Civil and Criminal Involvement

Thus, in Georgia a real estate appraiser can be held liable for damages to a foreseeable third party who actually relies on the real estate appraisal.

2. Appraiser Liability in Other States:

a. California

Perhaps as expected, nonprivity liability gained nationwide recognition when it was first used economically used against real estate appraisers in California. It had existed in other states, but when the California courts adopted it, the momentum to adopt § 552 to be used against real estate appraisers picked up speed and momentum.

California, like many other states, first held accountants liable. Then the law grew to hold real estate appraisers liable. In Bily v. Arthur, Young & Company, 3 Cal. 4th 370, 834 P.2d 745 (1992), the California Supreme Court held that accountants could be sued by nonclients for botched or negligent financial statements. It wrote in pertinent part:

We granted review to consider whether and to what extent an accountant's duty of care in the preparation of an independent audit of a client’s financial statements extends to persons other than the client. Since Chief Judge Cardozo's seminal opinion in Ultramares Corp. v. Touche (1931) 255 N.Y. 170 [174 N.E. 441, 74 A.L.R. 1139] (Ultramares), [*376] the issue before us has been frequently considered and debated by courts and commentators. Different schools of thought have emerged. At the center of the controversy are difficult questions concerning the role of the accounting profession in performing audits, the conceivably [**747] limitless scope of an accountant's liability to nonclients who may come to read and rely on audit reports, and the effect of tort liability rules on the availability, cost, and reliability of those reports. [***53] Following a summary of the facts and proceedings in this case, we will analyze these questions by discussing the purpose and effect of audits and audit reports, the approaches taken by courts and commentators, and the basic principles of tort liability announced in our prior cases. We conclude that an auditor n1 owes no general duty of care regarding the conduct of an audit to persons other than the client. An auditor may, however, be held liable for negligent misrepresentations in an audit report to those persons who act in reliance upon those misrepresentations in a transaction which the auditor intended to influence, in accordance with the rule of section 552 of the Restatement Second of Torts, as adopted and discussed below. Finally, an auditor may also be held liable to reasonably foreseeable third persons for intentional fraud in the preparation and dissemination of an audit report. Id.

From 1990 to 1996 it was somewhat of an unanswered question in California whether real estate appraiser would be held to the same tough standards then being imposed on CPA. That question was answered in Soderberg, at Trustee, et al. v. McKinney, 44 Cal. Appl 4^th 1760, 52 Cal. Rptr. 2d 635 (1996).

The Soderberg Court reversed a grant of summary judgment in favor of the real estate appraiser (finding that the appraiser had no legal relation to the harmed plaintiff) and returned the case to the lower court for trial. In holding real estate appraisers to the same standard for accountants as enunciated in the Bily court, the 4^th Circuit Court of appeals wrote:

In Bily v. Arthur Young & Co. (1992) 3 Cal. 4th 370 [11 Cal. Rptr. 2d 51, 834 P.2d 745], the Supreme Court held that an auditor may be liable to a third party--someone other than [***2] a client--who relies on an audit report containing negligent misrepresentations, provided the auditor intended that the third party use the report. In this case, we address whether such liability extends to a real [**637] estate appraiser who, although retained by a mortgage broker, knows that his report will be used by potential investors in the brokered loan. We hold that it does.

* * *

With respect to negligent misrepresentation claims, the court adopted the analysis of the [***10] Restatement Second of Torts, explaining as follows: " Section 552 of the Restatement Second of Torts covers 'Information Negligently Supplied for the Guidance of Others.' It states a general principle that one who negligently supplies false information 'for the guidance of others in their business transactions' is liable for economic loss suffered by the recipients in justifiable reliance on the information. ([Rest.2d Torts, § 552], subd. (1).) But the liability created by the general principle is expressly limited to loss suffered: '(a) [B]y the person or one of a limited group of persons for whose benefit and guidance he intends to supply the information or knows that the recipient intends to supply it; and (b) through reliance upon it in a transaction that he intends the information to influence or knows that the recipient so intends or in a substantially similar transaction.' (Id., subd. (2).) To paraphrase, a supplier of information is liable for negligence to a third party only if he or she intends to supply the information for the benefit of one or more third parties in a specific transaction or type of transaction identified to the supplier."

