In this edition, we also review Third Party Liability cases from the past year, as well as new statutes and regulations. This research covers others who are involved in real estate transactions, such as appraisers and inspectors.
Three of the cases discussed below involved claims against appraisers, and in all three, the appraiser won. A common issue arising in the appraiser cases is whether the buyer relied on the appraisal at the time of the transaction. One case dealt with an escrow agent’s liability. In that case, the Utah Supreme Court stated that an escrow agent has a fiduciary duty to the beneficiaries of an escrow agreement.
1. Bruning v. Hollowell, No. 05–13–01033–CV, 2015 WL 1291378 (Tex. Ct. App. May 5, 2015)
A buyer brought a claim for negligence against the appraiser and the court dismissed because buyer had accurate information prior to closing.
An appraiser evaluated a property as a three-bedroom home with 2,278 square feet. Three years after purchasing the home, the buyer determined that it should have been appraised as a smaller, two-bedroom residence. The buyer sued the appraiser for negligence, saying that an addition should have been treated as a separate area, rather than as a bedroom. The court held that the buyer should have discovered the discrepancy sooner. Public records and websites both showed the house had two bedrooms. The court dismissed the case against the appraiser.
2. Boles v. U.S. Department of Veterans Affairs, No. 4:14-0634-CV-DGK, 2015 WL 4425797 (W.D. Mo. July 20, 2015)
An appraiser was not responsible for misrepresentation when the buyer did not rely on the appraisal when the buyer decided to borrow money.
The buyer claimed that the Department of Veterans Affairs, a lender, and an appraiser conspired to inflate the appraisal value of the house he purchased. The buyer purchased the home in 2007 at an appraised value of $115,000. Six years later, the buyer hired a new appraiser to perform an appraisal of the home’s value as of 2007. The newly-hired appraiser valued the home at $95,000 as of 2007. The buyer sued the original appraiser for intentional and negligent misrepresentation and fraudulent concealment. But the buyer signed the sales contract before the appraisal was prepared, so he could not have relied on the appraisal when he decided to take out the loan. The court dismissed all the claims against the appraiser.
3. McGee v. Archie Vangorder Custom Homes, Inc., No. CV–14–657, 2015 Ark. App. 170 (2015)
An appraiser who never issued a final appraisal was not liable for damages to a buyer who did not see the draft appraisal prior to closing.
The buyer purchased a home. The buyer’s agent advised the buyer to hire a contractor to inspect and repair the home, rather than hiring a separate inspector and contractor. The contractor was not a licensed inspector, but looked over the house and made some repairs. The buyer later hired an inspector, who discovered mold from a roof leak. The buyer claimed the contractor should have discovered the mold issue. The court held that the contractor was not liable for failing to discover and repair the mold problem, because he was not a licensed home inspector. The contractor was only hired to perform a visual walk-through, and the buyer could have discovered the mold issue with reasonable diligence at the time of the purchase.
4. Virginia Oak Venture, LLC v. Fought, 448 S.W.3d 179 (Tex. Ct. App. Sept. 11, 2014)
A contractor who visually inspected and repaired a home was not responsible for defects that the buyer could have discovered with reasonable diligence.
The buyer of an apartment complex sued several defendants for their role in the transaction, including the real estate agent, the real estate broker, the appraiser, and the seller, among others. The buyer claimed that the complex was overpriced. After the court dismissed the claims against the appraiser and the broker, the buyer appealed those rulings. The appraisal that the buyer complained of was labeled as a draft, a final signed copy was never issued, and the buyer did not see the draft appraisal until after closing. Therefore, the court ruled that the buyer could not have relied on the appraisal during the transaction, and the appraiser was not liable. A jury later determined that the real estate agent and the broker were also not responsible.
B. Statutes and Regulations
Kentucky amended its regulation regarding home inspector standards of conduct. Under the amended rule, home inspection reports must include a statement that the report does not address environmental hazards, and must state all other exclusions with specificity.16 The rule also provides a list of environmental hazards which should not be addressed in the inspection report.
C. Volume of Materials Retrieved
Fourteen cases relating to Third Party Liability were retrieved in the past year. Six of these cases were retrieved this quarter (see Table 1). One regulation, discussed above, was retrieved in the past year.
16 815 Ky. Admin. Regs. 6:030(3) (2014).