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The Supreme Court of Ohio has considered when the statute of limitations began running for professional negligence claims brought against an appraiser.
John Reinhold (“Appraiser”) was hired in 2001 and 2002 by Airline Union’s Mortgage Company to appraise three properties that served as collateral for three loans made by the mortgage company. The final appraisal was completed on June 12, 2002.
Flagstar Bank, FSB (“Bank”) purchased all three loans from the mortgage company after reviewing the Appraiser’s appraisal reports. The Bank then sold two of the loans in the secondary market. Both of those loans went into default and the purchasers foreclosed on the owners. The secondary purchasers sought reimbursement from the Bank for the remaining deficiencies on the loans, and the Bank paid the deficiency amounts. A fire destroyed the property supporting the third loan that the Bank had retained and that owner also defaulted, leaving a deficiency on that loan as well.
In 2008, the Bank brought a lawsuit against the Appraiser and the mortgage company, claiming that the appraisals were materially inaccurate and the actual value for the properties was far less than the appraised value for the properties. The Appraiser argued that the statute of limitations for professional negligence claims is four years, and so the Bank’s lawsuit should be dismissed because the last appraisal was completed in 2002. The trial court agreed and entered judgment in favor of the Appraiser, and this ruling was affirmed by the appellate court. The Bank appealed.
The Supreme Court of Ohio affirmed the lower courts. A statute of limitations creates a time period for when certain legal claims can be made against a party. In general, the statute of limitations begins running at the time of the action causing the alleged harm. However, there are exceptions to the statute of limitations known as the “discovery rule” and the “delayed-damages rule”, which in certain instances delay the start of the statute of limitations until an entity knows that it was harmed by the actions of another or is actually harmed by another.
The Bank argued that the statute of limitations did not begin running until the properties were sold after foreclosure and the Bank then learned that the properties were far below the earlier appraised value. Since the last appraisal had occurred in 2002, the court considered whether the delayed-damages rule delayed the start of the statute of limitations for professional negligence claims like those brought against the Appraiser until the time the Bank suffered a loss. An earlier decision by the court had stated that the discovery rule did not apply to professional negligence claims against appraisers.
The court determined that the statute of limitation began running when the appraisal was completed and so the court declined to apply delayed-damages exception to extend the time when professional negligence could be brought. The court found that allowing the statute of limitations to reset every time a mortgage loan was resold on the secondary market could effectively extend the appraiser’s potential liability forever. Since the purposes for a statute of limitations is to ensure prompt resolution of claims and also encourage fairness to the defendants, the court ruled that neither of the exceptions applied to professional negligence claims. Therefore, the court affirmed the lower courts.
Flagstar Bank, F.S.B. v. Airline Union's Mtge. Co., 947 N.E.2d 672 (Ohio 2011).