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Sewer Versus Septic: Lesson Learned

By ASFMRA Press posted 10-06-2021 06:35 AM

By Claudia Gaglione, National Claims Counsel for LIA Administrators & Insurance Services

One of the most common claims made against appraisers continues to be the “sewer versus septic” claim. This claim arises when the appraisal states the subject property is connected to the public sewer and it is later discovered that the property is actually serviced by a private septic system.

The borrower/purchaser may allege they paid too much for the property or they may simply seek to recoup the cost to connect to the public sewer.

In a recent claim, the insured appraised a property that consisted of a single-family residence located on about 3 acres. There was also a barn and an outbuilding with a half bath that was used as a wood shop. The insured estimated the value of the property to be $410,000. County records indicated the property was connected to the public sewer. The insured had appraised many other properties in the area and knew they were connected to the sewer. MLS said the property was connected to the sewer, as did the Seller’s Transfer Disclosure Statement.

Almost a year after the appraisal was prepared the insured received a letter from an attorney for the borrower/buyer. They claimed the property was serviced by a private septic system. The system was so old that the County would not allow the borrower to perform any repairs. They further claimed it would cost the borrower over $250,000 to connect to the public sewer.

Needless to say, the appraiser was shocked when he received this letter. He couldn’t believe this property was not connected to the sewer and he also couldn’t believe the “outlandish” amount the borrower was claiming it was going to cost to connect. Several years ago, this appraiser had a sewer versus septic claim that turned into a lawsuit. He was ultimately dismissed from the case, but it took a few years and he did not want to go through that again. So after the experience of that lawsuit, the appraiser had been including specifically drafted language in some of his reports.

The report he prepared in this matter stated as follows:

“Appraiser noted that the subject property is serviced by public water and sewer. This information was provided by Cole County Municipal Records Office, by Cole County MLS Records # (redacted) and as stated in the Seller’s Transfer Disclosure Statement attached to and provided with a copy of the Purchase and Sales Contract dated 06/17/20. Appraiser is entitled to rely upon information provided by third parties deemed to be reliable. Appraiser cannot independently verify the accuracy of information provided and cannot be held responsible for any information later found to be inaccurate.

Additional investigation/inspection is encouraged.”

Obviously, the appraiser was very happy that he had included this specially drafted language in his report. A response to the demand letter was sent to the borrower’s attorney and, so far, nothing further has come of this latest claim.

This appraiser learned, first hand, how specially drafted disclaimer language might be used to prevent a claim from becoming a lawsuit, or maybe help defense counsel get a lawsuit resolved much faster than if no such language was found in the report.

The appraiser does not KNOW if the property is serviced by sewer or septic. They cannot see it for themselves. It is important for the appraiser to state, somewhere in the report, where the information came from, be it public records, MLS, as per listing agent, whatever the case might be.

It is also a good idea for the appraiser to state that they are unable to verify the accuracy of the information provided. We often hear that County records are inaccurate. Can any appraiser be certain that the MLS information is correct?

Any appraiser should use good faith when gathering information and when making representations in their appraisal reports. The point is that it is not fair for the appraiser to be held accountable if certain information reported later turns out to be incorrect.

Septic Systems are always a problem. It is not enough to just say the property has a septic system. What if it turns out the septic system is old and no longer operational? What if it turns out the septic system was built for a one-bedroom home and the subject now has four bedrooms? What if the septic is located under the pergola and can’t be accessed for repairs? Why are any of these things the appraiser’s problems? They are not, but they have still been the basis of claims made against appraisers, which is why we suggest you consider adding language such as the following when dealing with septic systems:

"The appraiser noted from public records that the property has a septic system. The appraiser assumes this information to be correct, but is unable to independently verify the accuracy of the records reviewed. The appraiser is unable to determine the exact location of the septic system and cannot be held accountable if the system cannot be easily accessed for repair. The appraiser can only conduct a limited inspection of visibly accessible areas. The appraiser did not visually inspect the septic system and cannot confirm whether or not it is functional or adequate for the subject property. A septic inspection by a qualified professional is suggested."

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