBSON, ET AL. V. CREDIT SUISSE AG
ET AL., U.S. DISTRICT COURT
(D. IDAHO), FILED JAN. 3, 2010
This lawsuit is the biggest appraisal liability
case in the U.S. in terms of alleged damages
($24 billion) and is at the extreme end of frivolity
as to the connection — or lack thereof — of the
unintended users of the appraisals. However,
in terms of legal issues and parties involved,
it is not unlike hundreds of similar cases filed
by parties who are not the intended users of
The concepts of intended
use and user do not protect
appraisers from litigation by
third parties as strongly as
most appraisers would like
to believe.
The plaintiffs contend that Credit Suisse created
what they label a “Loan-to-Own” scheme under
which Credit Suisse, aided by inflated appraisals,
loaned hundreds of millions of dollars intending
that the developers would default and that Credit
Suisse would then foreclose and obtain ownership
at below market value. As ridiculous as it might
sound, the appraisal firm — which is a division of a
national brokerage and is named as a defendant —
has had to defend itself against the plaintiffs’
claims for more than a year at great expense.
The relevance of this case to appraisers is multi-
fold. It calls attention to the fact that the concepts
of intended use and user do not protect appraisers
from litigation by third parties as strongly as most
appraisers would like to believe. Despite the tenu-
ous nature of their claims, the plaintiffs’ case has
so far survived two motions to dismiss. Appraisers
must focus on tightening language in their reports
to make claims by such parties less supportable.
The case also highlights the dangers of professional cannibalization. The appraisers at the
defendant appraisal shop have discovered that their
contemporaries, or rather competition, are ready
and willing to testify against them and advocate
for their liability to parties whom the appraisers
never imagined as intended users and for purposes
anathema to why they produced their reports. Recall
that the appraisals were for loans to the developers
and that the lots and homeowners were not parties
to these loans — in fact, many purchased their
properties before the loans were made.
Yet the plaintiffs’ expert witness appraiser
offered such conclusions as: “In my opinion, the procurement and use of the appraisals was designed to
artificially inflate values so as to defraud developers, and others who had, and would, purchase
lots or homes or otherwise invest in the resorts.”
