in the Court of Appeals 7 March 2018.
by plaintiff from order entered 8 August 2017 by Judge
Lindsay R. Davis, Jr. in Chatham County No. 16 CVS 724
Law, PLLC, by Mark R. Sigmon, for plaintiff-appellant.
Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P, by
S. Wilson Quick and Reid L. Phillips for defendant-appellee.
appeal, we consider the potential liability of a bank for
providing an inaccurate appraisal value to its borrower in
connection with a residential loan. Serafino
"Vince" Cordaro filed this civil action asserting
claims against Harrington Bank ("Harrington") premised
upon theories of negligence, negligent misrepresentation,
breach of contract, breach of the implied covenant of good
faith and fair dealing, and unfair and deceptive trade
practices pursuant to N.C. Gen. Stat. § 75-1.1. Because
we conclude that Cordaro's complaint failed to
sufficiently plead justifiable reliance upon the appraisal
information at issue or the existence of a contractual duty
owed to him by Harrington with regard to the appraisal, we
hold that the trial court properly granted Harrington's
motion to dismiss.
and Procedural Background
summarized the pertinent facts below using Plaintiff's
own statements from his complaint, which we treat as true in
reviewing a trial court's order granting a motion to
dismiss. See, e.g., Stein v. Asheville City Bd. of
Educ., 360 N.C. 321, 325, 626 S.E.2d 263, 266 (2006)
("When reviewing a complaint dismissed under Rule
12(b)(6), we treat a plaintiff's factual allegations as
true." (citation omitted)).
2011, Cordaro purchased a lot in the Governor's Club
subdivision of Chapel Hill where he intended to build a home.
Cordaro paid $294, 500 for the lot. He hired an architect in
May 2012 to design the planned residence. His contract with
the architect provided that the completed house would consist
of approximately 3, 000 square feet and cost approximately
$800, 000 to build.
Loan Application and Construction Appraisal
November 2012, Cordaro began looking for a lender to provide
him with a construction loan that could later be converted
into a mortgage once the home was built. He visited
Harrington's website and began filling out a loan
application online. Prior to completing the application,
Cordaro called John MacDonald, a loan officer employed by
Harrington, to discuss the potential loan. During this
conversation, Cordaro informed MacDonald that if the value
contained in Harrington's internal appraisal of the
planned home was less than the price he paid for the lot plus
the cost of construction then he would not go forward with
either the loan or the construction of the house.
his discussion with MacDonald, Cordaro signed a construction
contract with Brightleaf Development Company
("Brightleaf") on 28 November 2012. The contract
listed the total cost to build the house as $835, 359.
Cordaro and Brightleaf also verbally agreed that if the house
was not appraised at a value equal to the cost of the lot
plus the cost of construction then the home would not be
built and the contract would be void.
December 2012, Cordaro submitted a loan application to
Harrington seeking a loan of $850, 000. In connection with
the loan application, MacDonald ordered an appraisal through
Community Bank Real Estate Solutions ("CBRES"), an
appraisal management company. Along with his request,
MacDonald submitted to CBRES Cordaro's construction
contract, construction drawings, and the lot's purchase
price. An appraiser named Danny Goodwin was assigned by CBRES
to appraise Cordaro's prospective residence. On 10
December 2012, Goodwin appraised the home at a value of $1,
emailed Goodwin's appraisal (the "Construction
Appraisal") to Cordaro on 12 December 2012. An hour
after receiving the Construction Appraisal, Cordaro sent an
email to his architect informing him of the appraisal amount
and asking him to tell Brightleaf that construction could
begin on the home.
December 2012, MacDonald emailed Cordaro once again,
informing him that Harrington's loan committee had
approved his loan on the condition that Cordaro put $100, 000
in escrow as a cash reserve. Cordaro responded later that
day, asking why he was being asked to provide a cash reserve
and inquiring whether this requirement was a standard
practice of Harrington's. MacDonald replied that the loan
committee was concerned about the proposed residence's
high cost per square foot. Cordaro then asked MacDonald if he
should be concerned about the value of the house. MacDonald
responded that there was no reason for concern and told
Cordaro that the committee was simply being "overly
cautious." Cordaro refused to place $100, 000 in escrow
but instead offered to put down $58, 000 in cash. Harrington
accepted this proposal.
proceeded to conduct an internal review of the Construction
Appraisal. On 21 December 2012, MacDonald signed an appraisal
review form stating his belief that the Construction
Appraisal was a reasonable estimate of the value of
Cordaro's home and that it complied with applicable
regulatory requirements. The review form was also signed by a
second employee of Harrington on 24 December 2013. Both
reviews were required under Harrington's Consumer &
Mortgage Loan Policy & Product Manual, which provided
that every appraisal received by Harrington "shall be
reviewed for conformity with minimum regulatory
requirements" and that appraisals "with
transactions in excess of $500, 000 will receive a secondary
review by the Manager of Mortgage Lending."
