The third-party liability cases from the past year addressed claims against inspectors, appraisers, and escrow agents. A central question in these cases is whether the third party owed a duty to the party asserting a claim. In the cases below, the escrow agents did not owe a duty to the plaintiffs; home inspectors and appraisers did not fare as well.

A.         Cases

1.         Lem2Q, LLC v. Guaranty Nat. Title Co., No. 3472EDA2014, 2016 WL 4088100 (Pa. Super. Ct. July 28, 2016)

Escrow agent did not owe a duty to disclose prior unrecorded loans to investor.

An investor who invested in a real estate holding company sued the escrow agent working on the transaction. The investor alleged that the escrow agent breached his duty to disclose prior unrecorded loans made to the entities in the transaction. The court held that the escrow agent did not have a duty to disclose because the escrow agent is responsible only for administrative duties. According to the court, an escrow agent is generally an agent for both parties, and the authority of an escrow agent is narrowly construed. The court granted summary judgment in favor of the escrow agent.

2.        Llano Financing Group, LLC v. Kuehl, No. 15C7692, 2016 WL 4063175 (N.D. Ill. July 29, 2016); Llano Financing Group, LLC v. Smith, No. 15C7689, 2016 WL 4063174 (N.D. Ill. July 29, 2016); Llano Financing Group, LLC v. Wenger, No. 2:15-CV-305, 2016 WL 4414966 (N.D. Ind. Aug. 19, 2016)

Assignees of interest in mortgage sued appraisers for undersecured property loans.

In these related cases, a finance entity who was the assignee of an interest in various mortgages sued the appraisers who appraised the properties. The finance entity claimed that appraisals were negligently prepared and contained material misrepresentations, resulting in the property loans being significantly undersecured.

In one of the cases, the court determined that the assignee finance group failed to show how it had rights to bring a claim against the appraiser. In two other cases, though, the court concluded that the finance entity did have rights to bring a claim. The entity sufficiently stated a claim because the complaint alleged the appraisals used improper comparable properties, and the parties relied on the appraisals. The appraisers’ motions to dismiss were denied on all claims, except for the breach of contract claims.

3.         Giles v. Blackmon, No. 2150430, 2016 WL 4493625 (Ala. Civ. App. Aug. 26, 2016)

Purchasers properly stated negligence and breach of contract claims against home inspector for failure to disclose water and termite damage.

Home purchasers brought claims for negligence, misrepresentation, and breach of contract against the home inspector who inspected the home they purchased. The purchasers allege that the inspection report failed to disclose water and termite damage. The trial court granted the inspector’s motion to dismiss. On appeal, the appellate court reached a different conclusion on the negligence and breach of contract claims.

On the negligence claim, the allegations in the complaint stated that the inspector owed the purchasers a duty, the inspector breached that duty, and the breach caused them damage. The contract claim alleged that the inspector failed to satisfy his contractual obligations to diligently inspect the home in accordance with professional standards. The appellate court affirmed dismissal of the misrepresentation claim, but found that the purchasers had stated negligence and breach of contract claims against the inspector. The court reversed the dismissal of the negligence and breach of contract claims.

4.         BSA Construction, LLC v. Johnson, 54 N.E. 3d 1026 (Ind. Ct. App. May 16, 2016)

Appraiser owes a duty to the lender, but does not owe a duty to the seller.

After the appraiser valued a property less than the purchase price, the bank refused to provide the loan for the property. The property seller then sued the appraiser. The court held that the appraiser had a duty to the bank, but did not have a duty to the seller of the property. Summary judgment in favor of the appraiser was affirmed on appeal.

5.         Resh v. Realty Concepts, Ltd., No. 3:12-CV-00668 2016 WL 593809 (S.D. W. Va. Feb. 12, 2016)

Escrow agent had no duty to disclose double escrow nature of the real estate transaction.

Real estate investors claimed they were victims of fraud and induced to buy a property. The investors sued both the escrow agent and the title company for fraudulent misrepresentation for failing to disclose the double escrow nature of the transaction. The court held that the escrow agent had no duty to disclose the double escrow transaction. Summary judgment was entered for the escrow agent and title insurer.

6.         Bank of America v. Zaskey, No. 9:15-CV-81325, 2016 WL 2907732 (S.D. Fla. May 18, 2016)

Title insurer not vicariously liable for closing agent’s error in closing.

During a short sale, the closing agent for the transaction failed to wire the money to the lender on time, and the lender foreclosed on the home. The borrowers then brought a claim against the title insurer. The borrowers allege that the title insurer was vicariously liable for the closing agent. The court held that the title insurer was not liable for defects in the closing caused by the closing agent. The court dismissed the claims against the title insurer.

7.         Donnelly v. Fannie Mae, CA No. CPA4-13-003614, 2015 WL 6739163 (C.C.P. Del. Nov. 3, 2015)

Inspector hired by the purchaser did not owe a duty to the licensees or other third parties involved in real estate transaction.

The purchaser sued licensees and other defendants involved in the real estate transaction after discovering that the roof on the home did not meet building code requirements. The purchaser argued that the defendants knew the roof did not satisfy the local code. Defendants filed a counterclaim against the home inspector hired by the purchaser.

In this decision, the court considered whether the defendants could state a counterclaim against the inspector. The court determined that the inspector did not owe a duty to the licensees and other defendants. The information provided by the inspector was provided solely for the purchaser’s use, and it was not intended for use with third parties. There was also no allegation that the defendants relied upon the inspection report. The court granted summary judgment in favor of the inspector.

B.         Statutes/Regulations

No relevant statutes or regulations were retrieved this quarter.

C.         Volume of Materials Retrieved

Third party liability issues were identified 7 times in 7 cases this quarter (see Table 1).

 

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