Down Market Drives Up Lawsuits Against Appraisers

by Kate Moser, from The Recorder

As it did the last time the real estate market tanked, the downturn has triggered an uptick in lawsuits against appraisers.

But what's a little different this time is that many of the lawsuits are generated by borrowers rather than lenders, lawyers who represent appraisers say.

"They're really coming out of the woodwork," said Peter Catalanotti, an associate at Manning & Marder, Kass, Ellrod, Ramirez in San Francisco. "We're seeing borrowers suing, saying, 'We never would have bought that house if we'd known it wasn't worth that.'"

...Still, overall the amount of litigation against appraisers is relatively small potatoes, Peter Christensen added -- annually about 1,200 lawsuits for professional liability before the mortgage crisis, and now around 2,000, representing about $100 million a year in damages nationwide. "It's a very small world," said Christensen, who is also the author of a blog about legal defense of real estate appraisers.

...In one case Catalanotti is defending in Santa Clara County, Calif., Superior Court, a borrower is suing the appraisers of two residential income properties, accusing the appraisers of trying to get a commission by inflating rental income.

With property values down around the San Francisco Bay Area, many of the suits against appraisers are "buyer's remorse cases," Catalanotti said.

But the lawyer for the borrower in that case said his client relied on the appraisers' information, and that they should be held accountable for violating rules to ensure that information is accurate...

Steven Dollar, managing partner of Ericksen Arbuthnot's San Jose, Calif., office, has been defending appraisers for 25 years and said he's seen more borrowers suing recently than during the savings-and-loan crisis. This time around, he said, borrowers were frequently getting 100 percent financing and approval for loans they couldn't afford...

Julia Wei, a real estate lawyer in Palo Alto, Calif., is already seeing more lawsuits by lenders in the "surge" she's seen in appraiser cases in the last two years. "I would say that it went from a lot of work defending [all real estate] professionals to pretty much exclusively defending appraisers," she said. "It was that dramatic of a shift in a focus."

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