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Crumbling Foundation in Connecticut and Appraiser Liability

Posted By USFN, Monday, October 21, 2019
Updated: Tuesday, October 15, 2019



by Peter A. Ventre, Esq. 
McCalla Raymer Leibert Pierce, LLC
USFN Member (AL, CA, CT, FL, GA, IL, MS, NV, NJ, NY)

In Renewal Capital, LLC v. Joshua Martin, et al., Superior Court, Judicial District of Hartford at Hartford, Docket No. HHD-CV18-6088271-S, a lender, RCN Capital Funding, LLC (“RCN”), brought an action claiming the appraiser was negligent in failing to discover, and disclose in his appraisal report the presence of pyrrhotite which causes crumbling foundation in homes, and therefore the foundation of the property appraised was defective requiring replacement. RCN claimed that if such defect was provided in the appraisal, it would not have made the loan to the borrower, Renewal (an original party to the case which had been withdrawn).  RCN also alleged First American Staff Appraisals, Inc. was vicariously liable for the negligence of its appraiser. The court granted defendants’ motion for summary judgment, issuing a Memorandum of Decision (8/16/2019).

The initial argument addressed whether Connecticut General Statutes §36a-755(b) applied, which provides an appraiser is not liable to a third party unless there is an intentional misrepresentation in the appraisal.  Though the appraiser was retained under contract with a third party to conduct the appraisal, the court held the appraiser had a “functional relationship” with the plaintiff identified as the “intended user” of the appraisal, which the court held rendered the statute inapplicable; the court noted the plaintiff did not allege in the complaint any intentional misrepresentation. 

The defendants argued, and the court found, that the appraisal contained limiting language with regard the duties and responsibilities of the appraiser in conducting an appraisal. RCN attempted to attack the appraisal language as exculpatory language for the appraiser to use to escape their own negligence, which is disfavored by courts.  The court, however, found the appraisal language instead limited the scope of the appraiser’s duties and responsibilities, and insulated the appraiser from liability for failing to detect problems that would be discernable only with additional engineering or testing.  To support their position, the defendants submitted two affidavits, from its expert (a certified residential real estate appraiser) and the actual appraiser.  The appraiser testified it was not communicated to him, or brought to his attention, that there was a concern with the foundation. The appraiser testified that he is not qualified to conduct testing to discern the existence of crumbling foundation as an appraiser because he lacked the requisite skill, training, knowledge, and qualifications of a licensed home inspector or professional structural engineer to conduct such testing.  The expert testified in her affidavit that the duty of discerning crumbling foundation belongs to a qualified licensed home inspector or a professional structural engineer and is not the responsibility of an appraiser under the Uniform Standards of Professional Appraisal Practice.  The court found the plaintiff failed to proffer any admissible evidence to rebut defendants’ contention that based on the limiting language in the appraisal, they did not have a duty, or the ability, to discover the foundation was defective and would need to be replaced. 

The court held the plaintiff attempted to introduce a new theory of liability, “geographical incompetence,” for the first time in its opposition to the motion for summary judgment to circumvent the legal effect of the limiting conditions in the appraisal.  RCN alleged in their complaint that the defendants negligently failed to discover and disclose the actual presence of pyrrhotite resulting in the defective crumbling foundation.  However, the plaintiff failed to allege in the complaint a geographical competence theory claiming that the appraiser should have known, based on publicly available information, that there was a risk or generalized risk, that pyrrhotite was present.  The Judge notes in a footnote (#8) that RCN abandoned its actual claim of negligence as plead in its complaint.  The court held that at this stage of the case it would be fundamentally unfair and prejudicial for RCN to interject a new theory for the first time in opposition to a motion for summary judgment.

The court noted the defendants raised several evidentiary issues as to the information submitted by the plaintiff in favor of its objection to the motion for summary judgment, including as to Plaintiff’s expert report. The court found the articles in the report which served as the basis for and were incorporated into that report were unsubstantiated and inadmissible hearsay. This is the first case in Connecticut in which a lender attempted to seek recovery from an appraiser as a result of having made a loan on a property with a crumbling foundation.  

For more information regarding Connecticut’s crumbling foundation crisis, please see the e-Update Archives at https://www.usfn.org/page/USFNeUpdate


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