* * *

Further, we do not believe that a real estate appraiser hired by a mortgage broker must know the potential investors by name or specific identity. [***16] As Bily indicated, liability may be appropriate where the defendant "knows with substantial certainty that plaintiff, or the particular class of persons to which plaintiff belongs, will rely on the representation in the course of the transaction." (3 Cal. 4th at p. 414.) The Restatement Second of Torts elaborates on this point: "[I]t is not necessary that the [supplier of information] should have any particular person in mind as the intended, or even the probable, recipient of the information. In other words, it is not [*1769] required that the person who is to become the plaintiff be identified or known to the defendant as an individual when the information is supplied. It is enough that the maker of the representation intends it to reach and influence either a particular person or persons, known to him, or a group or class of persons, distinct from the much larger [**641] class who might reasonably be expected sooner or later to have access to the information and foreseeably to take some action in reliance upon it. It is enough, likewise, that the maker of the representation knows that his recipient intends to transmit the information to a similar person, persons or group. [***17] It is sufficient, in other words, insofar as the plaintiff's identity is concerned, that the maker supplies the information for repetition to a certain group or class of persons and that the plaintiff proves to be one of them, even though the maker never had heard of him by name when the information was given." ( Rest.2d Torts, § 552, com. h, pp. 132-133.) (4) Nor does the appraiser have to contemplate the precise details of the transaction in which his report is ultimately used. Liability may exist if his report is relied upon in the type of transaction he anticipated or in one substantially similar to it. (Bily, supra, 3 Cal. 4th at pp. 392, 410.) According to the Restatement: "[T]he liability of the maker of a negligent misrepresentation is limited to the transaction that he intends, or knows that the recipient intends, to influence, or to a substantially similar transaction. [P] ... [I]t is not necessary that the transaction in which the opinion is relied on shall be identical in all of its minute details with the one intended. It is enough that it is substantially the same transaction or one substantially similar.... [P] There may be many minor differences that [***18] do not affect the essential character of the transaction.

* * *

It does not matter that Home Loans (instead of McKinney) transmitted the appraisal report to plaintiffs. An appraiser may be liable if he knew that his client would forward the report to a particular class of persons. (See Bily, supra, 3 Cal. 4th at pp. 392, 393, 414; Rest.2d Torts, § 552, com. h, p. 133.). See also, Sorosky, MD, Pension Plan vs. Hamill, 48 Cal. App. 4th 1590, 56 Cal. Rptr. 2d 313 (1996 ).

A good overview of the development of real estate appraiser liability to nonclients under Section 552 in California is well surveyed in, Smith, S.R., To Whom are Appraisers Liable?, The Appraisal Journal, April 2001 at 190 to 199.

Other states, both before and after California had held real estate appraisers liable under § 552. However, once California held appraisers liable, the trend toward a majority seemed to become the majority law in most all jurisdictions.

The law holding appraisers liable in other states, sorted by date of enactment is:

b. New Mexico

In Stotlar v. Hester, 92 N.M. 25, 582 P.2d 403 (N.M. Ct. App.), cert. denied 92 N.M. 180, 585 P.2d 403 (1978), New Mexico relied on the Restatement in finding that summary judgment was inappropriate when the purchaser sued the appraiser who had been hired by the seller. Although the appraisal form stated that it was to be used only by the sellers or the lender, thereby raising an inference that the appraisal was not done for the benefit of the intended purchaser, the court found other facts that raised a factual issue as to whether the purchaser was an intended beneficiary of the appraisal and whether the appraiser knew this.

