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:
"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 might 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, like "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 first advise that, since the caller is not your client, you will not be able to discuss the report in detail with them until you get permission from the client. Then you can ask the caller to describe the problem. Explain that you will need to pull the appraisal file to review and let them know that either you, or the client, will respond. Carefully check the file, including your notes and calculations, for any indication of error.
Your next step should be to seek professional advice. If you are insured by LIA, call our office. Our claims counsel, the law firm of Gaglione Dolan & Kaplan, 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.
Sometimes appraisers hesitate to call their E&O provider because they believe that if they call to discuss a nasty phone call or threatening letter, then they have to pay a deductible. However, the goal of claims counsel is to prevent a lawsuit. LIA insureds should know that advice and assistance provided to you by claims counsel are not charged against your policy deductible. However, if the claim cannot be avoided and it becomes necessary to hire a local attorney to defend you, your deductible could apply to any judgment or settlement that might occur later.
If you are an insured of LIA, 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 is familiar with caselaw in various states that holds the appraiser owes no duty to the borrower. Perhaps the lack of duty or reliance on the report would be the basis of a response.
Claims counsel could also help you work through the merits of the purported “claim” 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.
Appraisers should never let the complaining party know that they are discussing the threat with their Errors & Omissions insurance. The amount of the demand could increase if the other side knows an insurance company is involved. Claims counsel might assist with the drafting of an appropriate response to any demands that the appraiser can send out on their own letterhead. There need not be any mention of insurance.
Again, the 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. If the appraisal report misstated the square footage what did the seller’s disclosure statement say? How about the MLS? The buyer/borrower would have had those documents in hand prior to the date the appraisal report was even prepared so why wouldn’t the sellers and the real estate agents be responsible for any loss?
If you receive a nasty phone call or threatening letter it is very important that you make the proper reply to avoid a subsequent lawsuit. Ignoring the threats is rarely the best approach. We encourage you contact your E&O provider so that the claims counsel can work with you to resolve the matter as quickly and efficiently as possible.
Copyright 1997-2021. LIA Administrators and Insurance Services. All rights reserved.