Wednesday, May 5, 2010

WA Appellate Court Decision

If interested, there was an opinion passed down recently by the WA Court of Appeals involving a case that included an issue about appraiser liability. One of my attorney clients sent it to me today as an “FYI”, and if you want I can send you a copy. The citation is under WA Appeals Div. II, No. 37596-6-II, Borish v. Russell.

In a nutshell, what the court ruled was that only in the case where there is a contractual relationship can the “economic loss rule” be applied, with compensation limited based on the terms of the contract. Without a contract between the appraiser (Russell) and the litigants (Borish) that defines and/or limits damages (since in this case the appraiser was engaged by a lender to appraise the Borish property), then the litigants may sue the appraiser based on a tort claim of fraud or misrepresentation, which fraudulent appraisal the Borishes relied upon to close the purchase of a home, and seek damages against the appraiser to compensate them above and beyond what the P&SA contractual terms may have been the buyer (Borish) and seller.

In this case, claims against the sellers were dismissed, as the limiting terms of the P&SA prevailed; the buyers are still going after the appraiser, however, and this ruling allows them to do so, even though the appraiser was not directly engaged by the purchasers, and included limitations on who could rely on and use the appraisal within the report. The buyers did rely on the appraisal to proceed with closing the sale, and it apparently included some incorrect property information that, had the correct information been known, would apparently have impacted the valuation, and thus the buyers may have had a chance to walk away from the deal.

Stan Sidor
President ACOW

There has been a requirement in Washington law for at least 10 years that the lender provide the purchaser with a copy of the appraisal three days prior to closing. Many mortgage brokers only provided the report if the purchaser knew to ask for it.

I believe the RCW is strong enough that if the buyer asked for the appraisal report and did not receive it at least 3 days prior to closing, they could delay closing and the lender must maintain any rate locks that might have expired.

The appraiser was found not liable in Shaaf v. Highfield (WA supreme court, 1995) because the buyer had not seen the appraisal report prior to closing, but the decision did say the borrower could have relied on the information in the appraisal if he had seen it. And the current Fannie/Freddie certification has a list of parties who, although not intended users, have a right to rely on the report.

I know we discussed this at some of the ACOW @ The Summit sessions and at REAC meetings, but I also know that many appraisers were shocked when HVCC required the same. The RCW only applied to purchases in Washington , HVCC extended that to all Fannie/Freddie appraisals .

Barry C. Wilson
Residential Reviewer & Training Supervisor
Lamb Hanson Lamb Appraisal Assoc., Inc


There is more to that Shaaf v. Highfield than what you have stated. The Judge ruled that the buyer is a party and gets a copy of the appraisal and is an intended user (Washington only). Just remember that USPAP makes the appraiser hold to confidentiality and the appraiser CANNOT give a copy of the appraisal to the borrower. That copy must come from the lender, unless the lender has given the appraiser permission to provide a copy to the borrower (I would sure have it in writing).

Woody Woodworth
Appraisal Foundation approved USPAP instructor


In this particular case, the buyer did receive a copy of the appraisal prior to closing, and – here is the crux for the liability issue/question – RELIED ON IT to proceed with the closing. Afterwards, it was apparently discovered that there were factual errors/inaccuracies about the property in the appraisal report that, if correct in the first place, would likely have resulted in a lower value (below the agreed upon purchase price), and thus the buyers would have had a chance to walk away from closing the sale.

Stan Sidor

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