Claim Alerts

Easements: Issues and Appraiser Liability

In the past year we have encountered several claims against appraisers involving easements, regardless of whether the easement is recorded or not.

Unfortunately, as an appraiser, you can be sued for any type of issue at any time. While we cannot prevent lawsuits, we strive to learn from these claims. By examining reports, we identify language that has been beneficial to appraisers and their legal counsel.

Our goal is to share suggestions that might help appraisers resolve claims or lawsuits more swiftly. This is one of the main purposes of our postings.

When you are retained to appraise vacant land, the buyer or borrower is often considering construction. Appraisals frequently note whether utilities are already connected to the parcel, run adjacent to the land, or are simply in the vicinity of the property.

Most appraisal reports include standard language such as:

"... There were no apparent easements or encroachments observed..."

It is crucial to remember that utilities and easements go together. Most utility easements are recorded, so appraisers may think it’s a “title thing” and it is not something to worry about.

In Michigan, an insured appraiser was sued along with several other parties when buyers discovered a gas company's pipeline easement on their property, precisely where they planned to build a fishpond. Although the buyers knew of the easement, they were told it was located in the northeast corner of the property. They later learned it ran almost directly through the center. As a result, they faced substantial unplanned costs to redraft plans with their architect and contractor. They did not want to build the pond over the easement, even if the gas company was unlikely to alter their property.

The buyers argued they trusted the sellers and professionals to make truthful disclosures.

During mediation, the judge recognized that none of the defendants had access to the title report and couldn't have known the exact location of the pipeline easement. The judge agreed that none of the defendants were to blame for the plaintiffs' predicament.

Although the judge noted that the wealthy plaintiffs might not elicit much sympathy from a jury, he also believed that none of the defendants could rely on a summary judgment in their favor. Considering the anticipated attorney fees, the judge advised the defendants to consider settling based on a "cost of defense" analysis. He warned that the plaintiffs were determined to go to trial and that no defendant should risk being the only one left in the courtroom if others settled.

While the case did not settle at mediation, it did settle before trial. There was no evidence of liability on the appraiser's part, but he chose to settle rather than face the uncertainties of a trial. Although he knew the judge's comments were partly to encourage settlement, he was nearing retirement and did not want to risk the potential outcome of a trial.

In West Virginia, another appraiser achieved a significantly different outcome, largely due to the inclusion of smart language in her appraisal report. She was hired to appraise 20 acres of rural property with a small manufactured home and two outbuildings.

The property was being sold by the grandchildren of the deceased owners, who had never lived there. This was clearly noted in the seller's disclosure statement. The disclosure statement and listing indicated that the property was serviced by public electricity, a private septic system, and three private water wells.

The appraiser saw "a whole lot of red flags" with this property. Since it was being sold "as is" by people who had never lived there, she was concerned about undisclosed conditions that the buyers might discover after moving in.

When preparing the report, the appraiser made sure to include disclaimer language about defects and the difference between an appraisal and a home inspection, such as:

"The appraiser is NOT a home inspector, contractor, structural engineer, pest control inspector, or roofing inspector. The appraiser has no ability to detect or discover environmental contaminants or hazardous substances.

It is recommended that the buyer secure a home inspection to determine information regarding the overall condition of the home and the condition of the systems within the home, such as mechanical, plumbing, and electrical systems. The appraisal should not be relied upon to provide information about those systems. The appraiser does not open walls or do any sort of testing and does not have the expertise to diagnose problems with any of these systems should such problems exist."

The appraiser noted that while the utilities were turned on at the time of her inspection and everything appeared to be functioning, it did not mean there were no issues that might need to be addressed or repaired. She emphasized that she was not a home inspector and recommended a home inspection and any other necessary inspections, including specific disclaimer language regarding the septic system and further recommended testing the water wells.

The insured appraiser was primarily concerned with undisclosed defects at the property and hadn’t really considered undisclosed easements as a potential problem. However, she came across some recommended easement language and decided to include it in her report at the last minute.

