Appraiser Liability to Third Parties

Posted by David Deutsch

Despite express language in an appraisal of commercial property disclaiming the right of third parties to rely, the Arizona Court of Appeals has found that where an appraiser knows his report will be given to third parties, the appraiser owes the third parties a duty of care. The appraiser in the case argued that as a matter of law, he owed no duty to a third party lender who had received the appraisal from its borrower. The appraisal had been prepared for the borrower specifically and stated that it was prepared for the borrower’s use alone. The court examined the circumstances and relationships between the lender, the appraiser, and the borrower to determine whether the lender was an entity for whose benefit and guidance the appraiser intended to supply the information or whether the appraiser knew that the borrower intended to supply it. The court concluded that if the borrower intended to supply the appraisal to the lender or if the appraiser knew the borrower intended to supply the appraisal to the lender or to a limited class of persons that included the lender, then the appraiser owed the lender a duty of care and could be held liable for negligent misrepresentation.

The issues in the case, Belen Loan Investors, LLC v. Bradley, decided by the court of appeals, is consistent with the results Dale Zeitlin has obtained at the trial court level. In all of the appraiser malpractice cases Dale has handled or tried, the issue of the right of a lender to rely on an appraisal obtained by a borrower has arisen. Appraiser’s attorneys have consistently relied on language in appraisal disclaiming the right of any third parties to rely on the appraisal. The trial courts, relying on Arizona law, have consistently found a duty of care owed to the lender by the borrower’s appraiser where the lender was not specifically authorized to rely on the appraisal by its own language.

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