Threatened with a Lawsuit?

At some point in your appraisal career, someone will probably accuse you of making an error in an appraisal report. Perhaps you will receive a nasty phone call from a property owner, or an attorney may send you a threatening letter. What should you do? Ignore the call or letter and hope it will go away? Or take the bull by the horns and hammer out an on-the-spot solution? Your initial reaction to an accusation is crucial, as it could affect the eventual outcome of the situation.

For example, suppose you receive an angry phone call like this:

"This is John Doe. Two years ago you did an appraisal on the home my wife and I purchased. Your appraisal said the house contained 3,000 square feet. When we recently refinanced, we discovered the house was only 2,800 square feet. Because you overestimated the square footage, we paid too much for the house. You can either pay us $20,000 now or we`ll see you in court."

Your first instinct probably would be to try to calm this person down and rationally discuss the appraisal with him. This may not be the right approach. Since the appraisal was completed two years ago, your recollections may not be perfectly clear. Additionally, in your effort to be amicable, you may unwittingly make a statement that could be construed as an admission of guilt. Or you may innocently give out information that could later be used against you. You know, I remember that floor plan had some unusual angles. Those square footage calculations were rather tricky.

In such a situation, we recommend that you not discuss anything about the alleged problem in that initial conversation. Ask the caller to describe the problem, then explain that you will need to pull the appraisal file to review. Carefully check the file, including your notes and calculations, for any indication of error.

Your next step should be to seek professional advice, preferably by calling our office. Our claims counsel, the law firm of Gaglione & Dolan, is nationally recognized as a specialist in real estate litigation, having defended hundreds of claims against real estate appraisers. They can work with you to help prevent that threat from escalating into a lawsuit.

But if I call your office to discuss a nasty phone call or threatening letter won`t you make me pay a deductible?

The goal of our claims counsel is to avert a potential claim in its early stages. The advice and assistance provided to you by claims counsel are not charged against your policy deductible. However, if the claim cannot be deterred and it becomes necessary to hire a local attorney to defend you, your deductible would apply to these legal expenses and to any settlement.

Our claims counsel will help you prepare your response to the threatening letter or phone call. A key element to your defense is your duty to the complaining party. Was the appraisal prepared for the complainant or for another client? Does the appraisal clearly state for whom the report was prepared and who has a right to rely upon it? If the borrower is the complaining party, do you know whether they even received a copy of the report before the close of escrow?

Claims counsel will also ask you about the merits of the appraisal report itself. In the situation involving the alleged miscalculation of square footage mentioned above, our attorneys would probably ask you to re-evaluate the property considering the lower square footage figure. How much impact would a 200 square foot difference really have upon the overall estimate of value? Most likely not the $20,000 that the property owner is demanding.

Get the latest Claim Alerts delivered to your inbox.

Appraisers are often hesitant to let the complaining party know that they have Errors & Omissions insurance in fear that the amount of the demand will increase if the other side knows an insurance company is involved. Under those circumstances, claims counsel might draft an appropriate response that you can send out on your own letterhead.

Again, claim counsel`s intent is to assist you in whatever way possible to avoid a claim. However, if an actual mistake was made and there is evidence of liability on your part, they can also help limit the amount of the loss. There may be other parties, such as the seller, real estate agent, or home inspector, who may also share responsibility and should contribute to any damages. Not surprisingly, most plaintiffs inflate the dollar amount of losses incurred; comparative bids for items such as repair costs can lower the loss to a realistic level. Many claimants also ask for monies they are not entitled to, such as recompensation of attorney`s fees.

If you receive a nasty phone call, threatening letter or even a subpoena for a deposition, it is very important that you make the proper reply to avoid a subsequent lawsuit. We encourage you to call our office so that our claims counsel can work with you to resolve the matter as quickly and efficiently as possible.

Copyright 1997. LIA Administrators and Insurance Services. All rights reserved.