United States v. Neustadt

PETITIONER: United States
LOCATION: John H. Kerr Dam and Reservoir

DECIDED BY: Warren Court (1958-1962)
LOWER COURT: United States Court of Appeals for the Fourth Circuit

CITATION: 366 US 696 (1961)
ARGUED: May 02, 1961
DECIDED: May 29, 1961

Facts of the case


Media for United States v. Neustadt

Audio Transcription for Oral Argument - May 02, 1961 in United States v. Neustadt

Earl Warren:

-- United States, Petitioner, versus Stanley S. Neustadt et al.

Mr. Orrick.

William H. Orrick, Jr.:

Mr. Chief Justice, may it please the Court.

In this case, the respondent's attempt to establish a principle which could subject the United States to an enormous liability, this principle is based on the theory that the insurer of a mortgage who has appraised for insurance purposes the property constituting the security for the mortgage, is liable to a purchaser of that property, unknown at the time of the appraisal, for the difference between the purchase price and the fair market value of the property.

The cases here on writ of certiorari to the Fourth Circuit, which is in effect to establish that principle by affirming the trial court.

Now, the facts in the case are simply stated under the -- to take advantage of the National Housing Act, one who intends to sell a house that is eligible for FHA mortgage insurance, they generally do some work quickly, if he knows the amount for which the FHA would appraise his house in the maximum amount, up to which, it will insure any mortgage on the house.

To obtain this information, he must have a financial institution approved by the FHA as a mortgagee.

Make an application to the FHA for a so-called, "conditional commitment."

When the FHA receives such an application, it sends an appraiser to appraise the property to determine whether it meets the standards of eligibility and to fix evaluation for insurance purposes.

If the property is found eligible, the Commissioner in this so-called, conditional commitment, to insure mortgage on the house, is bound to insure it an amount computed on the appraised value of the property, subject to the condition that the mortgagor when he comes along is found financially able to carry the mortgage.

Now, upon issuing the conditional commitment to a proposed mortgagee, the Commissioner also issues a separate document entitled, Statement of FHA Appraisal, which sets forth the written -- the appraised value of the property as determined by the Commissioner.

And under the statute, the seller is bound to deliver a copy of this appraisal to the buyer prior to the sale.

In the case at bar, Colonel Almquist in March of 1957, followed the procedure I have mentioned above and had an approved institution, make application for a conditional commitment.

In following the procedure, an appraiser was sent out to his house, by some time prior to March 14th of that year.

Now, on March 14th, Mr. Stanley Neustadt, the respondent here, the plaintiff below, was a Washington lawyer, was looking for a house and he and his wife looked at Colonel Almquist's house, after the appraiser had made his inspection.

Mr. Neustadt, the -- the house suited Mr. and Mrs. Neustadt and they considered the possibility of hiring someone to inspect the house, but it was his understanding that the FHA appraisal would disclose any matters of structural defects or matters as to which he had any concern.

He was informed as to that, by his real estate agent and that was his understanding.

William J. Brennan, Jr.:

Is he possible a veteran?

William H. Orrick, Jr.:


William J. Brennan, Jr.:

Is he a veteran?

William H. Orrick, Jr.:

No, sir.

The record didn't show whether he was.

It -- he doesn't have to be a veteran.

He is the prospective buyer of the house.

Charles E. Whittaker:

Isn't that (Inaudible)

William H. Orrick, Jr.:

That's correct.

Yes, sir.

Earl Warren:

Was he correct in that assumption Mr --

William H. Orrick, Jr.:

That the appraisal would reveal a -- a structural defect?

Earl Warren: