Friday, December 4, 2009

More Lenders Should Do This


Here is a lender that is doing something right for appraisers (and itself). I wish more lenders would do things like this. As I've written elsewhere on Appraiser Law Blog, more than 50% of claims against appraisers are being filed by property owners and borrowers. These parties are not the clients or intended users of 99% of the appraisal reports that they sue over, and, in my view, most of their claims are misguided grabs for money. Adding more frustration to the problem, many lenders require appraisers to do things that actually cause more borrower claims -- one example is the requirement of some lenders that appraisers attach their E&O insurance to appraisal reports. This not only prompts more borrowers to file claims against appraisers but also against the lenders themselves.

Here, however, is an example of a simple step taken by one lender to reduce appraisal-related claims. This lender stamps each appraisal that goes out to a borrower with a bold stamp stating:

This copy is being provided to you on the understanding that this appraisal was prepared solely for the benefit of Santa Barbara Bank & Trust to assist in its determination that the described property provides adequate security for the loan applied for.

This simple message goes a long way to reducing a borrower's ability to someday claim that he or she reasonably relied on an appraisal report prepared for the lender and that he or she was somehow harmed by relying on it. The stamp is better than boilerplate at the end of the report. It could be a little stronger -- I'd suggest adding an explicit direction to the borrower that "You should not rely on this appraisal for your own use. If you require an appraisal for your own use or are concerned about the property's value, you should engage an independent appraiser of your own choosing." That, of course, would require a very large stamp. Regardless, it's nice to see a lender thinking not only about reducing its own exposure to unnecessary risk but also reducing the exposure of the appraisers who serve the lender.