Baton Rouge Appraisers – Real Estate Appraiser News – William D. Cobb Attends Appraisal Institute Liability Management For Residential Appraisers: Dodging The Litigation Bullet Seminar, Pearl, MS, 4/12/2007. (Much of the information presented is directly from the handbook provided at the seminar and the notes taken by William during the seminar.)
The purpose of the seminar was to help residential (home) appraisers become a less attractive legal target and thereby avoid being the subject of litigation.
The seminar handbook explains that there are several ways to deal with appraiser liability:
•1) Avoid it. Make yourself a less attractive target.
•2) Transfer it. Shift the liability to another entity, such as the client or the other intended users.
•3) Manage it. Understand and use the legal system to your advantage; create a relationship with a competent Lawyer who will assist you in your business affairs to pre-avoid liability. Have Errors & Omissions Insurance from a reputable company that will defend you with local contract attorneys.
•4) Accept it. Acknowledge the fact that it exists and insure against it, such as with E & O insurance.
•5) Ignore it. Pretend it doesn't exist and hope it goes away.
•6) Leave it. Change your career to one that is less adversarial.
According to the instructor, these are the Common Reasons for Home Appraiser Lawsuits and Litigation and Some Possible Remedies:
•1) Failure to discover and report improvement and site defects. On purchase appraisals, it's a very good idea to obtain the signed Seller's Disclosure forms when requesting a copy of the purchase agreement. Add a statement to the appraisal that indicates that the appraiser has reviewed the Seller's Disclosure Statement. Keep a copy of it in the work file. At the time of inspection, ask the seller if they are aware of any mold issues. The appraiser could even present the seller with the appraiser's own form with questions for the seller to review, answer, and sign.
•2) Incorrect calculation of gross living area. When performing an assignment, the appraiser should never rely upon what's in the MLS system for living area, the previous appraiser's sketch, an old survey, and the county records stating living area or the architect's set of plans. If the appraiser receives a set of plans for proposed construction, those plans should be verified with sketching software to verify the living area size. If the appraiser waits for the final inspection to verify – it's too late. If the subject has an addition to living area, such as an enclosed porch or enclosed carport/garage, this area should always be separated in the sketch and in the report – even if the area is given equal contributory value.
•3) Failure to report roof leakage, settlement or foundation cracks, wet basements, termite infestation and mechanical defects.
•4) Overvaluation or Undervaluation of a property. Fraud is most commonly a competency issue and E&O Insurance does not cover the appraiser when fraud is found. It was stated that approx. 15% of all fraud cases deal with inexperienced appraisers.
•5) Appraisal of wrong property.
•6) Failure to verify, period. Includes items throughout the FNMA 1004 form such as utility hookups, zoning, lot dimensions, County taxes/assessments, correct owner of record, subject's history (both listing and sales), etc… Appraisals should be loaded with verification.
•7) Defamation. The review appraiser degrading the appraiser instead of the report itself, thus the appraiser defamed sues the review appraiser.
Why I would highly recommend this 7 Hour Appraisal Institute Seminar? In the 15 years of my appraisal experience, I have attended many seminars. Very few have been practical. Most have only been theory. The main reason I highly recommend the seminar is that it presents case studies which really address every day issues that appraisers experience. Several other reasons why I highly recommend the class are as follows:
•1) The instructor is an SRA residential FHA/VA appraiser from New Mexico, who has practiced his trade/skill in several locations around the U.S. He was very direct regarding issues in which appraisers are currently being sued. He is informative about other appraisers who have been sued, their experiences, and how they handled their situation.
•2) The book has multiple "Sample Disclosure Statements" which can add to residential appraisal software templates for the FNMA 1004 form. This is the first seminar I've ever attended in which the instructor and book took the guess work out of providing disclosure statements to help protect the appraiser. The disclosures are samples which can and should be adjusted and tailored to each appraiser's own specific template and for each individual appraisal assignment.
•3) The Instructor does not advocate that appraisers follow "conventional wisdom". See "Boiler Plate Comments" paragraphs below.
•4) The instructor tells the appraiser to limit your liability and to use the Appraisal Institute's new Restricted Appraisal Form when appraising non-lender related appraisal assignments. Also, he instructs appraisers to use words such as "appears", "apparent", "according to the owner", "estimate or +/-". Another bit of advice was that the appraiser should use lots of photos in his/her reports and keep a photo folder for each report completed in case of future litigation.
•5) There are many "Appraiser Dilemmas" class discussion questions like the one below from the book. These Dilemma scenarios really make an appraiser think much more carefully about each step in their practice and encourage them to be much more careful in their appraisal reporting.
