Case Helpful to Appraisers

Peter Christensen

Peter Christensen

General Counsel - Attorney at LIA Administrators & Insurance Services
A graduate of the University of California, Berkeley’s Boalt Hall School of Law, he has been an attorney since 1993 and maintains the blog at Valuation Education. LIA has been offering E&0 insurance and loss prevention information to the appraisal profession nationally since 1972.
Peter Christensen

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Importance of Intended Users Identification - Case Helpful to Appraisers

This is the only way that the opinion would ever help other appraisers, especially residential, in future cases filed by parties who are not intended users of the appraiser’s work.

Newly Published California Case Helpful to Appraisers: Tindell v. Murphy

Today, the California Court of Appeal, Third Appellate District certified for publication its recent decision in a case entitled Tindell v. Murphy. The case involved mortgage borrowers who sued a real estate appraiser blaming the appraiser for a purchase they made in 2005 at the peak of the real estate bubble. The trial court had dismissed the borrowers’ suit because they were not intended by the appraiser to use the appraisal, as the appraisal was prepared for the lender, and the Court of Appeal upheld that decision in a straightforward opinion. However, the opinion was not originally slated for publication, meaning that it would not serve as precedent for cases involving other appraisers.

I was pleased to assist both the Northern California Chapter of the Appraisal Institute and the National Association of Appraisers with the drafting of requests for publication filed with the Court of Appeal asking that the opinion be published. This is the only way that the opinion would ever help other appraisers, especially residential, in future cases filed by parties who are not intended users of the appraiser’s work. The leadership of the Appraisal Institute, its Northern California Chapter, and the NAA recognized the need to try to get the case published. And, in response to their two requests, the Court did so. The opinion and the requests for publication are available on my site.

The individual appraiser in the case was not an insured of my company (LIA Administrators & Insurance Services) nor a member of the Appraisal Institute or NAA. She was defended by Peter Catalanotti, now of the firm Freeman Mathis & Gary, LLP. I appreciate that he brought the unpublished decision to our attention, so that the appraiser groups and I could work to get it published and create meaningful precedent for all appraisers. The decision is significant for appraisers in California because it gives greater legal meaning and effect to appraisers’ identification of intended users in appraisal reports when courts are considering whether a borrower (who is not an intended user in appraisal assignments for mortgage lenders) or other similar parties may sue an appraiser for negligent misrepresentation.

For those who want a deeper understanding of how the decision in Tindell v. Murphy relates to and builds on prior caselaw in California, here is how we explained the matter in the Northern California Chapter of the Appraisal Institute’s request for publication — it is the explanation to the Court why its opinion should be published:

We ask that the Court publish its Opinion because the decision fills a gap in existing California law by clarifying the boundaries of residential appraiser liability to non-clients and third parties who are not identified as an “intended user” of the appraisal work product. This is a vital concern in the proper use and understanding of residential appraisals performed for mortgage lenders in connection with their loan decision-making.

An appraiser’s identification of his or her client and the intended user(s) of his or her appraisals is a key issue in the performance and reporting of appraisals under the Uniform Standards of Professional Appraisal Practice (USPAP). Promulgated by the Appraisal Standards Board, these standards set forth the primary minimum professional standards that licensed and certified appraisers must follow under California law.

USPAP Standards Rule 1-2 sets forth requirements for how appraisers develop their appraisal opinions and states that “[i]n developing a real property appraisal, an appraiser must: (a) identify the client and other intended users…” USPAP Standards Rule 2-2 addresses the specific content of appraisal reports and requires that an appraisal report “state the identity of any intended users by name or type.” These two requirements are fundamental to what an appraiser does because an appraiser under other parts of USPAP is responsible for providing an appraisal that is appropriate for his or her intended users. The intended user identification requirements were first adopted into USPAP by the Appraisal Standards Board in the 1997 edition of USPAP and have remained a key part of the standards ever since.

Despite the clear requirements under USPAP with respect to identification of clients and intended users, however, these fundamental appraisal concepts are often lost from consideration at the trial court level when negligence and negligent misrepresentation claims are asserted by non-clients against appraisers in California courts (whether such third parties are identified as intended users or not). One reason for this is the lack of clear appellate guidance in our state’s case law applicable to such claims against appraisers. Publication of the Court’s Opinion will help fill that void and avoid further misunderstanding.

