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Hold harmless clause
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6/16/2011 at 7:02:16 PM GMT
Posts: 1
Hold harmless clause

I just read a small notice in the NAIFA news section that should have been sent to all members.  If you haven't seen it, please read it immediately.  The notice is regarding the danger to appraisers who sign an independent agreement with an AMC. 

We just received a notice from a local lender that they were going to employ an AMC to handle their appraisal department,, and that we would be receiving a request to complete an application.  Shortly thereafter we did receive one, with the explanation that we must complete the whole infomation packet.   There were some 13 pages with requests for license info, E&O, W-9, etc and then there was an engagement letter with numerous clauses.  They explain that this agreement is with the single appraiser, not a company, and then  there is the Indemnify clause: :

"Appraiser shall indemnify, defend, save and hold harmless [AMC] from and against any and all liability, claims, damages, losses, fines, judgments, suits, decrees, costs and expenses . . . in any way related to . . . any appraisal report submitted to [AMC] by Appraiser. "

Under these types of indemnification provisions, appraisers are agreeing to pay losses, damages, attorneys' fees, etc. of the AMC even if the loss or damage results from the AMC’s own errors or wrongdoing. Further, the appraiser is agreeing to indemnify the AMC for types of damages that are beyond the realm of E&O coverage, such as damages for patent infringement. Thus, the appraiser is agreeing to pay potential costs and damages that are broader than can be covered by the appraiser’s insurance. An appraiser’s E&O policy can only cover mistakes or damage caused by the insured appraiser (not a third party such as the AMC) and cannot cover liabilities forced on the appraiser by contract.

NAIFA should also have notified us that FDIC filed against 280 million Lenders Processing and Core Logic for bad appraisals and if they win it, every appraiser in their system will be forced to share the cost of the penalty and their E+O is voided.

There is a great article that covers all the points concisely.

Unfortunately we were also late to recognize the potential problem and have signed some agreements without realizing the potential jeopardy, since we carry E&O and consider that we are safe if we perform according to USPAP.  We are reviewing all our agreements with clients and advise all members to do the same.

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