c. Iowa

In Larsen v. United Federal Savings and Loan Ass'n, 300 N.W.2d 281 (Iowa 1981), Iowa relied on § 552 in finding the lender liable to the borrower for its employee's negligence in preparing an appraisal, even though the borrower did not receive the appraisal report until after the deed had passed. Based on the facts that the appraisal form stated the report could be utilized by the borrower and the borrower did receive the report, the Iowa Supreme Court found that the lender owed a duty to the borrower.

d. Wisconsin

In Costa v. Neimon, 123 Wis. 2d 410, 366 N.W.2d 896 (Wis. Ct. App. 1985), An appraiser retained by the lender was found liable to a purchaser/borrower for negligent appraisal of the property in the purchaser had not seen the appraisal report prior to purchasing the property; nevertheless, the court determined that the purchaser had a right to rely on the appraisal because approval of the loan indicated the appraisal's result. (Note: this sweeps much broader than liability in Georgia).

e. Colorado

The Colorado Court of Appeals [adopted § 552] in Wolther v. Schaarschmidt, 738 P.2d 25 (Colo. Ct. App. 1986). Colorado determined that a borrower could reasonably rely upon a lender's approval of the loan for his belief that the appraisal engineer's report concluded that the house was structurally sound.

f. Florida

Florida adopted § 552 in First State Savings Bank v. Albright & Associates Of Ocala, Inc., 561 So. 2d 1326, (Fla. App. 1990). Florida found § 552 to be appropriate to set forth the circumstances under which an appraiser may be held liable for negligence to third parties in the absence of privity. The Court relied on First Florida Bank v. Max Mitchell & Company, 558 So.2d 9 (Fla. 1990), where the Florida Supreme Court held that accountant may be held liable to third parties without privity via § 552).

g. North Carolina

Balance v. Rinehart, 105 N.C. App. 203, 412 S.E.2d 106 (1992) brought § 552 to North Carolina for real estate appraisers.

The dispositive issue is whether a licensed real estate appraiser who performs an appraisal of real property at the request of a client owes a prospective purchaser of such property who relies on the appraisal a duty to use reasonable care in the preparation of the appraisal. * * * The North Carolina Court found that there was such a duty. * * * For the following reasons, we find Raritan [Raritan River Steel Co. v. Cherry, Bekaert & Holland, 322 N.C. 200, 367 S.E.2d 609 (1988)] instructive in assessing the liability of a real estate appraiser for negligent misrepresentation to prospective purchasers of the appraised property with whom the appraiser is not in contractual privity. Like an accountant, real estate appraisers have no control over the distribution of their reports once rendered and therefore cannot limit their potential liability. Moreover, like an accountant, a real estate appraiser performs an appraisal pursuant to a contract with an individual client, often a lending institution or a homeowner. For example, in the case of a homeowner who requests an appraisal in connection with a refinancing transaction, the real estate appraiser does not benefit if the homeowner later decides to distribute the appraisal to a prospective purchaser of his home.

h. Ohio

Adopted § 552 against appraisers in Perpetual Fed. Sav. & Loan Ass'n v. Porter & Peck, Inc., 80 Ohio App. 3d 569, 609 N.E.2d 1324 (1992).

i. Connecticut

Adopted § 552 against appraisers in Tackling v. Shinerman, 42 Conn. Supp. 517, 630 A.2d 1381 (1993).

j. Washington

Washington adopted § 552 with regard to real estate appraisers in Schaff, et al. v. Blaine Highfield, et al.,127 Wn.2d 17, 896 P2d 665 (1995).

