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Bank Not Liable for Altered Appraisal

Written by Zana Tomich on March 6, 2013 Category: Banking, Business Law & Transactions

A recent Michigan Court of the Appeals case, Xpress Apraisal Group, Inc v. Flagstar Bank, (unpublished February 14, 2013), found a Bank was not liable for an altered real estate appraisal, which resulted in a third party’s refusal to continue doing business with Plaintiffs. The case stems from facts surrounding a Flagstar bank employee, Pierce, who asked the Plaintiff appraiser, Xpress Appraisal Group through its sole shareholder, Zaya, to conduct an appraisal on a property for which the buyer was seeking a “jumbo loan.”

Flagstar Bank intended to broker the loan through Chase Bank. The Plaintiffs conducted the appraisal, and it turned out to be significantly lower at $1,250,000, than what was needed to broker the loan. Plaintiff Zaya, claimed he did no further work on the appraisal. The two Flagstar employees claim they received an altered appraisal for $1,672,000 from Plaintiff, and provided it to Chase Bank. For unknown reasons, the loan never closed. However, Chase determined that the altered appraisal did not comply with industry standards and declared Plaintiff ineligible to perform appraisal work for Chase for a two year period.

The Plaintiffs, the Appraiser and Sole Shareholder, then brought the underlying action against the Bank and two employees, alleging the Flagstar employees forged and altered the appraisal before submitting it to Chase bank. Plaintiffs claimed they tortiously interfered with their business relationship with Chase, and further alleged negligence and breach of contract. The two employee defendants did not file a response to the Complaint and defaults were entered against them. The Circuit Court granted the remaining defendant Flagstar’s Motion for Summary Disposition finding there was no evidence supporting Plaintiffs’ claim that Flagstar was responsible for altering the appraisal. Plaintiffs appealed.

The Court of Appeals affirmed the decision, finding that even if the employees altered the appraisal as speculated, their conduct would constitute fraud, not negligence. Further, the employer is not vicariously liable for such ultra vires acts on the part of employees and the negligence claim was insupportable. Even if proven, the actions of the two employees would have been an intentional fraud and beyond the scope of their employment. Alleging that Flagstar breached its contract with the appraiser by forwarding the report to Chase Bank, the court disagreed. It found that even if the appraisal report cover sheet constituted a contract, the Court found Flagstar to be within its rights to forward the appraisal to Chase, the actual lender in the situation.

Finally, with respect to the negligence claim, the Court found that all the allegations were pled in terms of fraud, and intentional and knowing actions. The actions were not accurately characterized as negligent behavior, therefore the Court found dismissal appropriate. Despite the lack of factual support to show actual wrongdoing, the interplay of agency arguments among the tortious and contractual claims further allowed the Bank to escape liability in this action.

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The business and employment attorneys of Dalton & Tomich take your business just as seriously as you do. Attorneys Zana Tomich and Noel Sterett are trusted by closely held family businesses and others across Michigan and Northern Illinois as invaluable partners and counselors. We guarantee all your calls and emails will be returned within one business day so you can focus on what you do best: running your business.