What happens when a lender requests reliance language that increases the appraiser’s liability risk? Lenders engaged in securitizing or syndicating commercial and multifamily property loans require some sort of reliance language in an appraiser’s reports. Likewise, all lenders have an obligation to themselves and their customers to ensure that an appraiser’s report can be relied upon. This post is a “peek behind the curtain,” showing lenders how appraisers view requests for reliance language.
Under most states’ laws, an appraiser has potential liability to the parties that will rely on their report, and lenders typically list these parties in their required reliance language. Some lenders, though, ask for reliance language that could expose an appraiser to risks that are beyond those necessary to the lender’s own business. According to the Appraisal Institute, such language opens up the door for appraisers to claims by parties that don’t have a connection to the lender’s financing.
It’s up to appraisers to evaluate the details of a lender’s proposed reliance language, just as they must weigh and carefully consider other requests including readdresses, reassignments, and reappraisals.
How Appraisers Consider Assignment Requests
Before responding to a request for additional information, appraisers must understand exactly what’s being asked. Once the intent is clear, the following Q&As fromn the Appraisal Institute Code of Professional Ethics and the Confidentiality Section of the Ethics Rule of USPAP are used as a guide on how to respond.
To whom can I give the assignment results?
Opinions and conclusions specific to an assignment may be presented in a written or oral report only to the client and persons specifically authorized by the client or other entities as set out in the Code of Professional Ethics.
To whom can I give a copy of the report prepared for a client?
Not all portions of a report are confidential, but because an appraisal report contains assignment results which are confidential, the same rules apply as to assignment results.
Can I accept a new assignment involving the same property for another client?
The short answer is “yes.” However, you may not disclose any confidential information in the report prepared in the previous assignment for a different client without the client’s permission.
Can I readdress a report, or change the name of the client, but otherwise give the same report to another client?
No, it is improper to readdress a report to another client. Changing the name of the client does not change the first appraiser-client relationship and harms the confidential nature of your relationship with the first client. It is also misleading. All requests to readdress a report should be treated as a request to accept a new assignment.
Can I reassign a report to another party?
Reassignment can mean different things to different people. Be sure you know what is being asked. Once a report is prepared and given to the original client, the report is no longer yours to assign to anyone else. The only solution is that the original client assign its interests in your report to the new client, without you being a part of the process.
Can I re-certify a report to another client?
In this scenario, clarification of what the term re-certify means to the client is of utmost importance. It’s often used to mean reassign, readdress, or update, so be sure you understand what the client is asking for.
Can I sign or issue a “reliance letter” that says another party (not the one identified in the report as the client or an intended user) can rely on a report I previously prepared?
No, such letters add that party as an intended user after the completion of an assignment. To protect yourself as an appraiser, you should request that the lender agree that the reliance language only applies to the proposed loan the appraisal was done for; and that any party that doesn’t have a connection to the lender’s financing is not to be considered under that language.