In particular, the Opinion here relates to an appraisal performed by the defendant appraiser for a mortgage lender’s use in deciding whether to extend a mortgage secured by the appraised property. The plaintiffs in the case were the borrowers and were not identified as the client or intended users in the report. Yet, several years after the appraisal was performed, they sued the appraiser alleging damages stemming from the appraiser’s alleged misreporting that the home on the property was “modular” home rather than “manufactured” home.

In analyzing the two key legal claims – professional negligence and negligent misrepresentation – at issue against the appraiser in the Opinion, the Court looked to the two published decisions that are most often cited in relation to such appraiser claims: Willemsen v. Mitrosilis (2014) 230 Cal.App.4th 622 (Willemsen) and Soderberg v. McKinney (1996) 44 Cal.App.4th 1760 (Soderberg).

The Court’s Opinion here gives needed guidance not provided in Willemsen or Soderberg because:

  1. The Court’s Opinion extends the general reasoning of Willemsen (which concerned a commercial appraisal) to appraisals in the residential lending context – which is a needed clarification in this legal area.
  2. The Court’s Opinion gives clear recognition to the importance of an appraiser’s identification of intended users – as the Court wrote: “We are not convinced by the Tindells’ efforts to distinguish Willemsen. As the trial court noted, the appraisal was prepared for the lender, not the Tindells.”
  3. While Soderberg does provide some guidance in assessing negligent misrepresentation claims and whether an appraiser owes a legal duty to a party other than his or her client, Soderberg is of limited actual relevance to considering current appraisal work (after the 1997 edition of USPAP) because it was written before the adoption of the intender user identification requirement that appraisers now follow. (Soderberg actually causes unfortunate confusion in the analysis because it was decided before the modern appraisal practices.)

Again, the full decision and both requests for publication are available here.

Peter Christensen

Peter Christensen

A graduate of the University of California, Berkeley’s Boalt Hall School of Law, he has been an attorney since 1993 and maintains the blog at Valuation Education. LIA has been offering E&0 insurance and loss prevention information to the appraisal profession nationally since 1972.

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12 Responses

  1. Jeff says:

    Thank you for posting this. In todays world it seems we are being targeted and this will help support the case that appraisal reports are the sole use of the intended user and no one else

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  2. Chris says:

    Sad that everyone had to go through that !!!

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  3. Baggins Baggins says:

    Yeah, and now some new form of blacklisting is back again.  Appraisers should know because under qualified people can put us on a do not use list, and we stay on that list long after their brief time with that company is over.

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  4. Matt McCormick on Facebook Matt McCormick on Facebook says:

    Is it reasonable to make the case that the only party that can bring any action against an appraiser for misrepresentation or other faults within a report is the intended user? Could this be extended to the grievance process within state boards? Would seem logical.

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    • Jeff says:

      Yes. I have a complaint im dealing with right now that addresses this very issue. Third parties being mostly borrowers are looking for excuses they can use to cash in on E&O insurance policies. And if they simply don’t like the results they want to make life difficult for appraisers. State boards should immediately dismiss complaints from those who are not the intended user.

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    • Baggins Baggins says:

      A novel idea but slippery slope. In the absence of state licensing having at least some validity towards regular enforcement, lenders would have to pass do not use lists. The only do not use list that should ever be shared from one lender to another, is the actual validity of state licensing via the asc. Search the term ineligible appraiser list, there is a lot there. Tag on a 1 year time frame limitation for recent events.

      Just one of my 4 intended user statement boilerplates; Any use of this report by any party other than the named client is considered an unauthorized use. Appraiser does not assume responsibility for unauthorized use of this report.

      How about this one? If any person whom does not hold an appraisers license provides any sort of review services, those persons are considered unauthorized users. Per Jeff, that’s why I follow various insurance lawyers advice, and absolutely never post the EO within the report itself. Cheers.

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  5. Many thanks to Mr. Christensen. ALL California appraisers need to copy this and referenced articles / citations.

    Out of state appraisers may benefit as well to the extent that a California case may be considered by your state boards or courts.

    More and more sellers are accepting renegotiated (lower) offers when properties doesn’t appraise at sale price. They find a technical oversight or omission that can warrant opening a state complaint, and while that is winding through the estate process they turn around a file civil suit for damages! Regrettably too many E&O companies are settling rather than fighting this. We’ve seen E&O settle even before the state cleared appraisers.

    Reminder, The American Guild of Appraisers routinely fights these kind of issues and will lend support our members or their attorneys in state or court cases. Contact janbellas@appraisersguild.org for more information.

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Case Helpful to Appraisers

by Peter Christensen time to read: 5 min