Third Party Liability: 2019 Yearly Update

In this section, we examine the liability of inspectors, appraisers, and other third parties involved in real estate transactions. Over the past twelve months, third-party liability issues were identified in three cases.

  1. Reed v. Ezelle Inv. Props. Inc., No. 3:17-cv-01364-YY, 2018 WL 5786208 (D. Or. Nov. 5, 2018)

Broker’s use of photograph constituted copyright infringement.

A professional photographer (the photographer) took a photograph at the Japanese Gardens in Oregon (the image) and displayed it on his website. A broker licensed in Oregon and California searched Google for “free images” to display on his brokerage firm’s website. He located the image of the Japanese Gardens through this search and displayed it the firm’s website. The broker alleged that he did not see a watermark or any other information that suggested that the image was protected by copyright. Upon discovering the image on the brokerage firm’s website, the photographer instructed his attorneys to contact the broker to try to resolve the matter. The broker received a cease-and-desist letter with a Rapid Conditional Release License Agreement containing a Confidentiality Clause, which provided the broker with the option to settle immediately for $5,000. Upon receipt of the letter, broker immediately removed the image and retained counsel.  The counsel for both parties agreed to settle the matter for $1,000 but the broker’s counsel rejected the confidentiality clause in the photographer’s proposed settlement agreement.  The broker’s counsel expressed that if the deletion of the clause was unacceptable that the photographer could return the $1,000 check.  The negotiations failed and the photographer brought action against the broker alleging copyright infringement.

The broker argued that the parties entered into an enforceable settlement agreement. The court determined that there was no binding settlement agreement because the broker’s purported acceptance modified a material term of the agreement, by deleting the confidentiality clause, and thus constituted a counteroffer. In examining the merits of the photographer’s copyright infringement claim, the court found that the broker could not establish nonliability because although a copyright notice did not appear alongside the image when it was downloaded, information that a copyright existed was readily discoverable through basic online research. The district court granted the photographer’s motion for summary judgment and awarded him $1,500 in statutory damages based on infringement of his copyright.

  1. Shaw v. Shand, No. A-5686-17T1, 2019 WL 3819677 (N.J. Super. App. Div. Aug, 15, 2019)

Home inspectors are not “learned professionals” exempted from the New Jersey Consumer Fraud Act.

Purchasers hired the defendant home inspector to conduct an inspection of a property prior to purchase. The report concluded that the property was in need of only typical maintenance and upgrading. Purchasers proceeded to close on the property in June 2015. Upon occupying the property, they learned that the property was in poor condition and required a great deal of repairs.  Purchasers sued the home inspector, alleging claims for negligence, violation of the New Jersey Consumer Fraud Act (CFA), common-law fraud, and breach of contract.  At his deposition, the inspector acknowledged he observed problems with the home that he did not report, and that he became licensed in January 2015 after successfully completing the schooling and apprenticeship required and passing the licensing test. The purchaser's home was the inspector's first assignment as a licensed inspector.

The court determined that home inspectors and other licensed semi-professionals are not learned professionals and thereby exempt from liability under the CFA's. The court further held that the purchaser's claims pursuant to CFA and the claims for the problems the inspector allegedly failed to disclose were not expressly preempted by the Home Inspection Licensing Act (HIPLA). Therefore, the partial summary judgment that was ruled in favor of the inspector was reversed and the matter was remanded back down to the trial court. 1

  1. Boesiger v. Desert Appraisals, LLC, No. 75198, 444 P.3d 436 (Nev. July 3, 2019)

Homeowners could not establish professional negligence by a real estate appraisal company or appraiser absent expert testimony.

