Measure of Lender’s Damages in Appraisal Malpractice Cases

Posted by zeitlin

In appraisal malpractice cases, a lender’s direct compensatory damages are the difference between what the lender loaned against property in reliance on an appraisal that overvalued the property at the time the loan was made, and what the lender would have loaned had the appraisal accurately stated the value of the property. In deciding how much money to loan to an owner or purchaser of real property, a lender bases the amount of the loan on the value of property as established by an appraisal. Where an appraiser overvalues the property at the time the loan is made, the result is the lender, in reliance on the appraisal, loans more than it would have had the appraisal accurately shown the value of the property. If a lender later suffers a loss after the property is foreclosed or sold at trustee’s sale, the measure of damages consists of two components. First the lender is entitled to out of pocket damages, which is the difference between the value of what was received in the transaction and the value given for it. Second, the lender is entitled to damages for the monetary loss suffered as a consequence of the lender’s reliance on the faulty appraisal. The lender’s direct conmpensatory damages are the difference between what the lender loaned and what it would have loaned had the appraisal been accurate. This can only be established following foreclosure or trustee’s sale. Following the sale, the lender’s damages should be calculated by deducting from the amount of the loan made in reliance on the appraisal, the value of the property at trustee’s sale less expenses.

One Response to “Measure of Lender’s Damages in Appraisal Malpractice Cases”

  1. John C. Carlson Says:

    Mr./Ms. Zeitlin,

    I follow these cases across the country. There have been very few cases against appraisers here in CA. I recently completed several Retrospective Forensic Appraisal Reviews for a GSE, and found significant differences between the value I reconciled and what the value for which appraiser had appraised the property. These may become future cases against those appraisers involved.

    I know one of your fellow AZ attorney colleagues in Scottsdale, I believe, won a case against an appraiser. Has your firm ever had a case against an appraiser? If you have, I would apprecaite it if you could share the case information.

    I would also like to receive any e-mails when you have an appraiser case in the future.

    Thank you for posting this

    John C. Carlson
    CA Certified General Real Estate Appraiser
    Victorville & Diamond Bar, CA
    http://www.jccrea.com

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