In a blog yesterday, I wrote about the Vieiras, a family which appears to be on a legal crusade against Wells Fargo over a mortgage made on their second home in Nevada which the Vieiras say was fraudulent because the appraiser hired by Wells Fargo inflated the appraisal.  (If you haven't read my blog from yesterday, this blog will probably make more sense if you read that one first.)

I've since looked into the Vieiras' case a little more.  I learned that the Vieira's case has already been decided against them (I should have thought that the courts might have acted since the writeup I linked to was published-- duh!  Certainly, no definitive adverse outcome in the courts would deter these single-minded crusaders!)  As it turned out, the Vieiras took their case all the way to the Nevada Supreme Court, and lost every step of the way on summary judgment-- the decision against the Vieiras was clear to the courts based on the facts alleged by the Vieiras, without the necessity of a trial.

In its short and sweet decision, the Nevada Supreme Court said:

[The Vieiras] failed to provide sufficient evidence to support their claims. As
the district court properly noted in its order, appellants failed to show any basis for reliance or causation based on respondents' conduct, as was necessary, because appellants entered into the contract to purchase the home well before the appraisal occurred and nothing in the contract provided for cancellation of the contract based on failure to obtain financing or for an appraisal value lower than the sale price.

I read through the Vieiras' brief to the Supreme Court.  [You can find that document and other documents the Vieiras have posted on their website, wellsfargomortgagefraud.com.]  Though the Vieiras' argument is still not convincing to me by a long shot, I did find it interesting that they did find a similar case in another state (Arizona) where a court ruled in favor of the homeowner-- against the appraiser, not the bank-- that the lender's appraiser owed a duty of care to a homeowner, and to the extent that an appraiser inflated an appraisal, they would have failed to deliver on that duty.

The framework of the case was similar to the Vieiras.  Shari Sage signed a contract to purchase a home in Scottsdale, Arizona for $605,000.  Sage's purchase contract was a standard form Arizona Association of Realtors "Residential Resale Real Estate Purchase Contract", which states that the  buyer's obligation to complete their purchase is "contingent upon an appraisal of the Premises by an appraiser acceptable to the lender for at least the sales price".

She applied for a loan with Security Mortgage.  On the advice of the seller, Sage asked Security Mortgage to use Blagg Appraisal Company as the appraiser and they agreed.  Sage signed a form requesting that Security provide her with a copy of the appraisal.  Blagg came in with a value of $620,000 based on a finding that the home was 2,440 square feet.  The loan was made, and the sale closed.

In fact, the square footage of the home was only 1,871 feet-- a fact revealed when Sage tried to refinance a year and a half later.  Sage sued Blagg for negligent misrepresentation over the flawed appraisal.

The trial court that heard the case ruled against Sage. Sage could not show that she had relied on the appraisal in purchasing the property, and further, could not show that the appraiser owed them a duty, the court ruled.  The trial court relied heavily on the appraisal itself, which stated that the appraisal was "for use by [the lender] for a mortgage finance transaction only".  The appraisal was a short form appraisal, "a quick estimate for lending purposes", according to the words on the appraisal.

But the appeals court reversed the ruling that a bank appraiser owes not duty of care to the borrower.  In its 2009 decision, the court said in part:

We reject Blagg's argument that an appraiser owes no duty to the buyer/borrower ... because the loan transaction by which the buyer/borrower acquires the funds to purchase the home is distinct from the purchase transaction... [T]he appraisal the lender orders typically is the foundation of the home purchase transaction. Although Blagg argues that, as the appraiser, he served only the mortgage/lending transaction and not the separate transaction by which Sage purchased her home, we believe that distinction is without difference. A lender in Security's position will not finance the buyer's purchase if its appraiser concludes the home is not worth the financed amount. Likewise, in many cases, as here, a form residential purchase contract empowers the buyer to cancel the contract if the appraisal falls short. Whether the purchase will be made undisputedly hinges on the appraisal; we would blink at reality to conclude otherwise.

There's definitely some differences in the facts of the Vieira case and the Sage case-- most notably, the language in the purchase contracts.  As was noted above, in the Vieira case in Nevada, the Supreme Court found "nothing in the contract provided for cancellation of the contract based on failure to obtain financing or for an appraisal value lower than the sale price."  The Vieira's contract, which was apparently also a standard contract, apparently contained no language that the contract was "contingent on an appraisal", as the Sage contract did.  I am not familiar with all the state contracts, so maybe that clause is just an Arizona thing that is not common elsewhere-- I have not investigated.

Even that being the case, I don't know that I agree with the Sage decision in Arizona.  To repeat, the clause in the contract says that the contract is "contingent upon an appraisal of the Premises by an appraiser acceptable to the lender for at least the sales price."  In the case of the Sages, this clause seems to have at least arguably been satisfied.  An appraisal by someone acceptable to the lender made an appraisal, and it was for at least the sales price.  If the buyer is supposed to be protected by the appraiser, shouldn't the appraiser have to be acceptable to the buyer also?

Nevertheless, the conception that I had that the bank appraisal was there to protect the bank and not the buyer seems to not apply in at least one state.