Appraiser Dilemma from the workbook – PS083SH-B:
Phil Phorm, a real estate appraiser, made a disclosure in his appraisal report that he is not an expert on mold issues and suggested that the client, if concerned, should employ the services of an expert or experts. After the sale of the subject property, such an expert found mold inside the structural walls of the bathroom. The buyer is now suing Phorm, the seller, and the real estate sales agent. Because of Limiting Condition 5 on the URAR, Phorm believes he has a good case and tells his lawyer he wants to fight the lawsuit. The attorney reminds Phorm that he isn't charismatic or articulate, dresses poorly, doesn't smile much, and just won't play well to a jury. The plaintiff is a young couple with twin girls who are cute as a button and were delivered shortly after moving into the property.
Phorm tells his attorney that he'll take his chances with the jury. The attorney informs Phorm that the plaintiff is asking for $18,000 to cover the cost of mold removal and treatment as well as minor structural repairs. Attorneys for the seller and sales agent have indicated that their clients will each pay $6,000 if Phorm will match the funds. Phorm's attorney estimates defense costs at approximately $12,000 to $15,000.
How do you think Phorm should proceed? How do you think this lawsuit will end?
According to the instructor, "there really is no right answer for this dilemma. Obviously there are several scenarios that could make a difference if we had more information, but the point of the example was to point out that in the adversarial arena of litigation, things are not always "fair".
My answer was that Phorm should have contacted his E & O Insurance Company first upon notification. That way, if Phorm only has a $1,000 deductible, he's only out $1,000 and the E & O Insurance Company's attorney sends their bill to the E & O Insurance Company. From the Quality Assurance in Residential Appraising Appraisal Institute Seminar I took in 1/2007, instructor Mark Rattermann, MAI, SRA, emphasized that appraiser statements that they aren't home inspectors don't hold up in court. Mr. Rattermann told the story about the appraiser who used such a long paragraph that he wasn't a home inspector, but failed to point out that the home had an obvious cracked slab with cracks running up the brick (not just through the mortar) and the home needed a new roof. The appraiser stood by his report's statement that he wasn't a home inspector. The attorney fried him on the stand by questioning him with, "Are you telling the jury that a home with a cracked slab is worth just as much as a home without a cracked slab? Are you telling the jury that a home with a bad roof is worth just as much as a home with a newer roof? Mr. Appraiser, would you purchase this home in its' present condition with these obvious defects, which will cost at least $20,000 to repair for the market value/price that you appraised it for?" By the way, a cracked slab is a lender risk-management decision, not an appraiser decision. The appraiser should report the problem; request a structural engineer's instruction with cost to cure, and state the right to amend the report if the cost to cure exceeds $100.00.
Boiler Plate Report Comments.
For all of these years, appraisers have been told not to load reports with canned, boiler plate language. Underwriters have also expressed their attitude against boiler plate language. Well, as we have witnessed with the introduction of the new FNMA 1004 appraisal form and some of the controversial Appraiser's Certifications within, such as #2.), which states that I have completed a "complete" visual inspection, we know that neither Fannie Mae or Mortgage Underwriters are on our side in terms of shielding our liability. Fannie Mae has increased our liability with this newer 1004 form. The instructor showed us his 6 legal size pages of Boiler Plate language which he calls "Appraiser Notes". According to the instructor's study of appraiser lawsuits and litigation, "Appraiser Notes" are original, written content made by the appraiser and the courts give much more weight to "Appraiser Notes" than they do the extra 3-4 pages of Appraiser's Certification verbiage from within the actual FNMA 1004 form. In other words, the courts haven't had a tendency to rely upon the "fine-print" on the appraisal form.
Conclusion. In conclusion, the instructor provided me with 7 pages of notes, a very valuable workbook with dozens of Sample Disclosure Statements to help protect me, gave me multiple real life appraiser litigation scenarios to keep me functioning at my best in my profession and provided a thrill filled day of thought provoking habits we as residential appraisers need to form. These days, in our litigious United States, it's not if you're going to get sued, it's when. Be Prepared!
Heyn, Richard, and Dawn Molitor-Gennrich. "1." Liability Management for Residential Appraisers:
Dodging the Litigation Bullet. Baroda, Michigan: Heyn, Molitor-Gennrich, LLC, 2006. 1, 5, 7.
For more information on William D. Cobb and Accurate Valuations Group, please visit http://www.getfastvalue.com/ . William D. Cobb with Accurate Valuations Group has operated as a home appraiser for 15 years primarily in the Greater Baton Rouge, Louisiana market (Baton Rouge, LA; Baker, LA; Zachary, LA; Greenwell Springs, LA; Denham Springs, LA; Walker, LA; Watson, LA; Livingston, LA; Prairieville, LA; Gonzales, LA; Geismar, LA; Sorrento, LA; Port Allen, LA; Brusly, LA; and Addis, LA). This article was written with the assistance of R. Chandler Smith @ http://www.1stsourceappraisals.com
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