Lender claim founders – losses "caused" by underlying fraud

25 October 2012

Surveyors come out on top. Judgment was recently given inPlatform Funding v Anderson Associates, a civil claim by the mortgage lender for alleged negligence against a valuer arising from a July 2006 mortgage valuation of a single new-build flat.

There was fraud involving concealed sales incentives and the developer, via the on-site sales force, 'fed' the valuer false comparable data.

Amongst other matters, the court considered whether the existence of the distorting incentives should have been discovered by the valuer, alerting him to the underlying fraud and causing him to significantly reduce his headline figure. This was a very common feature in new-build and buy-to-let transactions pre-2008.

The court was sympathetic to the task faced by the valuer. It took into account the significant time and fee constraints faced by valuers and, although the relevant version of the RICS Red Book (June 2006) envisaged that a carefully conducted valuation by an appropriately knowledgeable valuer would identify the existence and nature of any incentive, the Court, having heard evidence about the scale and nature of the fraud at Thamesmead, described that as 'a near impossible task'.

Although there was sufficient evidence for the court to find that the original valuer's methodology was flawed and that his task had been undertaken without sufficient skill and care, the judge decided that: (1) a reasonably careful valuer would not on balance have discovered the concealed comparables and  therefore have reached the same or a similar valuation figure as the valuer in question, and (2) the true cause of the lender's loss in this case was the underlying fraud, facilitated by the dishonest assistance of the conveyancing solicitor and others.

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