Homeowners purchased a home in Las Vegas for $337,000, financing most of the purchase price through a mortgage on the property. The mortgage company contracted with the real estate appraisal company to perform an appraisal on the property. The appraiser valued the property at $340,000 with 3,000 square feet of gross living area. The appraisal report explicitly noted a discrepancy between the square footage reported by the county assessor’s office which estimated 3,553 square feet. The appraiser explained that the added footage appeared to be based on outdated information from when the garage was used as model home office. One year later, after unsuccessfully attempting to refinance their home loan, the homeowners became aware of the discrepancy in square footage and they filed suit against the real estate appraisal company and the appraiser (“Defendants”) alleging professional negligence, negligent misrepresentation, breach of the statutory duty to disclose a material fact, and breach of contract as third-party beneficiaries.

The Nevada Supreme Court held that the homeowners could not establish professional negligence arising from the appraisal of the home without expert testimony. The homeowners initially designated a professional appraiser as an expert witness, but the expert was later withdrawn and was not subsequently replaced.  Despite initially designating an expert witness, the homeowners argued that expert testimony was unnecessary to establish the professional standard of care.  The court disagreed and found that the homeowners failed to provide the requisite evidence that establishes the defendants’ breached a duty of care. The court affirmed the order granting summary judgment.

  1. Iron Shields Inv. Inc. v. Miller, No. FBTCV166059810S, 2019 WL 3219342 (Conn. Super. Ct.  June 5, 2019)

Surveyor liable to purchaser of survey for negligence based upon inaccuracy of boundaries depicted in survey.

While Iron Shields Investment (Iron Shields) was considering purchasing a property from the Millers, it purchased a copy of a survey of the Miller property performed by D'Amico, a licensed surveyor. Iron Shields purchased the property, and D'Amico prepared, issued, and certified a map of the Miller property.  Iron Shields then obtained zoning approval for a three-lot subdivision for the whole 9.917-acre property. After the approval, the Weston Gun Club filed a suit against Iron Shields claiming that a portion of the property from which Iron Shield cleared trees was owned by the Gun Club. Iron Shields and Weston Gun Club settled their dispute and entered into a boundary line agreement. Iron Shields then sued the surveyor for professional negligence.

Opposing the claim for professional negligence, the surveyor argued that there was no duty owed to Iron Shields because he was not in privity with Iron Shields. The Superior Court disagreed and found that Iron Shields and the surveyor were in privity when the surveyor sold Iron Shields the survey and when the map was certified. The court held that a surveyor may be held liable in negligence to the party who hired him for failure to make an accurate survey of land and for failure to establish correct boundaries. It further determined that the surveyor was required to depict all five-stone bounds on the survey and the map, and was also required to note the discrepancy between his boundary line and the boundary line depicted in a 1960 map. The court entered judgment in favor of Iron Shields, awarding $41,060.77.

Statutes and Regulations

Oregon

State licensed appraisers or state certified appraisers may now include a disclaimer in an evaluation that he or she is not engage in real estate appraisal activity when performing certain functions, per an amended statute. 2  An “evaluation” under this section means an opinion of the market value of real property provided to a financial institution in accord with the Interagency Appraisal and Evaluation Guidelines for real estate-related financial transactions that do not require an appraisal. 3 The disclaimer must state the following: “I am a state licensed appraiser or a state certified appraiser. This evaluation was not prepared in my capacity as a real estate appraiser and might not comply with the uniform standards of professional appraisal practice.” 4 

Maryland

A licensed home inspector conducting an inspection of a rental dwelling in Baltimore City may not make a certification as a part of that inspection relating to: (1) the presence or identification of pests, unless the home inspector is certified as a pest control consultant, pest control applicator, or public agency applicator; or (2) the dwelling’s electrical system, unless the home inspector has completed a minimum of 8 hours of training in electrical systems certified by the Baltimore City Housing Commissioner, per a newly enacted statute. The training in electrical systems is in addition to the training required for home inspector licensure. 5


1  This case has not yet been resolved.
2019 Or. Laws ch. 127.
3  Id.
4  Id.
Md. Bus. Occup & Prof. Code § 16–703.2 (2019).

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