Coulson J lays down law on negligent property valuations

Mr Justice Coulson has set out rules for assessing whether a surveyor has made a negligent mortgage valuation.

He was delivering judgment in the Technology and Construction Court in a case involving the UK’s largest residential surveyor, E.Surv, and GMAC, a centralised mortgage lender based in the USA.

The court heard that GMAC assigned its claims to Webb Resolutions, a mortgage company which specialises in buying loans. Coulson J said that although the two claims at issue were “exceedingly modest”, Webb had another 40 potential claims against E.Surv and more than 200 against other valuers.

Coulson J said that at the time the loans were made, just before the recession, GMAC was “wedded to ‘tick box’ forms for every aspect of their operation”.

Delivering judgment in Webb Resolutions v E.Surv [2012] EWHC 3653 (TCC), he said the issue arose in one of the valuations, a flat in Masshouse Plaza, Birmingham, as to what the E.Surv valuer should do if his obligation to take reasonable care and comply with RICS guidance required him “to do or say something which could not be accommodated by the tick boxes provided”.

Coulson J went on: “I am in no doubt at all as to the general answer to that: if the valuer could not discharge his contractual or tortious obligations to GMAC without adding words somewhere on the form, or producing a covering letter to address the particular issue, then he had to take that course, regardless of the warning in the GMAC guidance notes; anything else would be a plain failure to comply with those obligations.”

Mr Justice Coulson said his earlier summary of the position on the surveyor’s margin of error in making valuations in the 2010 TCC case K/S Lincoln and Others v CB Richard Ellis Hotels still “holds good”.

This stated that for a standard property, the margin “may be as low as” plus or minus five per cent, for a ‘one-off property’, it “will usually be” plus or minus ten per cent, and for a property with ‘exceptional features’, it “could be” plus or minus 15 per cent.

Coulson J said GMAC’s business model at the time “assumed three critical things: that what mattered most was the speed with which the mortgage application was dealt with; that self-certified mortgages were an entirely appropriate product even for those who were ‘credit-impaired’ and that property prices would carry on rising.”

He said GMAC’s CEO, Stephen Knight, had written a lengthy book entitled ‘A Vision for Growth in the UK Mortgage Market’.

“The book was written just before the crash and before GMAC ceased to act as a centralised lender,” Coulson J said.

“It is bombastic in a way peculiar to temporarily successful businessmen. The passage of time has lent hubris to much of the book, which repeats over and over again the importance of an automated process which could give ‘a meaningful predictive decision within seconds of keying the appropriate information’.”

Coulson J said allegations of contributory negligence by E.Surv had to be seen against the context of a background where those involved in the world of financial services and mortgage lending appeared “sadly immune to the lessons of history”.

Mr Justice Coulson found that E.Surv had been negligent with both valuations awarded damages of £22,840 for the first one and £25,600 for the second, a house in Whitstable, after a 50 per cent reduction for contributory negligence.