During her inspection, she noticed the absence of paved driveways, which seemed odd. To be cautious, she included the following language in her report:

"There were no apparent easements or encroachments observed by the appraiser that might affect the overall value of the subject property; however, simply because nothing was observed does not mean the appraiser can guarantee the property is free of such easements or encroachments.

The appraiser did not check land records and was not provided with any title reports. The appraiser recommends due diligence inquiries be made through local building departments or municipalities or that a survey be procured if necessary. The appraiser makes no guarantees or warranties. There may be recorded or unrecorded easements on the property that were not disclosed to the appraiser."

After the property was sold, the new buyers discovered several easements on the property. They overlooked the seller’s disclosure statement, which listed easements as “unknown.” They found out that many years earlier, the property owners (the sellers' deceased grandparents) had agreed to allow the adjoining landowner an access easement over their property. His land was adjacent to the subject parcel and also wrapped around the back, allowing him to drive from the main road across the subject property to his fields.

Additionally, a second easement allowed the neighbor to use one of the three water wells to water his crops. As part of the agreement, he had to maintain the well. This easement was recorded and reflected in the title report provided to the buyers and their agents, but they did not review it until after closing.

According to the agreement, the neighbor paid an annual fee for these rights, all of which was set forth in the agreement.

The buyers were furious when they discovered this arrangement and hired an attorney to file suit against the sellers, the title company, the real estate agents, the home inspector, and the appraiser. So far, their case has not been very successful.

Defense counsel filed a motion to dismiss the appraiser from the case, and it was granted. The judge agreed that the appraiser owed no duty to the buyers. It was unclear whether the buyers had even seen the appraiser’s report before closing. If they had seen it, the judge agreed that the appraisal contained no false representations.

Essentially, the judge ruled that the buyers were on constructive notice since this was a recorded easement. They would have to figure out how to live with the situation and work things out with their neighbors. They bought the property “as is.” The sellers truthfully disclosed that they had never lived there, having inherited the property from their deceased grandparents. Under these circumstances, the buyers should have taken extra precautions and conducted thorough inspections before completing their purchase.

These two claims are used as examples because the first appraisal provided no additional help to the appraiser in resolving the case against him.

The second report, however, contained language so strong that the judge quoted it when preparing the order granting the successful motion to dismiss.

Judges don’t always get it right, but we’ve seen that many times they want to rule in favor of the appraiser and welcome any help we provide to allow them to do so. They will quote directly from the defense lawyer’s pleadings or even from the appraisal report if specific language supports their point. If we provide the necessary support, they will use it.

Consider adding additional easement language to your reports just in case. Remember that if there are utilities, there are probably easements.

Almost every report contains language like:

"... There were no apparent easements or encroachments observed by the appraiser..."

Think about whether some additional language might provide you with more protection. Suggestions you might consider include:

"...Simply because nothing was visible or observed does not mean the appraiser can guarantee the property is free of any easements or encroachments. The appraiser did not check land records and was not provided with any title reports. The appraiser recommends due diligence inquiries be made through local building departments or municipalities or that a survey be procured if necessary. The appraiser makes no guarantees or warranties. There may be recorded or unrecorded easements on the property that were not disclosed to the appraiser.

The appraiser did not investigate whether the property is buildable or suitable for the intended use. The appraiser is not an expert or qualified to make conclusions with respect to such investigations and recommends that appropriate due diligence be conducted through local building departments or municipalities. The appraiser makes no guarantees or warranties.

The appraiser is not aware of any hidden conditions, easements, or encroachments that might impact buildability or intended use, but simply because nothing is visible or observed does not mean it does not exist. The appraiser recommends further investigation to ensure the property is suitable for the intended use."

Consider whether including additional language in your reports might make you more defensible if you find yourself involved in a claim or lawsuit made by a third party upset about an easement. ◆