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Categories:Mortgages

Surveyors value verdict

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A High Court judge’s decision in a contributory negligence case between GMAC-RFC and Countrywide Surveyors could ease pressure on a fragile surveying sector.

GMAC-RFC started proceedings against Countrywide in 2008, alleging overvaluation of a property on which it lent in 2004. Countrywide valued the property at £185,000 and in 2007 the applicant defaulted and GMAC-RFC repossessed the property.

It was eventually sold for £123,500 in September 2008, with the net proceeds of the sale being £118,103. GMAC-RFC argued that Countrywide had negligently overvalued the property, which it valued at £154,000. Countrywide, in turn, made allegations of contributory negligence against GMAC-RFC, alleging lax lending policies.

In December, judge Keyser ruled Countrywide had not been negligent. He added that even if Countrywide had been found negligent, he would have judged GMAC-RFC as contributory negligent for not conducting proper checks on affordability and income. If that happened, the judge said he would have deducted 60 per cent of any money awarded to GMAC-RFC.

Countrywide says it had made a provision of £11.9m in 2010 to guard against claims by lenders and it was “not surprised” with the judge’s verdict.

GMAC-RFC, which now trades as Paratus AMC, said it did “not accept” the judge’s decision.

Contributory negligence cases rarely make it to the courtroom, with both parties usually settling out of court but the surveying sector will welcome this ruling.
Surveyors believe the finding in favour of surveyors will put off some lenders from making speculative claims of negligence.

London’s Surveyors director Simon White says: “It will send shockwaves to a lot of the lenders who over the years have had an exceptionally gung-ho approach to lending. They will be thinking to them-selves they should have done some due diligence and not just lend to anybody and they should pay the consequences if the property gets repossessed.”

E.surv director Richard Sexton says: “If a valuer makes a mistake and is proved to have done so, then that is what the professional indemnity insurance policy is for. All valuers have had claims over the last few years and it is also true a lot of the claims have come from the sub-prime sector because they are the ones most likely to be repossessed.

“This will make lenders be more cautious about issuing claims for the sake of issuing claims.”

Sub-prime borrowers, by nature, are more prone to defaulting or falling into arrears than mainstream borrowers, so it is likely that many more people who took out sub-prime mortgages before 2007 will be repossessed.

But some specialist lenders could look to other people involved in the housing transaction in a bid to claw back losses.

Goldsmith Williams partner Eddie Goldsmith fears solicitors could be targeted. He says: “The court seems to have effectively made a commonsense decision here. If the litigation over the repossessions involves lawyers, then I hope this does not mean lenders go after solicitors instead because they can no longer go after surveyors.”

Professional indemnity insurance is a big drain on surveyor firms’ resources, as policies tend to be very expensive due to the high-risk nature of valuations.

The Royal Institution of Chartered Surveyors has been working on tackling problems in the “dysfunctional” PI market. It says structural problems in this sector mean claims have a “significant” and disproportionate effect on premiums.

It says: “This can only be good news as it recognises that loss and liability are the responsibility of all parties involved, not just the valuer. RICS has been concerned with issues over risk and pricing in the market, which is why we are currently running a consultation on professional indemnity insurance.”

In November, surveyors told Money Marketing a problem with attracting and retaining new blood in the sector could result in demand for valuers outstripping supply, which will hit service levels and turn-round times in housing sales.

Sexton says the cost of PI is having a similar effect but he is confident PI premiums will fall as a result of the ruling and the expected fall in speculative claims made against surveyors.

He says: “I am sure the cost of PI cover and the cost of claims would be a very strong disincentive for someone wanting to set up a surveying firm today. We are not that far away from a shortage of supply of valuation firms.

“As a valuer, you pay a premium which relates to your back record, so insurers are always looking for firms with the best PI records. If you have fewer claims, the cost of your cover goes down.”

But White points out the number of PI providers has fallen and it is likely these providers will insure both lenders and surveyors.

He says: “PI has been rising steadily over the past few years. I see no prospect whatsoever of the main PI providers saying, ’Oh well, if we can go for the lender we can reduce the surveyor’s PI’ because, of course, the very same providers provide PI to the lenders as well.”

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