Arizona Court of Appeals Division Two Holds That Under Restatement (Second) of Torts § 552, an Appraiser Does Not Owe a Duty of Care to a Seller if the Appraisal Is Not Intended to Be Used and Relied Upon by the Seller.

The three Defendants in this consolidated appeal performed three appraisals in connection with residential property sales for which Southwest Non-Profit Housing Corporation (“Southwest”) was the seller.  The appraisals were appreciably lower than the properties’ contracted sale prices, effectively terminating the sales because lenders would not fund loans for the purchases.  Southwest sued Defendants for negligent misrepresentation in performing the appraisals.  All three Defendants prevailed at either the dismissal or summary judgment stages by arguing that they could not be liable for negligent misrepresentation under Restatement (Second) of Torts § 552.  Southwest timely appealed.

The Arizona Appeals Court affirmed.  Under Restatement § 552, an appraiser owes a duty of care to third-parties who the appraisal is intended to reach and influence, regardless whether the appraiser knows the identity of the third-parties.  But an appraiser is not liable to all who might foreseeably obtain and rely upon an appraisal.  See Restatement § 552 cmt. h.  In this case, Southwest’s complaint failed to allege that Defendants intended at any point to influence Southwest, and instead alleged that the appraisals were performed for lenders after Southwest had already contracted for the home sales before the appraisals.  Because the facts, as alleged, failed to show that Defendants intended to have Southwest receive and rely upon their appraisals, they did not owe Southwest a duty of care. 

The Court also rejected Southwest’s argument that it did not intend to waive tort liability as to two of the Defendants based on language in the appraisers’ certifications.  The Court explained that this argument was baseless—and there was no waiver issue—because Southwest was not even a party to the agreement between the appraisers and the lenders/clients giving rise to the appraisers’ certifications.  Rather, the fact that the certifications excluded Southwest from the list of people who could review and rely on the appraisals established that the two Defendants did not owe a duty to Southwest.  The Court also rejected Southwest’s argument that 15 U.S.C. § 1639e created a duty, explaining that nothing in that statute requires disclosure of an appraisal to a seller under the facts presented in this case. 

Finally, the Court held that even if the Defendants owed Southwest a duty, Southwest did not rely on Defendants’ appraisals, and in fact disputed them.  Because Southwest did not rely on the appraisals to take action or refrain from taking action, its negligent misrepresentation claims failed as a matter of law. 

Judge Espinosa authored the opinion; Presiding Judge Kelly and Judge Eckerstrom concurred.