Our most recent alert highlighted the concept that the relationship between lender and borrower is in law not a special relationship of trust (not a “fiduciary relationship”) but rather is simply one of creditor and debtor – a distinction of considerable practical meaning. That borrowers (and others) prefer to claim otherwise is the subject of numerous cases [see citations at 1 Bergman On New York Mortgage Foreclosures §1.01[a], Lexis Nexis Matthew Bender (rev. 2008)] and the case reviewed in that alert. Here is yet another: Cendant Mortgage Corp. v. Packes, 37 A.D. 3d 515, 831 N.Y.S. 2d 200 (2d Dept. 2007).
When the borrower defaulted on his mortgage and the lender began a foreclosure, borrower’s defense was that lender had procured an inaccurate appraisal upon which borrower relied in deciding to purchase the property.
In affirming summary judgment to the lender and disposing of the claimed defense, the critical ruling was that the lender owed the borrower no special duty of care upon which justifiable reliance could be placed (citing cases in support).
But then there is room for some tenuousness because the Court mentioned that the lender also produced evidence that the borrower had specifically been advised to obtain a home inspection before purchasing the property. The problem is that there may not always be such additional evidence. But should it matter? We don’t think so.
A lender gets an appraisal for its own assurance that the mortgage investment is a sound one. If their appraiser stumbles, it would hurt the lender. In any event, the appraisal is often obtained by the borrower. In the end, though, this is not something for the borrower to rely upon (as the Court noted) and the lender owes no duty to the borrower in that regard. This latter principle should prevail.
Mr. Bergman, author of the four-volume treatise, Bergman on New York Mortgage Foreclosures, LexisNexis Matthew Bender (rev. 2017), is a partner with Berkman, Henoch, Peterson, Peddy & Fenchel, P.C. in Garden City, New York. He is also a member of the USFN, The American College of Real Estate Lawyers, The American College of Mortgage Attorneys, an adviser to the New York Times on foreclosure issues and writes a regular servicing column for the New York Law Journal. He is AV rated by Martindale-Hubbell, his biography appears in Who’s Who In American Law and he has been for years listed in Best Lawyers In America and New York Super Lawyers.