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Borrower’s suit over flawed appraisal dismissed

David Donovan//June 26, 2018

Borrower’s suit over flawed appraisal dismissed

David Donovan//June 26, 2018

Everyone’s heard the joke about the patient who asks his doctor for a second opinion. (The doc says, “In that case, you’re ugly, too.”) There are lots of variants of the joke, but notably, they never start with the doctor saying that everything is fine and the patient is in good health.

But would-be homebuilders who’ve heard from their lender that their project has apprised would apparently be wise to ask for a second opinion: the North Carolina Court of Appeals has thrown out a lawsuit brought against a bank that allegedly gave a borrower a wildly inflated appraisal of what his home would be worth, saying that the borrower should have gotten his own estimate.

In 2012, Vince Cordaro applied to Harrington Bank, a small local lender, for a construction loan to finance a house he was making plans to build in Chapel Hill. Cordaro says he told Harrington’s loan officer that if the bank’s appraisal value of the planned home was less than the sum of the lot price and the expected construction cost—about $1.1 million—he wouldn’t go forward the loan or build the home.

The bank’s appraiser valued the project at just over $1.1 million, at which point Cordaro gave the builder the go-ahead to start working and signed a construction loan agreement with the bank. As construction wrapped up in late 2013, he sought to convert the loan into a home mortgage, as is typical with construction loans.

Harrington had planned to immediately resell the mortgage to another bank, but that plan fell through when the second bank balked after appraising the home’s value at just $625,000. A third bank valued the home at $800,000 and would agree to lend Cordaro only $600,000. Because the balloon payment on Cordaro’s construction loan was coming due, he took the loan from the third bank and sold some of his personal investments to cover the shortfall.

Cordaro says he never would have built the home—and thus taken the heavy loss on it—if not for Harrington’s flawed appraisal. He sued the bank under several legal theories, including negligence. But a Chatham County Superior Court judge dismissed his complaint, and on June 19 the Court of Appeals unanimously affirmed the dismissal, finding that Cordaro hadn’t shown that he was justified in relying on the bank’s appraisal because he didn’t show that anything had prevented him from conducting his own inquiries into the appraisal’s validity.

In North Carolina, consumers seeking mortgage loans are protected by the SAFE Act, which says that banks can’t conceal key facts or make false promises in order to induce an applicant to take out a loan, nor can they try to improperly influence an appraisal. Cordaro argued that the SAFE Act, enacted in 2009, empowers borrowers to sue banks for negligence when they violate the law. The state’s old Mortgage Lending Act, which the SAFE Act replaced, permitted such lawsuits, but the courts have never decided if the SAFE Act provides a similar right of action.

The judges declined to answer that question, however. Judge Mark Davis, writing for the appeals court panel, said that even if the SAFE Act could serve as the legal grounds for such a claim, Cordaro would still need to prove that he had justifiably relied on the bank’s appraisal in order to prevail on his negligence claim, and that Cordaro could not show that he had. Davis noted that Cordaro did not consult anyone other than the bank’s loan officer in order to confirm the accuracy of the appraisal before agreeing to the construction loan.

“In short, the allegations in his complaint fail to show that he either engaged in any type of independent inquiry as to the validity of the appraisal value or that he was in any way prevented from doing so,” Davis wrote.

Attorneys for both parties agreed that, in layman’s terms, the court was telling Cordaro that he should have gotten an independent appraiser to appraise the project before taking out the loan.

Reid Phillips and Will Quick of Brooks Pierce in Greensboro represented Harrington, which was acquired by Bank of North Carolina in 2013 due to the bank’s financial struggles resulting from problem loans.

“The court, I believe, was cautioning borrowers that they themselves need to be aware of the value of the collateral that they’re putting up for a loan,” Phillips said. “Especially in a case like this one where a new house is being constructed, they need to be involved and make sure that they are getting the value they expect out of it. That’s not something that the lender does for them, or the lender should be expected to do for them.”

Mark Sigmon of Raleigh represented Cordaro. Sigmon said that he and his client were disappointed by the ruling, particularly in that the court did not reach the question of how to interpret the SAFE Act and instead dismissed the suit based on a lack of reliance. Sigmon said that it’s commonly understood in the mortgage business that the consumer will be relying on the validity of a bank’s appraisal.

“The court ruled, essentially, that he should have just ordered his own appraisal. That just makes no sense to me,” Sigmon said. “I don’t understand what the point would be for a second appraisal … In this case, the appraisal was so incredibly flawed and the bank vouched for it. After the appraisal came out, my client asked the bank, is the appraisal valid? And the bank said, yes, this is good.”

Sigmon said that his client is still considering whether to petition the state’s Supreme Court for discretionary review.

Phillips predicted that at some point, the courts will decide whether the SAFE Act does indeed allow for the sort of claims that Cordaro is pursuing.

“We agreed with the court’s approach, which is that they did not need to get to the question of whether there is, or should be, a private right of action, under the SAFE Act,” Phillips said. “That day will come someday, but this was not the day, and this was not the case where they needed to decide that.”

The 23-page decision is Cordaro v. Harrington Bank, FSB (Lawyers Weekly No. 011-201-18). The full text of the opinion is available online at

Follow David Donovan on Twitter @NCLWDonovan


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