Does a real estate appraiser owe a duty of care in the preparation of appraisals to third parties who are not in contractual privity with the appraiser? 2. If the answer to the first [***5] question is yes, * * * We conclude that § 552 applies to a real estate appraiser like Olson, who "in the course of his business, profession or employment [**669] . . . supplies false information for the guidance of others in their business transactions". The crucial consideration here is to what extent this duty of care extends to third parties not in privity with the appraiser. * * * In summary, under § 552, lack of privity is no defense to a claim of negligent misrepresentation. In Washington, however, only those in a limited class may advance such claims. Schaaf is a member of that limited class. He was a prospective home buyer who had applied to the VA for a loan guaranty. The VA hired Olson to do the appraisal solely because of Schaaf's application. Schaaf is, therefore, the most proximal third party there will ever be to Olson's appraisal.

k. New Jersey

New Jersey adopted § 552 against real estate appraisers in Zielinskiv v. Professional Appraisal Associates, 326 N.J. Super. 219, 740 A.2d 1131 (1999). The lack of a contractual relationship or privity [*224] does not automatically defeat a claim. As Judge Pressler noted in Ranier v. Frieman, 294 N.J. Super. 182, 188, 682 A.2d 1220 (App. Div. 1996), the Supreme Court has effectively eliminated privity as a prerequisite for the imposition of liability. The existence of a duty is defined not by the contractual relationship between the parties but, rather, by consideration of foreseeability and fairness. * * * For these reasons, we conclude that § 552, which limits the class of persons to whom certain suppliers of information may be held liable for negligent misrepresentation, is the appropriate standard under which to assess a real estate appraiser's liability. Applying this standard to the instant case, we conclude that plaintiff has failed to sufficiently allege that she is a person for whose benefit and guidance defendant intended to supply the appraisal report, or that defendant knew that the recipients of the report, Peoples Bank and Jack Horton, intended to supply it to plaintiff. In fact, plaintiff's complaint is devoid of any alleged purpose for which Peoples Bank and Jack Horton requested the appraisal in question.

l. South Carolina

South Carolina adopted § 552 against appraisers in Private Mortgage Investment Services, Incorporated v. Hotel And Club Associates, 296 F.3d 308 4^th Cir. 2002). Federal Court sitting in diversity, found that if confronted with the opportunity to hold real estate appraisers liable via Restatement § 552, the South Carolina Supreme Court would do so. * * * "First, common sense tells us that if the South Carolina Supreme Court was comfortable in adopting the Restatement (Second) of Torts § 552 with respect to the liability of a professional accounting firm to a third party in the context of a misrepresentation of fact negligently supplied for the guidance of others, the court, if presented with the opportunity, would not hesitate to adopt Comment b. to § 552 with respect to the liability of a professional real estate appraisal firm to a third party in the context of a negligent appraisal of a parcel of real property supplied [**16] for the guidance of others. After all, Comment b. is the drafters of the Restatement (Second) of Torts' considered explanation of when § 552 applies to a particular fact pattern. Moreover, as with accountants, the Restatement (Second) of Torts' approach represents the soundest method of determining the scope of a professional real estate appraiser's duty to third persons for negligent misrepresentation because it balances the need to hold professional real estate appraisers to a standard that accounts for their contemporary role in the financial world with the need to protect them from liability that unreasonably exceeds the bounds of their real undertaking." Id.

The following courts have held that appraisers are not liable to third parties not in contractual privity:

m. Indiana

Emmons v. Brown, 600 N.E.2d 133 (Ind. Ct. App. 1992) (Indiana does not recognize the tort of negligent misrepresentation in the context of rendering professional opinions). But see, RESS, Inc. v. Nauman, 644 N.E.2d 907 (Ind. Ct. App. 1994). Indiana may be moving toward a § 552 standard.

n. Minnesota

3. Civil Claims Filed Against Appraisers

Wire Fraud: Both Telephone And Facsimile Transmission Were Used In The Continued Fraud, Conspiracy To Commit Fraud, And In The Continuation And Furtherance Of This Fraud Upon Plaintiff And Other Mortgage Lenders, In Violation Of 18 U.S.C. § 1343.

