Should I Sue the Appraiser?

We receive a significant number of inquiries from mortgage borrowers thinking about suing appraisers. These inquiries are usually from borrowers in financial distress who purchased or refinanced properties in 2005-2008 and now cannot afford their mortgage payments. Either they're being foreclosed and contend an appraisal in 2005-2008 was too high, or they're trying to refinance now and contend a more recent appraisal is too low.

Borrowers often start their inquiries with Google searches for something like: "Can I sue the appraiser?" I don't think that's quite the right question, however, because it's too simple -- in America, you can sue anybody. The more relevant question for the distressed borrower is: "Should I sue the appraiser?" The short answer is "most likely, no."

As a lawyer who has seen hundreds of these kinds of situations, it's my opinion that the idea of suing an appraiser is false hope for borrowers. Suing an appraiser generally wastes the borrower's time, emotional energy and money -- not to mention that it truly causes emotional and financial suffering to the appraiser. Here are several of the key reasons why suing an appraiser is a bad move for borrowers:

1. The borrower who wants to make a claim was almost always not the appraiser's client or intended user identified in the appraisal report. The appraiser works for the lender. This simple fact is a roadblock to many claims, though I'm certainly aware that the principle has eroded some in certain jurisdictions. (Borrowers can determine who the appraiser's client was by looking at the data box entitled "Lender/Client" near the top of the first page of standard appraisal forms.)

2. Judges and juries recognize that alleged real estate losses are more likely the result of the declining real estate market and not legally caused by the appraisal. If the claim is about a foreclosed loan, courts recognize that the appraiser was not the legal cause of the borrower's inability to repay borrowed money. If the claim is about an appraisal being "too low," courts recognize the appraisal as being on the mark and attribute the disappointing value to the plummeting price of real estate.

3. Most claims by borrowers are unsuccessful.

4. A borrower who loses a lawsuit against an appraiser can be held financially liable for the court costs incurred by the appraiser. These costs can be several thousand dollars and, in some cases, much more.

5. Filing a lawsuit can negatively affect an individual's ability to obtain a mortgage loan or employment in the future.

6. If a borrower provided false information when applying for the loan (such as about income or occupancy), the borrower's fraud will likely be exposed during the lawsuit. Mortgage fraud is a felony.

7. The borrower's legal counsel will likely not have the same level of expertise with regard to appraisal issues as the appraiser's defense counsel.

(If you are a borrower or purchaser who has read this far and still believe you have a meritorious claim against an appraiser, please feel free to contact me directly at peter@appraiserlaw.com and I will be happy to discuss your situation further.)