Posted by Caroline Preist, Partner
Valuers Negligence in a Post Recession World
The High Court has recently been dealing with a number of valuers negligence cases that arose out of the sharp fall in values at the start of the recession.
This blog looks into two cases that arose out of the sharp fall in values at the start of the recession. In both cases the valuers attempted to argue that any successful claim against them should be reduced by contributory negligence on the part of the lenders for whom they were acting.
In Blemain Finance Ltd -v- E.Surv Ltd and Webb Resolutions Ltd –v- E.Surv Ltd the respective claimants were lenders. The Blemain case involved a high value property (£3m) and in the Webb Resolutions case, two properties valued at £200k -£300k each. In both cases the borrowers had defaulted on their loan payments and the equity in the properties was insufficient to meet the charges.
The test applied
The test applied for valuers negligence is that the valuation must fall short of that of a reasonably competent valuer. There is some margin for error however. The court will allow +/- 5% on a standard domestic property, +/- 10% on a one off property and +/-15% if there are exceptional features.
The Court findings
The court found that each valuation had been negligently performed. When valuing the properties the valuers had failed to inspect and had used asking prices as opposed to sale prices when relying on comparables. The lenders were able to show that but for the valuers negligence they would not have made the loans. The damages were assessed at the difference between the negligent valuation and the actual valuation plus interest.
The surveyors then asked the court to investigate whether the lenders behaviour fell below that of a reasonably competent lender and that that behaviour had caused the loss.
The behaviour to be considered by the court included – high loan to value ratios, reliance on self certification of income, ignoring borrower’s debts and defaults, and ignoring errors in the borrower’s mortgage applications.
The Judge held
The Judge held, based on previous case law, that the court should be wary of concluding that simply because a lender’s policy and business model was high risk it was negligent. The court had to consider that policy and business model in the light of practices of lenders at the time. In this case “the time” was 2007 when the market was riding high and lending policies were extremely generous across the board.
The first case
The court decided that in the first of the Webb Resolutions cases the lender had not been negligent. The loan to value ratio of 85% was high but in line with the market place, the errors in the application form were minor. The borrower’s defaults were not sufficient to warrant further investigation.
The second case
In the second however the lender had been negligent. The LTV was higher, at 95% than a reasonably competent lender would have advanced. Also the borrower had significant defaults and a subsequent decision by the lender to treat the application as self certificated as the borrower could not prove his income was negligent. The court decided that lender and valuer were equally to blame and reduced the damages payable by the valuer by 50%.
In the Blemain case the LTV ratio was 73% which, although above the lender’s standard practice of 70%, was reasonable when compared to other lender’s policies at the time. The borrower had a high level of debt but was servicing that debt and had a high credit score. Although the court felt that further enquiries could have been made, had those enquiries actually been made the loan would still have been made. The lender therefore had not contributed to the loss.
Cases in the future
The cases contain no real new law so far as valuers and surveyors are concerned. They do however highlight the issues the court will take into account when considering the behaviour of the lenders at the time and emphasise that lenders while not immune from claims for contributory negligence if they have stepped outside standard practice at the time, are not to be judged with post recession hindsight.
If you think you have a claim for professional negligence against your property value or surveyor, we can offer free impartial advice. Contact a member of our team today on 0800 051 8057.
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