WHAT HAPPENED TO A VALUER IF PROPERTY BECOME NPA
When a property becomes a Non-Performing Asset (NPA), it typically means that the borrower has defaulted on their loan payments, and the property’s value is at risk. For a valuer or appraiser, this situation involves several potential impacts:
- Revaluation: The valuer might be tasked with reassessing the property’s value to help the lender determine the current market value. This is crucial for decisions related to recovery, such as selling the property or negotiating with the borrower.
- Increased Scrutiny: The valuer may face increased scrutiny regarding their appraisal methods and assumptions, as the valuation plays a critical role in the lender’s decision-making process.
- Legal and Financial Implications: If the property is sold through a foreclosure process, the valuer’s report could be used in legal proceedings or negotiations. Accurate and well-documented valuations are essential to avoid disputes.
- Potential Impact on Reputation: The accuracy and reliability of the valuation can impact the valuer’s professional reputation. If the valuation is challenged, it could affect future assignments or relationships with lenders.
- Involvement in Recovery Processes: The valuer may be involved in the recovery process, which could include updating valuations as conditions change or assisting with the sale or transfer of the property.
Overall, the role of a valuer in the context of an NPA is critical, as their assessments help guide the actions taken by lenders to recover their investments.
A CASE STUDY
BASED ON: MR ROHIT NANDA’S WHATSAPP POST IN A GROUP
In cases where a bank suffers a loss due to an NPA and believes the loss is linked to a valuation provided by a valuer, the valuer can face legal action, even if their valuation was based on local inquiries and market surveys. Here’s how this situation might unfold and what the potential outcomes could be:
Scenario Overview
Property Market Value (Including White + Black Money): ₹10 crores
White Money Component (As per Circle Rate): ₹1.5 crores
Loan Amount Granted by Bank: ₹5 crores (based on the valuer’s assessment)
NPA Event: Borrower defaults and the property cannot be sold for more than the white money value (₹1.5 crores).
Legal Action Against the Valuer
When the bank faces a significant loss due to the NPA, it might pursue legal action against the valuer if it believes the valuation contributed to the loss. The bank could argue that the valuer’s report was flawed or did not accurately reflect the property’s legally recognized value.
1. Grounds for Legal Action
Negligence: The bank may allege that the valuer was negligent in conducting the valuation. Even if the valuer conducted local inquiries and market surveys, the bank might argue that the valuer should have placed more emphasis on the white money component (as per the circle rate) rather than considering the overall market value, which included black money.
Misrepresentation: The bank could claim that the valuer’s report misrepresented the property’s value by not sufficiently highlighting the risks associated with relying on black money transactions. If the valuer did not clearly state the distinction between the white and black money components, this could be seen as a misrepresentation.
Breach of Contract: If the valuer’s services were contracted based on certain standards or guidelines, and the bank believes these were not adhered to, it might claim a breach of contract.
2. Valuer’s Defense
Due Diligence: The valuer can defend themselves by demonstrating that the valuation was conducted in accordance with standard industry practices, including local enquiries and market surveys. They would argue that they followed the correct procedures and that the market value reflected in the report was based on the data available at the time.
Market Conditions: The valuer might argue that the market conditions at the time of the valuation justified the reported market value, including any black money transactions that were common in the local market. They could claim that it was not their role to enforce or investigate the legality of these transactions, but rather to report on market trends.
Disclaimers: Many valuers include disclaimers in their reports that limit their liability, stating that the valuation is an opinion based on the market at the time and that certain assumptions have been made. If such disclaimers were included, the valuer could argue that they should not be held liable for the bank’s losses.
3. Possible Outcomes
Settlement: The case could be settled out of court, with the valuer agreeing to compensate the bank for a portion of the loss or the case being dismissed if the valuer can prove that the valuation was conducted properly.
Court Ruling: If the case goes to court, the outcome would depend on the evidence presented. The court would consider whether the valuer acted negligently or misrepresented the property’s value. If found liable, the valuer could be ordered to pay damages to the bank.
Professional Repercussions: Regardless of the legal outcome, the valuer might face professional consequences, such as damage to their reputation, loss of business, or disciplinary action from professional bodies if they are found to have acted improperly.
4. Lessons and Best Practices for Valuers
To mitigate the risk of legal action, valuers should:
Clearly Differentiate Values: When reporting market values, especially in markets where black money is prevalent, valuers should clearly differentiate between the official (white money) value and any additional value derived from market transactions that include black money.
Document Due Diligence: Keep detailed records of the data sources, methods, and reasoning used in the valuation process. This documentation can be crucial in defending against claims of negligence.
Include Comprehensive Disclaimers: Ensure that all valuation reports include disclaimers that outline the scope and limitations of the valuation, and clarify that the report is an opinion based on the available data.
Regularly Update Knowledge: Stay informed about legal and regulatory changes that affect property valuations, and adjust practices accordingly to ensure compliance.
Conclusion:
Legal action against a valuer in an NPA case can occur if the bank believes the valuer’s report contributed to its financial loss. While valuers can defend themselves by showing that they followed industry standards, the outcome of such cases depends on the specific circumstances, the quality of the valuer’s work, and the legal arguments presented. Valuers must be diligent, transparent, and thorough in their work to avoid potential legal.
Opinion & Reply to this post
By: Dr. Phaniraj M S
Sir, we thank you about the disclaimers and the correct market rates are to be clearly mentioned in our reports so that we can save our skins if any NPA happens for the property that we value. Here I would narrate so many cases where in we make all diligent efforts to provide the bank with almost correct opinions from our end, but when it comes to the valuer fee.
1. The bank will tell that the valuations shall be made in a day or two and provide the reports but the fee to the valuer is not paid even after two months or three months even after continuous follow-ups.
2. Fee will be paid only 2500/- per valuations even the property value is more than 5 Cr.
3. For Lawyers they are paying more than 5,000 per property but when it comes to valuations they are very stringent.
I have seen some legal opinions provided by lawyers without seeing the correct schedule of the property itself. Still, bankers will not catch the lawyers…have you all come across any banker saying that the legal opinion is wrong or any lawyer is a defaulter because they cannot cross-check about the opinion provided by them whereas if the customer becomes a defaulter to the bank then Valuer is held responsible why….
Actually before the banker releases the loan, the relevant branch manager should visit the property indivigually with out the help of valuer or lawyer and he has to take photographs and he has to conduct the market survey like us and to arrive the market value of the property and also branch managers has to provide their independent opinion to the bank internally – are they doing this NO also valuers photographs has been taken and also valuers value is taken and a report is sent that is all. They are not doing their job and are fully dependent on the valuer’s opinion.
Yes they argue that whatever opinion they give their management will not agree that is true but why they are not able to check the credibility of the customer in terms of his relationship with the bank and since how many years he is with the bank and doing business how is his payability etc., nobody is bothered just they wanted business to happen….that is all and finally there is “BAKARA” the valuer whose report is targetted and made him as a scape goat. I request all the valuers to be diligent and not to compromise on the fee and take time to provide the reports with correct disclaimers so that they can save their skins as well as the bank’s skin also. This is my opinion and suggestion…..
