Tennessee Homeowners Can Sue Home Appraiser for Fraud

Home appraisers who overestimate the value of homes may be liable for fraudulent misrepresentation, the Tennessee Supreme Court has ruled.

The state’s high court has overruled an appellate court that had held that because an appraiser’s estimate is an opinion, it cannot be the basis of a claim for misrepresentation.

In a case involving a Nashville couple who got less than the 2002 appraisal amount when they sold their home three years later, the high court said that even though it is an opinion, an appraisal can form the basis of a claim.

In 2002, Joseph and Kimberli Davis sought an appraisal on a home they were having built from Patrick McGuigan, an appraiser whom their bank SunTrust regularly used. Using best estimates of what it would cost to build the home, the appraiser came up with a figure of $731,000. However, using data on what similar homes were selling for, he came up with an appraisal of $735,000.

McGuigan’s final appraisal report estimated the market value of the home as $735,000. It reconciled the differences in value resulting from the cost approach and the sales comparison approach by stating that “[b]ecause buyers rely heavily on comparisons, the direct sales comparison approach is considered the best indicator of market value” but that “[t]he cost approach supports the sales comparison approach.”

The Davises were approved for a $580,000 mortgage for construction of the home.

In 2003, after living in the home for a year, they sought a home equity loan. But SunTrust declined, based on a new appraisal of the home of $510,000.

They then decided to sell the house and were told by real estate agents that the home would sell for between $590,000 and $625,000. The Davises listed the property for sale at $679,000 on Nov. 30, 2004. They accepted an offer on the home from the first prospective buyer and, on April 8, 2005, closed on the sale of the property for $660,000.

On April 20, 2005, Mr. and Ms. Davis filed a complaint asserting that McGuigan had intentionally or negligently misrepresented the market value of their home when he appraised it in June 2002 and that he had also violated the Tennessee Consumer Protection Act. They alleged that the appraiser, who was hired by the bank financing the construction, recklessly overestimated the value of their proposed construction and that they reasonably relied on the appraisal value to their detriment.

The Court of Appeals affirmed the trial court’s ruling that an appraisal is an opinion that cannot form the basis for a fraudulent misrepresentation claim.

However, the state Supreme Court has now held that an opinion can form the basis of a fraudulent misrepresentation claim. The court further said that genuine issues of material fact preclude summary judgment as to the claims against the appraiser in reversing the Court of Appeals and remanding the case to the trial court for further proceedings.

Tenn. Supreme Court, Davis v McGuigan

Topics Lawsuits Fraud Homeowners Tennessee