Lenders have had for some time valuer panel arrangements. Panel
valuers need to maintain a certain level of professional indemnity
insurance and adhere to minimum valuation standards.
By using panel valuers lenders hope to raise the valuation
standard. Panel arrangements are also intended to ensure that the
lender will have the fall back option of making a claim on a PI
Following the enactment of apportionment legislation across
various States and at Commonwealth level the valuer's PI
insurer may not cover the full loss.
Our extensive experience with valuer claims has taught us that
this risk increases considerably when the lender does not instruct
the panel valuer directly.
An example of such a situation can be found in Kayteal Pty
Ltd v John Joseph Dignan & Ors.
Kayteal (lender) lent $780,000 to Mr Bsat (borrower) on
the security of a first mortgage over a property in Canley
John Dignan and his company, Dignan Real Estate (valuers),
valued the property at $1.2M in circumstances where, in fact, it
was worth only $52,000.
The borrower defaulted under the loan. The lender obtained
judgment and the borrower subsequently became bankrupt.
The lender sued the solicitor who acted for it on the mortgage
transaction for negligence. The claim by the lender against the
valuers' insurers was settled and discontinued.
The Court found that there were three concurrent wrongdoers
liable for the lender's loss:
In allocating the responsibility between these concurrent
wrongdoers, the Court looked at comparative
culpabilities/blameworthiness and causative potency of the conduct
of each wrongdoer.
The Court found that the valuers were grossly negligent because
were primarily responsible for the valuation and for
identifying security property valued;
armed the borrower with an erroneous valuation which enabled
the borrower to mislead the lender;
inexplicably valued the wrong property;
failed to heed the solicitors' attempts to draw their
attention to discrepancies, which ought to have prompted
"the most cavalier of valuers to rethink and
Nonetheless, the largest part of the liability (47.5%) was
allocated to the borrower who knowingly, and for his own benefit,
misrepresented the value of the property to the lender. The
borrower must have known that the valuation was erroneous as he
purchased the property only two months earlier for $52,000. (This
case may be contrasted with St George Bank Limited v Quinerts
Pty Ltd (discussed in our November 2009 update
click here to read) where the borrower's mere
failure to repay did not make him a concurrent
The valuers came second by a nose and were allocated 40% of the
The solicitors were last by a couple of lengths and were
allocated 12.5% of the liability. Whilst their liability was slight
compared to the others, it was exacerbated by the circumstance that
a fundamental purpose of their engagement was to ensure that
appropriate protections were put in place and certain issues with
respect to the property were identified and reported to the
A safer bet
This is but one example of where a lender can leave itself
exposed to a partial recovery if the borrower (or their broker)
plays a role in procuring the valuation. This remains the case even
if the valuer is on the lender's panel.
In Kayteal the borrower used a negligent valuation to
his advantage by obtaining a loan which greatly exceeded the value
of the property. Had the borrower not known of the valuation
for $1.2M, he may not have applied for a loan at all (or may have
applied for a smaller loan instead).
Accordingly, a safer bet for the lender is to instruct the
valuer directly and avoid where possible having the valuation
In the years following the global financial crisis of 2008 many Australian investors lost their life savings as financial products failed and the Australian Stock Exchange shed over 3,000 points.
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