Construction Loan Agreement
January 2013, Cordaro submitted a second loan application
that was identical in all respects to the first application
except that it provided for a decreased loan amount of $777,
250. The following day, Cordaro signed a contract (the
"Construction Loan Agreement") with Harrington.
This agreement contained language stating as follows:
Appraisal. If required by Lender, an appraisal shall be
prepared for the Property, at Borrower's expense, which
in form and substance shall be satisfactory to Lender, in
Lender's sole discretion, including applicable regulatory
began on the house in early 2013. The total acquisition and
construction cost of the property was ultimately $1, 250,
construction neared completion in late 2013, Cordaro began
working with MacDonald to refinance his construction loan and
receive a permanent mortgage loan from Harrington.
Unbeknownst to Cordaro, Harrington planned to provide him
with a mortgage loan and then immediately sell the mortgage
to Amerisave Mortgage Company ("Amerisave").
January 2014, Harrington ordered a new appraisal of
Cordaro's home for purposes of the mortgage loan. An
individual named Luther Misenheimer was assigned to conduct
the new appraisal. On 28 January 2014, MacDonald emailed
Misenheimer a copy of Goodwin's earlier Construction
Appraisal, informing Misenheimer that he should "[c]all
if you need additional info." Several hours later,
MacDonald emailed Misenheimer again and stated that
"[w]e need a BIG number......©."
ultimately declined to perform the appraisal for Harrington.
The appraisal was then reassigned to Goodwin. Goodwin issued
his second appraisal (the "Mortgage Appraisal") on
10 February 2014, valuing the property at $1, 250, 000.
receiving Goodwin's Mortgage Appraisal, Harrington
requested that CBRES run the Mortgage Appraisal through the
Uniform Collateral Data Portal ("UCDP"), a system
that performs independent automated risk assessments of
submitted appraisals. CBRES submitted the Mortgage Appraisal
to the UCDP on 11 February 2014, and the system flagged ten
separate flaws with the appraisal. Among the flaws noted were
the fact that (1) Goodwin's valuation of Cordaro's
home was "significantly different" than the sale
price of a comparable property used by Goodwin in arriving at
his valuation; and (2) the three comparable properties
utilized by Goodwin in conducting his appraisal were not
similarly situated to Cordaro's home.
February 2014, Amerisave commissioned an outside company
called Clear Capital to perform a Collateral Desktop Analysis
("CDA") of the Mortgage Appraisal, which was
conducted on 18 February 2014. The CDA valued Cordaro's
home at $625, 000 - exactly one-half the amount of the
Mortgage Appraisal. The CDA also highlighted many of the same
flaws with the Mortgage Appraisal that were noted by the
February 2014, an Amerisave employee emailed MacDonald to
inform him that Amerisave would not buy the loan from
Harrington due to the results of the CDA. MacDonald emailed a
coworker on 26 February 2014, stating that "I think
[Cordaro's] loan is dead but I'm going to restart
with another lender tomorrow." The other lender that
MacDonald was referring to in his email was Sierra Pacific
Mortgage Company ("Sierra Pacific").
February or early March 2014, Cordaro became aware that
Harrington intended to sell his mortgage loan to another
lender such that third-party approval would be required in
order to fund his loan. Nevertheless, Cordaro applied for a
new loan from Harrington in the proposed amount of $783, 000
on 27 February 2014.
Pacific hired an appraiser named Jan Faulkner to conduct an
appraisal of Cordaro's home. On 10 March 2014, Faulkner
valued the property at $800, 000. Following Faulkner's
appraisal, MacDonald emailed Cordaro new proposed financing
terms that consisted of a $600, 000 mortgage loan and a $120,
000 equity loan. On 21 March 2014, MacDonald emailed Cordaro
the results of the CDA that had been commissioned by