In a state setting, the real estate appraisers we have defended have been charged with the following state based charges: fraud, breach of contract, negligence, negligent misrepresentation, OCGA § 16-8-4, theft by conversion, OCGA § 16-8-3, theft by deception, conspiracy, Georgia RICO, O.C.G.A. §§ 16-14-1, unjust enrichment, breach of fiduciary duties, 13-6-11 attorney’s fees, and 51-12-5.1 punitive damages.

a. The Appraisal Was Accurate

In some of the suits in which we have defended appraisers, we have raised some of the following defenses.

b. The Appraisal Complied all Georgia Statutes

In one set of defenses, we have asserted that if the appraiser complies with all applicable Georgia law, he or she should not be held liable. To wit:

Plaintiff’s claims are barred by the application of O.C.G.A. § 43-39A-1 to 43-39A-26, and the Regulations promulgated thereunder, to this fact pattern complained of by Plaintiff. Georgia Code Chapter 43 governs Real Estate Appraisers and their activities in Georgia. To the extent that Defendants conduct was at all times within the confines of Georgia law at O.C.G.A. § 43-39A-1 to 43-39A-26, then and in that event, Plaintiff's claims against Defendants must stand dismissed.

c. The Appraisal Complied with USPAP Standards

In another set of defenses, we have asserted that if the appraiser complies with Uniform Standards of Professional Appraisal Practice ("USPAP") standards, he or she should not be held liable. To wit:

Plaintiff’s claims are barred by the application of the Uniform Standards of Professional Appraisal Practice ("USPAP") to the fact pattern complained of by Plaintiff. The Appraisal Foundation, Washington, DC, was Chartered by the United States Congress to establish and oversee National Real Estate Appraisal Standards. In furtherance of its Charter, The Foundation authorized the Appraisal Standards Board (ABS) to issue national Regulations. The ABS prepares and annually updates the USPAP. To the extent that Defendants conduct was at all times within the confines of the USPAP Regulations, then and in that event, Plaintiff's claims against these Defendants must stand dismissed.

We have asserted that, if it’s a lender suing, that the lender failed to follow its own underwiting guidelines.

In another defense, we have asserted that the lender is responsible for its own losses by its failure to require Purchase Money Insurance (PMI) on all the loans in question.

Other issues to look for concerning alternative methods of recovery of defense. For example are there other parties who are liable to the appraiser may be joined to an ongoing lawsuit pursuant to Rule 19 or OCGA § 9-11-19 (or permissively under 9-11-20)? Are there title insurance policies that might provide additional coverage for losses? Are there any mandatory arbitration clauses in any of the documents that may allow the case to be forcibly dismissed from court litigation and to a private forum, such as AAA Arbitration?

1. Suit Barred by a Hold Harmless Agreement

As stated earlier, in White v. BDO Seidman, LLP, 549 S.E.2d 490 (Ga. App. 2001), Georgia requires that a harmed Plaintiff show that it "actually relied" upon the appraisal to recover. Courts in other states have upheld hold harmless agreements, however, there seems to be no case directly on point on this issue for appraisers in Georgia. Given the language the Court used in the accountant case adopting § 552 in Georgia, it would appear real estate appraisers could limit their exposure by the use of a well crafted hold harmless agreement. "The additional duty that this rule imposes may be, of course, limited by appropriate disclaimers which would alert those not in privity with the supplier of information that they may rely upon it only at their peril." Robert & Co. Assoc. v. Rhodes-Haverty Partnership, 250 Ga. App. 680, 300 S.E.2d 503 (1983).

Below is a list of Limiting Conditions presently used on a common Georgia Appraisal Certificate. It is unclear whether these Limiting Conditions, taken collectively, can be argued to be a hold harmless agreement. They state:

