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Cordaro v. Harrington Bank, FSB

Court of Appeals of North Carolina

June 19, 2018

HARRINGTON BANK, FSB, n/k/a BANK OF NORTH CAROLINA, a North Carolina Bank, Defendant, and BANK OF NORTH CAROLINA, Third-Party Plaintiff,

          Heard in the Court of Appeals 7 March 2018.

          Appeal by plaintiff from order entered 8 August 2017 by Judge Lindsay R. Davis, Jr. in Chatham County No. 16 CVS 724 Superior Court.

          Sigmon 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.

          DAVIS, Judge.

         In this 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[1] ("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.

         Factual and Procedural Background

         We have 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)).

         In 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.

         I. Loan Application and Construction Appraisal

         In 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.

         Following 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.

         On 4 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, 150, 000.

         MacDonald 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.

         On 19 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.

         Harrington 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."

         II. Construction Loan Agreement

         On 29 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 requirements.

         Construction began on the house in early 2013. The total acquisition and construction cost of the property was ultimately $1, 250, 000.

         III. Mortgage Appraisal

         As 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").

         In 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......©."

         Misenheimer 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.

         Upon 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.

         Also in 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 UCDP.

         On 18 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").

         In late 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.

         Sierra 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 ...

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