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The Continuing Problem With Septic Tanks

By ASFMRA Press posted 10-19-2022 10:53 PM

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

Rural properties and acreage are rarely serviced by public sewers. In many cases, the waste disposal system on site is noted as being a septic system. Unfortunately, problems with the septic system continue to be an ongoing source of claims made against appraisers.

We cannot offer any magic language that will keep the appraiser from being sued when a septic system problem comes up; but we might get the appraiser dismissed out of the case after a motion is filed or perhaps, we can convince the Judge, or the mediator, that the appraiser is the least culpable of the defendants named in the case.

It is important that the appraiser always state within the report the source that was consulted to determine that the property is serviced by a septic system, whether it was MLS, public records, etc. That source should be deemed reliable and, of course, more than one source is preferable.

It never hurts to restate the obvious - meaning that the appraiser cannot view or inspect the septic system or even confirm that it exists.

Of course, every report should always state that the appraiser is NOT a home inspector and that the appraisal is not a home inspection and does not take the place of a home inspection. Sample language to be considered includes the following:

"The appraiser noted from both MLS and 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...

The appraiser is NOT a home inspector. The appraisal report is not a home inspection and is not meant to take the place of a home inspection. The appraisal does not guarantee that the home is free of defects...."

In Texas, the same family once owned a 24-acre parcel of property upon which they had a manufactured home. There was a septic tank installed for that manufactured home in the 1960's.

In 1999, the 24-acre parcel was subdivided into 2 lots. The manufactured home with 10-acre parcel stayed in the family and the 14-acre adjoining lot was sold.

In 2009, the manufactured home was removed from the 10-acre lot and a site-built home was built on top of where the manufactured home used to be. Between 2009 and 2018, various additions and improvements were made to the site-built home, some with permits and some without permits. During this time, no improvements or maintenance was ever done to the septic tank that was installed for the original manufactured home in the 1960's.

In 2016, FEMA revised the applicable flood zone maps and the subject property was determined to be within a FEMA designated flood zone.

In 2018, an insured appraiser was retained to prepare a purchase loan appraisal for the subject property. He noted that according to the MLS and public records, the subject property was serviced by a septic system. The appraisal report contained additional excellent disclaimer language. The appraiser stated as follows...

“…the appraiser did not physically inspect the septic system, the appraiser does not know the exact location of the septic system on the property, the appraiser has no way of knowing the age or the condition of the septic system, the appraiser has no way of knowing the maintenance history of the septic system; the appraiser recommends that additional inspections be conducted if there are any concerns ...”

The report went on to say that the appraiser was not a home inspector and that the report was not a home inspection.

Soon after the buyers moved into the house, their plumbing backed up and it was discovered that the septic system was more than 50 years old and beyond repair. After further consultation, it was determined that due to the property’s location in a designated flood hazard zone, no new septic tank could be built.

Plaintiffs filed a lawsuit against the sellers, the real estate agents, the home inspector and the appraiser claiming their home was “worthless” because they could not live there without a waste disposal system.

After a lot of research and negotiation an agreement was reached that allowed a new septic tank to be installed on the adjoining neighbor’s property which had once been part of the same lot as the subject. The neighbors were paid a fee for allowing this to occur and a contractor was hired to do the work. In addition, there were plumbing repairs that had to be made to the plaintiffs’ house.

The appraiser’s contribution to settlement was the smallest of all the defendants. Although we were disappointed that the Judge did not agree to an outright dismissal, we were pleased that the language in the appraisal report was considered and was persuasive.

Similar language will be put to the test in a fairly new lawsuit also arising from a purchase loan appraisal. The insured appraiser was retained to appraise a property located in Iowa. The home was located on almost 6 acres and had been built by the sellers four years prior.

The house had a porch that wrapped around 3 sides and there was a three car detached garage. Close by the house was a gardening shed and a large workshop located a fair distance away from the home.

The appraisal report stated that the home is serviced by a septic system. The insured noted that this information was stated in the Seller’s Disclosure Statement and the MLS. The appraiser went on to say that he was unable to inspect the septic system and that he did not know the location of the septic system on the property.

It so happens that this appraiser knew someone that had a prior lawsuit involving a septic system. An appraiser buddy of his had been sued because it turned out that the septic system was located under the porch (which had been added years after the home had been built) and when the system had to be repaired, the property owners had to spend a lot of money to tear down the porch and they sued everybody.

The appraiser in this case said that looking at the wrap around porch on this house made him nervous so he also included language in his report recommending that a professional inspection be conducted.

The buyers did not have a septic system inspection and they even chose to waive a home inspection.

After they moved into the house, the buyers noticed water in the crawlspace and supposedly found a “previously concealed pipe”. They followed the pipe and found that it deposited waste into their yard. It turns out that when the sellers built the home there was never a septic tank installed at the property.

The buyers have filed a lawsuit against the sellers, the real estate agents and the appraiser. We are hopeful this is a case that can be defended and that it will be dismissed as to the appraiser. This pipe must have been well hidden. One would think the buyers and their agents toured the home before the purchase and someone would have noticed (or smelled) this problem if it was obvious.

If it was hidden, how was the appraiser supposed to uncover it, especially when that is not his job.

The appraiser owed no duty to the buyers and there is good disclaimer language in the report which should assist defense counsel in bringing about an early resolution to this matter.

If the property you are appraising is serviced by a septic tank, remember to think about claims like these when preparing your report. Include the source of your information and as much additional disclaimer language as you can. You never know when a septic tank might become a problem for you.

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