Today, the California Court of Appeal, Third Appellate District certified for publication its recent decision in a case entitled Tindell v. Murphy. The case involved mortgage borrowers who sued a real estate appraiser blaming the appraiser for a purchase they made in 2005 at the peak of the real estate bubble. The trial court had dismissed the borrowers’ suit because they were not intended by the appraiser to use the appraisal, as the appraisal was prepared for the lender, and the Court of Appeal upheld that decision in a straightforward opinion. However, the opinion was not originally slated for publication, meaning that it could not serve as legal precedent for cases involving other appraisers.
I thus reached out to both the Northern California Chapter of the Appraisal Institute and the National Association of Appraisers to suggest that they file requests for publication of the case. Fortunately, the leadership of both organizations saw the value to appraisers here. Accordingly, I drafted requests for publication for both organizations and filed them with the Court of Appeal asking that the opinion be published. And, in response to these requests, the Court did so.
Here’s a link to the request for publication filed on behalf of the Northern California Chapter of the Appraisal Institute: Request for Publication of Tindell v. Murphy. It explains and puts into context the significance of the Court of Appeal’s opinion and why it should be published. Here’s a copy of the opinion itself: Tindell v. Murphy Opinion.
This decision is significant for appraisers in California because it gives greater legal meaning and effect to appraisers’ identification of intended users in appraisal reports when courts are considering whether a borrower (who is not an intended user in appraisal assignments for mortgage lenders) or other similar third parties may sue an appraiser for negligent misrepresentation — which is the most common legal claim filed against appraisers in California by non-clients.
For those who want a deeper understanding of how the decision in Tindell v. Murphy relates to and builds on prior case law in California, here is how we explained the matter in the Northern California Chapter of the Appraisal Institute’s request for publication — this is basically the explanation to the Court of Appeal why its opinion should be published:
We ask that the Court publish its Opinion because the decision fills a gap in existing California law by clarifying the boundaries of residential appraiser liability to non-clients and third parties who are not identified as an “intended user” of the appraisal work product. This is a vital concern in the proper use and understanding of residential appraisals performed for mortgage lenders in connection with their loan decision-making.
An appraiser’s identification of his or her client and the intended user(s) of his or her appraisals is a key issue in the performance and reporting of appraisals under the Uniform Standards of Professional Appraisal Practice (USPAP). Promulgated by the Appraisal Standards Board, these standards set forth the primary minimum professional standards that licensed and certified appraisers must follow under California law.
USPAP Standards Rule 1-2 sets forth requirements for how appraisers develop their appraisal opinions and states that “[i]n developing a real property appraisal, an appraiser must: (a) identify the client and other intended users . . .” USPAP Standards Rule 2-2 addresses the specific content of appraisal reports and requires that an appraisal report “state the identity of any intended users by name or type.” These two requirements are fundamental to what an appraiser does because an appraiser under other parts of USPAP is responsible for providing an appraisal that is appropriate for his or her intended users. The intended user identification requirements were first adopted into USPAP by the Appraisal Standards Board in the 1997 edition of USPAP and have remained a key part of the standards ever since.
Despite the clear requirements under USPAP with respect to identification of clients and intended users, however, these fundamental appraisal concepts are often lost from consideration at the trial court level when negligence and negligent misrepresentation claims are asserted by non-clients against appraisers in California courts (whether such third parties are identified as intended users or not). One reason for this is the lack of clear appellate guidance in our state’s case law applicable to such claims against appraisers. Publication of the Court’s Opinion will help fill that void and avoid further misunderstanding.
In particular, the Opinion here relates to an appraisal performed by the defendant appraiser for a mortgage lender’s use in deciding whether to extend a mortgage secured by the appraised property. The plaintiffs in the case were the borrowers and were not identified as the client or intended users in the report. Yet, several years after the appraisal was performed, they sued the appraiser alleging damages stemming from the appraiser’s alleged misreporting that the home on the property was a “modular” home rather than “manufactured” home.
In analyzing the two key legal claims – professional negligence and negligent misrepresentation – at issue against the appraiser in the Opinion, the Court looked to the two published decisions that are most often cited in relation to such appraiser claims: Willemsen v. Mitrosilis (2014) 230 Cal.App.4th 622 (Willemsen) and Soderberg v. McKinney (1996) 44 Cal.App.4th 1760 (Soderberg).
The Court’s Opinion here gives needed guidance not provided in Willemsen or Soderberg because:
- The Court’s Opinion extends the general reasoning of Willemsen (which concerned a commercial appraisal) to appraisals in the residential lending context – which is a needed clarification in this legal area.
- The Court’s Opinion gives clear recognition to the importance of an appraiser’s identification of intended users – as the Court wrote: “We are not convinced by the Tindells’ efforts to distinguish Willemsen. As the trial court noted, the appraisal was prepared for the lender, not the Tindells.”
- While Soderberg does provide some guidance in assessing negligent misrepresentation claims and whether an appraiser owes a legal duty to a party other than his or her client, Soderberg is of limited actual relevance to considering current appraisal work (after the 1997 edition of USPAP) because it was written before the adoption of the intended user identification requirement that appraisers now follow. (Soderberg actually causes unfortunate confusion in the analysis because it was decided before the modern appraisal practices.)
The Willemsen case discussed above is the other very key defense case for appraisers in California. It was decided in 2014, and like the current decision in Tindell, it also became published legal precent as the result of an earlier collaboration between me and the NorCal Chapter of the Appraisal Institute and the NAA.