APPRAISER LIABILITY CLAIMS ON
THE RISE
With increasing frequency, appraisers
are finding themselves the targets of liability claims and
lawsuits by banks, lenders, mortgagors and others looking for
relief when a loan goes bad. They are asserting that had the
appraisal at the time of the loan been “accurate”,
they would not have made what has since become a problem loan
and look to the appraiser for recovery for the loan shortfall.
When that happens, the appraisers must respond to the claim
where they face significant exposure. How does an appraiser
limit his/her exposure or reduce the costs of defense for alleged
negligent acts or omissions?
Generally, a person cannot exculpate himself
for liability arising from his/her own negligent acts or omissions.
A person, however, can limit his liability for his negligent
acts or omissions. Limiting liability can be done by inserting
the appropriate language in a retainer agreement or contract.
Limitations of liability will be enforced if they are clear,
explicit and unequivocal in showing the intent of the parties
was to limit liability.
A limitation of liability provision could read
something similar to: It is the intent of the appraiser and
those that hire him or utilize his service, that the liability
of the appraiser for the negligent acts, omissions, misrepresentations
is limited to and shall not exceed the cost of the services
rendered.
Please note that limitations of liability provisions
will not ordinarily apply to allegations of fraud, gross negligence,
willful and wanton misconduct, or criminal behavior.
Other terms that may also be utilized to limit
an appraiser’s exposure can be a requirement that any
disputes be resolved through arbitration, mediation or another
alternative dispute resolution procedure. These are usually
less expensive than court. In addition, the appraisal could
include a lawsuit limitation provision similar to those ordinarily
found in insurance policies – requiring that claims or
lawsuits be brought within a specified time period, such as
three months, six months, one year, etc.
Including provisions such as those prescribed
above will not prevent lawsuits or claims being made against
appraisers but may work as deterrents or limit the appraiser’s
exposure to a devastating loss.
The views expressed in this memo are not to
be construed as legal advice. The reader should always consult
with legal counsel before taking action described in this memo.
ABOUT THE AUTHOR: Charles R.
Franklin has been practicing law for over 20 years concentrating
in litigation. He has represented commercial and residential
real estate appraisers in both state and federal court and
at disciplinary hearings before the Office of Banks and Real
Estate. His undergraduate degree is from the University of
Michigan and he received his law degree from the University
of Miami (Fla.).
If you have any questions about the liability
concerns raised in this article, or if you are in need of professional
legal representation now or in the future, you can contact
Mr. Franklin at:
Charles R. Franklin
Wolin and Rosen, Ltd.
55 West Monroe
Suite 3600
Chicago, IL 60603
PH: 312-424-0600
Fax: 312-424-0660
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