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Matters of Interest

Court Rules Charges of Malpractice against Real Estate Appraisers by Lender Were Time-Barred by Statute of Limitations

Andrew Roth, a Partner with the Firm, successfully defended two real estate appraisers and their firm against a claim by a lender alleging appraisal malpractice and seeking monetary damages in excess of $1.1 million. The central issue in the case was determining if the accrual of the three-year statute of limitations was applicable to claims of appraisal (professional) malpractice.

The Defendants (real estate appraisers) were retained by a mortgage broker to appraise a property located in Kings Park, New York in connection with purchase money mortgage financing. On February 12, 2015, the appraisal, in which the Defendants opined that the value of the subject property to be $4.6 million, was sent to the mortgage broker. Thereafter, the appraisal was delivered by the mortgage broker to the Plaintiff, who claimed to rely thereon in approving and funding two mortgage loans to the borrower. A third mortgage loan, issued by a non-party who did not rely on the subject appraisal, but which held a first priority position, also encumbered the subject property.

All three loans went into default. The Plaintiff foreclosed on one of its mortgages. As a result of the foreclosure sale of the subject property for $3.050 million, the senior mortgage against title was satisfied, resulting in a deficiency for the two mortgages held by the Plaintiff of $1,169,319.66.

The Plaintiff claimed that it relied on the appraisal in making the two loans, the Defendants failed to raise material facts in the appraisal, and they incorrectly valued the property.

Although the Plaintiff and Defendants agreed the statute of limitations for appraisal malpractice is three years, they disagreed as to when the statute of limitations began to run. The Plaintiff argued in opposition to the appraisers’ motion for summary judgment that the three-year period begins to run at the time all facts necessary to the cause of action have occurred and an injured party can obtain relief in court. The appraisers argued that the three-year period begins to run from the date the appraisal is submitted to the lender.

On January 29, 2019, Nassau County Supreme Court Justice Jerome C. Murphy granted Defendants’ motion for summary judgment dismissing Plaintiff’s complaint. The Court held that, because the Plaintiff agreed to rely upon the subject appraisal in connection with its determination to approve mortgage financing, the three-year period accrued on the date the Defendants delivered the subject appraisal to the mortgage broker.

“We are pleased with the Court’s decision,” Mr. Roth said. “The Plaintiff waited more than three years after the delivery of the appraisal to take action against the Firm’s clients, so the Court was right to dismiss the action as time-barred.”

 



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