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Zielinski v. Professional Appraisal Associates

326 N.J. Super. 219, 740 A.2d 1131 (App. Div. 1999)

APPRAISERS; LIABILITY—Where a home buyer did not rely on its lender’s appraiser’s report for information about the physical condition of the house, it could not hold that appraiser liable for the house’s structural defects.

Despite receiving an engineering inspection report showing a number of defects in the home it was to purchase, the buyer went ahead with the transaction. In connection with its mortgage loan, the buyer’s lender hired an appraiser. The appraisal report, which was paid for by the buyer, contained the following provision: “The purpose of this appraisal is to estimate the market value (emphasis added) of the subject property. The function of the appraisal is to assist the identified lender or assignee in the underwriting of the risk associated with a residential mortgage loan.” Further, the appraisal contained a statement that the appraiser assumed no responsibility for hidden or unapparent conditions of the property, or for engineering which might be required to discover such defects. After closing, the buyer made a claim against the appraiser based upon the appraisal report stating that the “condition of the property was ‘average’ and that ‘no repairs [were] needed.’” The lower court concluded that the appraiser owed no legal contractual duty to the buyer. That conclusion, coupled with the fact that the appraiser’s report was not an engineering report, caused the lower court to grant the appraiser’s motion for summary judgment. Further, the lower court was persuaded that the engineering report placed the buyer on notice of the deficiencies of the property and that the buyer had never received the appraisal and therefore could not reasonably have relied on it. Although noting that the lack of a contractual relationship or privity does not automatically defeat a claim, the Appellate Division upheld the lower court’s decision. “The existence of a duty is defined not by the contractual relationship between the parties but, rather, by considerations of foreseeability and fairness. A professional can have a duty in favor of persons who did not engage the professional.” In this particular case, however, the Court concluded “that considerations of foreseeability and fairness preclude the imposition of a duty. [The appraiser] was hired to perform an appraisal for the lending institution, not an engineering inspection for the buyers. It was not foreseeable that the buyer would, without seeing the appraisal report, rely upon the fact that [the appraiser] appraised the property in an amount sufficient to support the loan, and consider that to mean that the property was free of structural defects.” Had the buyer actually seen the appraisal report, the buyer would also have seen the disclaimer regarding structural and engineering defects. In addition, the Court rejected the buyer’s contention that it was justified in assuming that approval of the mortgage loan meant that the appraiser found the property free of structural defects. In sum, “[i]t would be unfair and unreasonable to subject the appraiser to liability for defects in the property when that responsibility is far beyond the scope of the undertaking set forth in the appraisal.”


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