1. I have researched the subject market area and have selected a minimum of three recent sales of properties most similar and proximate to the subject property for consideration in the sales comparison analysis and have made a dollar adjustment when appropriate to reflect the market reaction to those items of significant variation. If a significant item in a comparable property is superior to, or more favorable than, the subject property, I have made a negative adjustment to reduce the adjusted sales price of the comparable, and if a significant item in a comparable property is inferior to, or less favorable than the subject property, I have made a positive adjustment to increase the adjusted sales price of the comparable.
2. I have taken into consideration the factors that have an impact on value in my development of the estimate of market value in the appraisal report. I have not knowingly withheld any significant information from the appraisal report, and I believe, to the best of my knowledge, that all statement and information in the appraisal report are true and correct.
3. I stated in the appraisal report only my own personal, unbiased, and professional analysis, opinions, and conclusions, which are subject only to the contingent and limiting conditions specified in this form.
4. I have no present or prospective interest in the property that is the subject to (sic) this report, and I have no present or prospective personal interest or bias with respect to the participants in the transaction. I did not base, either partially or completely, my analysis and/or the estimate of market value in the appraisal report on the race, color, religion, sex, handicap, familial status, or national origin of either the prospective e owners or occupants of the subject property or of the present owners or occupants of the properties in the vicinity of the subject property.
5. I have no present or contemplated future interest in the subject property, and neither my current or future employment nor my compensation for performing this appraisal is contingent on the appraised value of the property.
6. I was not required to report a predetermined value or direction in value that favors the cause of the client or any related party, the amount of the value estimate, the attainment of a specific result, or the occurrence or a subsequent event in order to receive my compensation and/or employment for performing the appraisal. I did not base the appraisal report on a requested minimum valuation, a specific valuation, or the need to approve a specific mortgage loan.
7. I performed this appraisal in conformity with the Uniform Standards of Professional Appraisal Practice that were adopted and promulgated by the Appraisal Standards Board of The Appraisal Foundation and that were in place as of the effective date of this appraisal, with the exception of the departure provision of those Standards, which does not apply. I acknowledge that an estimate of a reasonable time for exposure in the open market is a condition in the definition of market value and the estimate I developed is consistent with the marketing time noted in the neighborhood section of this report, unless I have otherwise stated in the reconciliation section.
8. I have personally inspected the interior and exterior of the subject property and the exterior of all properties listed as comparables in the appraisal report. I further certify that I have noted any apparent or known adverse conditions in the subject improvements, on the subject site, or on any site within the immediate vicinity of the subject property of which I am aware and have made adjustments for these adverse conditions in my market analysis of the property value to the extent that I had market evidence to support them. I have also commented about the effect of the adverse conditions on the marketability of the subject property.
9. I personally prepared all conclusions and opinions about the real estate that were set forth in the appraisal report. If I relied on significant professional assistance from any individual or individuals in the performance of the appraisal or the preparation of the appraisal report, I have named such individual(s) and disclosed the specific tasks performed by them in the reconciliation section of this appraisal report. I certify that any individual so named is qualified to perform the tasks. I have not authorized anyone to make a change to any item in this report; if an unauthorized change is made to the appraisal report, I will take no responsibility for it.

Whether these limiting conditions will act as a hold harmless agreement for cases presently in litigation is an unanswered question. However under the language of the Robert, supra, case, it is clear that hold harmless can be drafted into real estate appraiser boilerplate limitations. This seems to be because while § 552 expands liability, it is not a statute of strict liability.

The current USPAP Compliance Addendum seems to provide even greater protection for appraisers than the limitations cited above. The USPAP Compliance Addendum attached to many, but not all appraisals in Georgia, states in pertinent part:

Purpose. Intended Use, And Intended User of The Appraisal:

The purpose of the appraisal is to estimate the market value of the subject property, as defined in this report, on behalf of the referenced client as the intended user of this report. The intended use of the appraisal is to assist the client, as the intended user of this report, in evaluating the subject property for lending purposes. The use of this appraisal by anyone other than the stated intended user, or for any other use than the stated intended use, is prohibited. (Emphasis Supplied).

While no case has yet interpreted the meaning of this clause, it would appear that this limitation would act to bar § 552 reliance by a non-client of the appraiser. Roberts, supra.

