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Limitation of Liability 2023 Update

This topic has been addressed numerous times, but there is a reason why it is important enough to bring up again. By adding some language to their reports, appraisers can take a simple step that provides valuable protection.

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More than 80% of claims are made by third parties. We see that judges are willing to grant motions to dismiss and motions for summary judgment if we give them a basis for doing so.

Appraisers can give defense counsel something to argue and can give the judges the grounds they need to grant our motions by putting good language in their reports. Some states provide us with case law that holds no duty is owed to a borrower. We don’t have that to fall back on in all states. Even with supporting case law, additional language only makes the defense position stronger.

Plaintiffs’ attorneys will do their best to keep the cases alive. They will frequently argue the language in Certification #23 to try to “muddy the waters”. They will say this language proves the borrower “CAN” rely on the report.

Plaintiffs will also try to claim that an appraisal is prepared for the borrower’s benefit because they directly, or indirectly, paid for the report.

We have seen that judges are willing to look at the totality of the language. In other words, if the appraiser has more language supporting their position, and all the borrower can point to is Certification #23, many judges will be persuaded to rule in favor of the appraiser.

As a result, it is worth your time and effort to include some good language in your reports. If you get sued, you will be glad the language is there.

Who Paid?

Third party plaintiffs try to establish duty by arguing that they paid for the appraisal. It is important to have language in the report to diffuse that argument. Consider something like:

“The only intended user of this appraisal is the client ________. There is no other intended user. No purchaser, seller, or borrower are intended users of this report. No party, other than the intended user, should rely upon this appraisal for any purpose, whatsoever. The fact that some party, other than the client, paid for the appraisal, either directly, or indirectly, does not make them an intended user.”

Defects

Of course, when it comes to issues regarding the alleged failure to discover and disclose defects, every report must clearly state the obvious in as many ways as it can possibly be stated, that being that an appraisal is NOT a home inspection, and that the appraiser is NOT a home inspector.

We have provided many examples of good language over the years and here are a few new examples that you might want to consider adding to reports or it may possibly be time to update any older language.

“The appraiser has been retained to arrive at an opinion of value for the subject property and is not a Home Inspector. The ‘inspection’ performed by the appraiser is more of an observation and is not intended to reveal defects in the mechanical systems, plumbing, electrical systems, structural integrity, roofing, or other components of the home and the appraiser does not claim to be an expert in those areas. There could be defects hidden behind floors or wall coverings or inside cabinets or closets or behind furniture or under rugs. It is not the responsibility of the appraiser to perform the kind of inspection designed to find those kinds of problems nor would he have the expertise to detect or diagnose many of those issues even if something was discovered.

The appraiser does not guarantee that the home is free of environmental problems. The appraiser can only observe areas that are visually accessible. Mold could be present in areas of the home the appraiser could not see.

The appraiser is not inspecting the property to determine the current presence of wood destroying or other insects nor is he looking for evidence of any past infestation.

The appraiser is not an expert in the identification of adverse environmental factors such as radon gas, lead based paint, mold, fungi, asbestos, formaldehyde, ground water contamination, underground storage tanks, etc. If the client has any concerns about or questions about such conditions an expert in this field should be called to do an inspection.

FHA/VA Appraisals

Adding some language specifically geared to the FHA/VA inspection could also be helpful, such as:

“The appraisal only establishes the value of the property to assist FHA/VA in assessing the risk of the property securing the FHA/VA-Insured mortgage and is not a home engineering or environmental inspection. The appraiser has made a visual observation of the improvements & site. However, the subject property has not been inspected in the true sense. The appraiser's inspection of the property is an observation which is for valuation purposes only. This appraisal is not an engineering or environmental inspection report and the appraiser is not acting as an inspector when preparing the report. An expert in this field should be consulted if an analysis of these issues is desired. As part of the visual inspection of the property, the appraiser has not inspected inaccessible areas. The appraiser is not required to disturb or move anything that obstructs access or visibility. The borrower, the client and any other interested party not only has the right to have the property inspected by professional home or other inspectors but is encouraged to do so.

The appraiser is required to photograph the crawlspace and attic if they are present. The appraiser is not required to fully inspect those spaces. The appraiser does not guarantee or warranty that those spaces have been inspected or that they are free of defects. The borrower, the client and any other interested party not only has the right to have the property inspected by professional home or other inspectors but is encouraged to do so.”

Judges will look to the appraisal report for guidance when rendering their decisions. In a recent lawsuit, the borrowers alleged that they relied upon the appraisal to disclose whether the property was in good condition prior to completing their purchase. The Judge looked at the appraisal report when granting the defense motion seeking to dismiss the appraiser. In his opinion, it was clear that the Judge went through the appraisal report, page by page, and carefully considered the language therein. The Judge stated, in part:

“First of all, the report was made directly and solely for the benefit of the lender/client. On the front page of the report it states that the appraisal is for the lender. On the second page of the report it says the purpose of the report is to provide the lender/client with an accurate and supported opinion of the market value of the subject property. On the fourth page of the report it states that the only intended use is for the lender/client to evaluate the property for a mortgage finance transaction. This intended use is stated throughout the report. Also repeated throughout the report is a statement that the only intended user is the lender/client.

Plaintiffs cannot point to anything in the appraisal report that indicates the report was prepared for their benefit or that they are intended users. More importantly, the appraiser states on page ten that he was retained to arrive at an opinion of value and that the appraisal report should NOT (emphasis added) be mistaken for a home inspection.

Below on that same page the appraiser explains that he only observes accessible areas, that he does not move furniture and that he is not an expert in things like plumbing, electrical systems etc.

After explaining in further detail the many differences between an appraisal and a home inspection he goes on to strongly recommend that a home inspection and any other necessary inspections be arranged by qualified professionals....

Plaintiffs’ reliance upon the appraisal to disclose anything about the condition of the property is misplaced and unreasonable.”

Conclusion

There is no excuse for not including language in the appraisal that states the report is not a home inspection. Perhaps you think you are a “good” appraiser, so you don’t have to worry about being sued. Every appraiser has to worry about being sued and you are far more likely to be sued by a borrower than by the lender client.

Having some good disclaimer language in the report can mean the difference between your defense counsel getting a motion to dismiss granted early in the case and potentially having to go to trial.

Please take the time to add language to your reports if you don’t already have it or to update the language you do have. It will be time well spent.

We hope that you never find yourself having to defend a third-party claim, but if you are in that position, you will understand why, year after year, we continue to stress how taking simple steps to limit your liability can be so important. ◆