Baker v. Surman
| Decision Date | 22 January 1985 |
| Docket Number | No. C1-84-1022,C1-84-1022 |
| Citation | 361 N.W.2d 108 |
| Parties | James T. BAKER, et al., Appellants, v. Robert F. SURMAN, et al., News Realty, Inc., et al., United Homes Corp., et al., Respondents, E.J. Henry, etc., Defendants, Leroy E. Haeg, Respondent. |
| Court | Minnesota Court of Appeals |
Syllabus by the Court
1. In a negligence action by home buyers against a Federal Housing Administration (FHA) appraiser, the trial court properly directed a verdict for the appraiser because, as a matter of law, the appraiser had a duty of care only to the federal government.
2. The trial court erred in finding as a matter of law that both realtors were not liable for fraud for relaying to potential buyers misrepresentations made by the sellers. The trial court properly directed a verdict for the realtor who saw the property only once and had no reason to doubt the sellers' statements. But the court erred in not submitting to the jury the question of whether the listing agent knew or should have known of the misrepresentations.
3. The trial court's damage award is not supported by the evidence.
Richard J. Sheehan, Minneapolis, for appellants.
Robert F. Surman, pro se.
Ralph A. Gale, Jr., Minneapolis, for News Realty, Inc., et al.
Lawrence P. Marofsky, Minneapolis, for United Homes Corp., et al.
Lyle F. Frevert, Minneapolis, for Haeg.
Considered and decided by SEDGWICK, P.J., and FOLEY and CRIPPEN, JJ., with oral argument waived.
James and Monica Baker purchased a home from Robert and Judith Surman which later proved to have a leaky roof and basement. They sued Surmans for breach of warranty, the realty companies and realtors involved for misrepresentation, and a Federal Housing Administration (FHA) appraiser for negligence. The trial court directed verdicts against Bakers in favor of the realty companies, the realtors and the appraiser. It awarded them a judgment of $5,000 against Surmans. Bakers appeal the directed verdicts and the amount of the judgment against Surmans. We affirm in part, reverse and remand in part.
In August 1975, the Bakers contacted John Bevis of United Homes Corporation to help them find a home. In September 1975 Bevis showed the Bakers the Surman home. While touring the home, Bakers observed a puddle in the corner of the basement and stains on the ceiling of a closet. They asked Bevis about both. He told them he would have to check with News Realty, the listing realty company.
Later Bevis contacted Al Pulfus of News Realty, who contacted Surmans about Bakers' two concerns. Pulfus relayed Surmans' answers to Bevis. Bevis told Bakers that Pulfus said Surmans had never had any problems with the roof, and that the puddle resulted from water coming in an open basement window.
Bakers and Surmans negotiated a purchase price for the home of $32,900, contingent upon FHA financing. Leroy Haeg, an FHA appraiser, valued the home at $31,250. After the appraisal, Bakers reduced their offer to the appraised value. The parties settled on a purchase price of $32,000.
When Bakers took possession in December 1975 the home was extremely dirty. They found broken doors, windows and screens. There was a large hole in a bedroom carpet and holes in the walls. The furnace, which Surmans had assured them was in good condition, was inoperable.
The day Bakers took possession they observed that the basement walls were bowed. Neither they, nor Bevis, nor Haeg previously noticed the bow because boxes and shelves obscured the walls. Pulfus noticed the bowed walls, but did not bring them to Bakers' attention.
In January or February 1976, water stains began appearing on the bedroom ceilings. The leakage became progressively worse. Later that spring cracks appeared in the walls and floor of the basement. When it rained, water ran down the basement walls and seeped up through the cracks in the floor.
Bakers brought suit in 1980 and the case was tried in 1982. At trial, a roofing contractor who inspected the property in 1976 testified that, in his opinion, the roof had leaked for three to five years before Bakers bought the property. A masonry contractor who examined the house in 1982 concluded that the walls had been bowing for 10 to 15 years. An FHA review appraiser testified that FHA financing should not have been approved because of the bowing of the basement walls. He concluded that Haeg was negligent in not detecting the bow. Finally, an appraiser hired by the Bakers testified that the fair market value of the property in 1975 was $16,000. James Baker estimated that the home was worth only $5,000 when he bought it.
1. Did the trial court err in finding as a matter of law that the FHA appraiser had no duty of care to potential home buyers?
2. Did the trial court err in finding as a matter of law that the realtors were not liable for fraud for relaying to potential buyers misrepresentations made by the sellers?
3. Is the trial court's damage award supported by the evidence?
Bakers challenge the trial court's directed verdicts for the FHA appraiser, the realty companies and realtors. A trial court should grant a directed verdict only when it would clearly be its duty to set aside a contrary verdict as manifestly against the evidence or when such a verdict would not comply with the applicable law. The same standard governs appellate review of directed verdicts. Midland National Bank v. Perranoski, 299 N.W.2d 404, 409 (Minn.1980).
The trial court properly directed a verdict for Haeg because, as a matter of law, an FHA appraiser has a duty of care only to the federal government. A party who negligently supplies false information for the guidance of others may be liable to third parties if they are foreseeable recipients of the information and justifiably rely upon it to their detriment. See Bonhiver v. Graff, 311 Minn. 111, 121-22, 248 N.W.2d 291, 298-99 (1976).
A potential home buyer is a foreseeable recipient of an appraisal. However, the buyer cannot rely upon an FHA appraisal as a warranty of the value or condition of the home. The primary and predominant objective of the FHA appraisal system is the protection of the government and its insurance funds. The mortgage insurance funds do not insure anything other than the repayment of loans made by lender mortgages. The legislative history of the program makes it clear that Congress did not intend to establish a duty of care for the benefit of mortgagors. United States v. Neustadt, 366 U.S. 696, 706, 81 S.Ct. 1294, 1300, 6 L.Ed.2d 614 (1961); Cason v. United States, 381 F.Supp. 1362, 1367 (W.D.Mo.1974); ...
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