Court addresses statute of limitations for claim against appraisal service
Capital Bankcorp Limited sued the Landheer Appraisal Service in Ottawa Circuit Court in 2008, alleging that Landheer made significant errors in its evaluation of a 20-unit motel. Capital Bankcorp was investigating a loan to support the development of the property into separate units to be sold with separate mortgages. On the basis of an $800,000 appraisal, the bank loaned the developers $600,000 in 2002.
When the developer could not pay off the loan at maturity in 2005, the bank re-financed but did not purchase a new appraisal. In 2007, however, a third-party appraised the property "as is" at $350,000.00. Seven months later in 2008, the bank sued Landheer on the theory that it was professional negligence to appraise the property as separate units, rather than "as is," back in 2002. Pointing to the third-party appraisal in 2007, the Court of Appeals noted that both the two-year limitation from the date of the error, and the six-month "discovery" limitation period had run before the 2008 lawsuit was filed. While the plaintiff argued it had no reasonable suspicion of malpractice six months prior to filing the 2008 lawsuit, the Court noted that the bank bore the duty of proving that it could not have discovered the malpractice earlier: in the face of multiple refinancings without standard appraisals having been sought, the bank simply failed to exercise due care to protect its investment and "discover" negligence. It had reasonable grounds to investigate and protect its legal interests well over six months before suit was actually filed.