Sahn Ward Coschignano & Baker, PLLC Wins Summary Judgment for Real Estate Appraiser in Fraud Case Concerning the Purchase of an Apartment

Litigation

A New York court recently held that, in a real estate transaction, a buyer is required to conduct his own due diligence by the exercise of ordinary intelligence to discover the true nature of the transaction. See Decision/Order, Estrada v. Metropolitan Property Group, Inc., et al., No. 110123/11, at 4-5 (Sup. Ct. N.Y. Co. Jul. 30, 2012).

In Estrada v. Metropolitan Property Group, Inc., Andrew M. Roth, Esq., a partner at Sahn Ward Coschignano & Baker, PLLC, represented Victoria Hughes (“Hughes”), a real estate appraiser being sued for, inter alia, fraudulent misrepresentation. The case arose from the purchase of a residential cooperative apartment unit under a purchase contract executed in October 2005. Decision/Order at 1. The Plaintiff, Brian Estrada (“Estrada”), responded to an advertisement for the sale of the apartment placed by Metropolitan Property Group, Inc. that identified the square footage of the apartment as approximately 550 square feet. Id. At the open house, Estrada received a flyer for the apartment that listed it as 500 square feet. Following the execution of a purchase contract, Estrada applied to Wells Fargo Bank, N.A. (“Wells Fargo”) for a loan to purchase the apartment. Id. Wells Fargo then retained Hughes to perform an appraisal of the apartment to determine if it constituted sufficient collateral to secure the loan sought by Estrada. Id. at 1-2. Estrada claimed that he relied upon Hughes’ representation in the appraisal that the apartment was 451 square feet and valued at $440,000 in closing on the mortgage in March 2006. Id. at 2. In 2009, Estrada sought to refinance his mortgage, but was denied based upon a new appraisal of the apartment that indicated that square footage was 376 square feet and that the apartment was only valued at $350,000. Id. Estrada then ordered a historical appraisal of the apartment that listed the apartment as 344 square feet in size and valued at $330,000 as of March 2006. Id.

Estrada brought suit against Hughes for, inter alia, fraud, based upon the alleged misrepresentation of the size and value of the apartment in her appraisal conducted for Wells Fargo. Decision/Order at 4. On summary judgment, Hughes argued that there were no triable issues of material fact with respect to the fraud claim because Estrada’s alleged reliance upon the representation as to the size of the apartment was not reasonable and the size of the apartment could easily have been confirmed by Estrada had he measured the apartment.
The Court held that in order to prove a cause of action for fraud, a “[p]laintiff must show not only that he actually relied on the misrepresentations, but also that such reliance was reasonable.” Decision/Order at 4 (citing CPC Int’l v. McKesson Corp., 70 N.Y.2d 268, 285 (1987)). Further, “[w]here a party has the means to discover the true nature of the transaction by the exercise of ordinary intelligence, and fails to make use of those means, he cannot claim justifiable reliance on defendant’s misrepresentations.” Id. at 4-5 (citing 88 Blue Corp. v. Reiss Plaza Assocs., 183 A.D.2d 662, 664 (1st Dep’t 1992)). The Court found that “Plaintiff’s reliance on the misrepresentations of the size of the apartment was not reasonable or justifiable.” Id. at 5. In this regard, the Court reasoned:

Plaintiff could have easily measured the apartment for himself, particularly after receiving not one, but two different estimates from Metropolitan and then receiving the appraisal from Hughes which was also different. Plaintiff failed to do his due diligence, and proceeded to close on the purchase of the residence while fully realizing that he was presented with three different measurements for the apartment.
Id. at 5-6. Accordingly, the Court granted Hughes motion for summary judgment and dismissed Estrada’s cause of action for fraud.

For more information on this case (which can be viewed as a PDF here:  Estrada Decision – Aug. 2012), or to discuss real estate and commercial litigation matters generally, please contact us.

Posted by Andrew Roth