Appraisal Fraud Warren K. Hoppke, SRPA, ASA Robert Nord, MAI
Senior Real Property Analyst Real Estate Consultant
Member Appraisal Institute Member Appraisal Institute
Expert Witness Testimony | Forensic Valuation & Litigation Support | Professional Practice Matters | Real Estate Appaisers |
Commercial Real Estate | Industrial | Residential Appraisal Services |
Orange County, Los Angeles, Riverside, San Diego, San Bernardino County
Appraisal fraud has made headlines locally and nationally. Most of the time, real estate appraisal fraud involves mortgage fraud and identity theft or fraud — making a borrower appear to be somebody else, with a better job, more income or fewer debts. Somebody more creditworthy.
But some appraisal fraud involves a broker or loan officer telling the mortgagee — the lender — and the borrower that the house or commercial real estate is worth more than it is. This way, they can close a larger loan and make a bigger commission. Since real estate agents also usually make a percentage of the sale as commission, sometimes they can be involved. In reality, most loan officers, mortgage brokers and real estate salespeople are ethical and would never think of engaging in fraud. But fraud of this type always originates with one of the parties who makes a commission on a closed sale.
Sometimes, fraud like this can be accomplished without a real estate appraiser involved. Honest, professional appraisal reports are simply altered, or honest, professional residential or commercial appraisers' signatures are forged. But in reality, a complicitous real estate appraiser often makes it easier to perpetrate fraud.
Real Estate appraisers are paid a set fee for their work whether a deal is closed or not. A residential or Commercial appraiser is hired by and work for the lender that is considering loaning money. That real estate lender is interested in an objective, third party, professional opinion of the true value of the real estate. The lender needs to know that if the borrower defaults, the collateral used to secure the loan is valuable enough to cover their loss. Lenders need to follow due diligence steps to prevent appraisal fraud.
In residential or CMBS federally related transactions, the real estate appraiser utlimately works for FNMA, FREDDIE MAC, FHA, OTS, FDIC, and other federally related financial entities. The do not work for individual, commissioned loan officers, mortgage brokers or real estate agents. If they did, there would be too much pressure to "make the deal work," which could result in fraud, rather than arrive at a professional opinion of the market value of the real property. The appraiser does not work for borrowers, at least in the context of a loan. But borrowers work closely with loan brokers, bank loan officers and real estate agents, and benefit the most from a third party, objective valuation of the home they want to buy.
In fraud or if something catastrophic happens, such as a job loss, illness, divorce or death, and a borrower no longer make payments on the mortgaged. The lender or borrower will need to be able to sell for enough money to cover the balance of their mortgage. Nobody benefits more from a real estate appraiser's professional opinion of value.
Like some loan or mortgage brokers, bank loan officers and real estate salespeople, some real estate appraisal individuals are "bad apples" and will agree to go along with an appraisal fraud scheme to defraud lenders or home buyers and or commercial real estate buyers, so bigger commissions can be had. Not us, and not the vast majority of real estate appraisers. Again, the real estate appraiser is paid a set fee whether the loan closes or not, and does not work for any of the commissioned parties to the transaction. Real Estate appraisers are therefore a homeowner's, and a lender's, best front line defense against fraud.
As a appraisal fraud expert we provide real estate expert witness testimony services, statistical analysis, and litigation support services throughout Los Angeles, Orange County, Riverside County, San Diego, San Bernardino County, and Ventura County for loan fraud or mortgage fraud cases.