1. Criminal Penalties

Most individuals who plead guilty are not profoundly interested in leaving clear indications concerning the scope of the crimes they committed, a review of federal indictments and information in the Northern District of Georgia reveals much about the impact of mortgage fraud schemes on appraisers.

In the last 2 years a number of high profile mortgage fraud schemes have been resolved by pleas and prosecutions. A summary of those prosecutions can be gleaned from the indictments and informations. They are:

On June 26, 2002 an individual was sentenced to 4 years and 9 months (bank fraud, mortgage and bank fraud, mail fraud, wire fraud, etc.) in federal prison for submitting 89 fraudulent mortgage applications by which he, and other conspirators, obtained 4.5 million dollars of loan proceeds. The individual and 2 accomplices used artificially inflated appraisals to obtain loans and refinancing on home located in Decatur, Ellenwood, Griffin, Lithonia, Mableton, Snellville and Stone Mountain, Georgia. Exhibit A.

On December 5, 2002 a mortgage broker in a mortgage fraud scheme, posing as the head minister of Greater Grace Church, was sentenced to 9 years in federal prison for mortgage fraud, conspiracy to commit mortgage fraud, wire fraud, money laundering, etc.. The mortgage broker recruited "straw borrowers," and prepared 83 fraudulent loan applications for homes in the Atlanta area. The mortgage broker created falsified documents and submitted false loan documents to legitimate lenders. The mortgage broker was assisted by at least 8 and perhaps more fraudulent "straw borrowers," and 4 crooked banking assistants who processed the paperwork inside the banking institutions. Exhibit B.

On April 16, 2003, three individuals were sentenced to between 1.5 years and 3 years in federal prison for mortgage fraud, conspiracy to commit mortgage fraud, bank fraud, wire fraud, etc.

This was slightly different fraud in that a mortgage broker, attorney and real estate agent worked in concert to obtain the funds. Most frauds involve many different properties. However, these individuals hit upon the idea of using substantially the same properties over and over and only vary the straw purchasers. The attorney, who was also indicted, falsely canceled the fake security deeds after they were recorded and assisted the other conspirators in laundering the money from the fraudulent transactions. It is somewhat unclear whether they obtained outside appraisals or simply falsified the appraisals. If they did obtain the appraisals from third party appraisers, it would seem difficult to explain how an appraiser could arrive at FMV for a property that sold 20 or 30 times in a few months. Exhibit C.

On July 31, 2003 two individuals were sentenced to 2 years and 6 months in federal prison for mortgage fraud and conspiracy to commit mortgage fraud. The individuals requited straw borrowers (apparently paying them cash or kickbacks) and applying for mortgages under the straw borrowers name and social security numbers. The coconspirators mortgage broker proceeds the falsified documents and help obtain highly inflated appraisals on the properties. Exhibit D.

2. Loss of License

The Georgia Real Estate Commission has the power to grant licenses and the power to revoke licenses in Georgia. The Georgia Real Estate Commission was established in 1926 and exists to ensure professional competency among real estate licensees and appraisers and to promote a fair and honest market environment for practitioners and their customers and clients in real estate transactions in Georgia. Information available from the Commission states, generally: "The Georgia Real Estate Commission administers the license law that regulates brokers, salespersons, and community association managers. In addition, the Real Estate Commission supplies staff support to the Georgia Real Estate Appraisers Board, but [it] has no authority over the administration of the Georgia Appraisal Act.

The Georgia Real Estate Appraisers Board administers the Real Estate Appraiser Licensing and Certification Act (Appraisal Act). This act regulates the actions of real estate appraisers in their business dealings with the public. Generally, the act requires appraisers to meet certain standards in order to conduct business and prohibits a wide variety of unfair trade practices.

The Real Estate Commission is a regulatory body. The role of the Commission is not to protect the industry or the profession that it regulates nor to protect consumers. It is not the role of regulators to be advocates for either a profession or consumers. Instead, the role of the regulators is to protect the public interest." The Commission may be reached on the Internet at: http://www.grec.state.ga.us/ Or by mail at: Georgia Real Estate Commission and Appraisers Board, Suite 1000 International Tower, 229 Peachtree Street, NE, Atlanta, GA 30303-1605.

The appropriate Georgia Statutes authorizing the Georgia Real Estate Commission to discipline appraisers are:

OCGA § 43-39A-1.
This chapter shall be known and may be cited as the 'Real Estate Appraiser Classification and Regulation Act.'

* * *

OCGA § 43-39A-23.
Whenever, in the judgment of the board, any person has engaged in any acts or practices which constitute or will constitute a violation of this chapter, the Attorney General may maintain an action in the name of the state in the superior court of the county in which such violation occurred to abate and enjoin temporarily or permanently such acts and practices and to enforce compliance with this chapter. The plaintiff shall not be required to give any bond.

3. Fines

OCGA § 43-39A-25.
(a) Any person who, directly or indirectly, with the intention or upon the promise of receiving any valuable consideration, offers, attempts, or agrees to perform or performs any single act of real estate appraisal activity defined in Code Section 43-39A-2, whether as a part of an appraisal or as an appraisal, shall be deemed an appraiser within the meaning of this chapter. The commission of a single such act by a person who is required to have an appraiser classification under this chapter but who has not obtained such appraiser classification shall constitute a violation of this chapter.
(b) It shall be unlawful for any person, directly or indirectly, to engage in or conduct the business of, or advertise or hold himself or herself out as engaging in or conducting the business of, or act in the capacity of, an appraiser within this state without first obtaining an appraiser classification as provided in this chapter.
(c) Notwithstanding any other provisions of law to the contrary, the board may issue a cease and desist order prohibiting any person from violating the provisions of this chapter by engaging in the practice of an appraiser without proper appraiser classification. Such cease and desist order shall be final ten days after it is issued unless the person to whom such order is issued requests a hearing before the board.
(d) The violation of any cease and desist order of the board issued under subsection (c) of this Code section shall subject the person violating the order to further proceedings before the board, and the board shall be authorized to impose a fine not to exceed $1,000.00 for each transaction constituting a violation of such order. Each day that a person practices in violation of this chapter shall constitute a separate violation. (Emphasis Supplied)
(e) Initial judicial review of the decision of the board entered pursuant to this Code section shall be available solely in the superior court of the county of domicile of the board.
(f) Nothing in this Code section shall be construed to prohibit the board from seeking remedies otherwise available by statute without first seeking a cease and desist order in accordance with the provisions of this Code section.

* * *

OCGA § 43-39A-26.
Any person acting as an appraiser within the meaning of this chapter without an appraiser classification and any person who violates any other provision of this chapter shall be guilty of a misdemeanor.

Some of the appraisers we have represented have, unfortunately run afoul of the above statutes and received Orders from the Board, which state in part:

D. Conclusion

In the past, real estate appraisers could not be sued by anyone other than their clients. In the last 15 years Courts all across the nation, including Georgia, have held real estate appraisers liable to third parties with whom they had no contact based on the foreseeablity that that third party would actually rely on the real estate appraisal.

Based on this expanded liability, real estate appraisers have faced suits ranging from state and federal RICO, to allegations fraud, breach of contract, negligence, negligent misrepresentation, etc. While criminal charges turn on the conduct of the real estate appraiser, the civil suits are defensible based on numerous defenses. An accurate appraisal is a good defense. The fact that the appraiser complied with all Georgia Statutes and the USPAP standards is a defense. It is unclear how far Georgia Courts will expand liability with regard to real estate appraisers, but in the meantime, the Georgia Courts have allowed appraisers to significantly limit their liability by well crafted hold harmless agreements.

Property Owners Fight Back With Threat of Attorney's Fees Against Counties, By: Hugh C. Wood (February, 2001)

In Re: Falanga: A Show of Weakness by the Georgia State Bar
By: Hugh C. Wood (August, 2000)