UnThreaded | Threaded | Whole Thread (28) | Ignore Thread Prev Thread | Next Thread
Author: mew5280 Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 126964  
Subject: Appraisal Fraud? Date: 8/13/2005 6:54 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Here is my story...

A few years ago I refinanced my house and got a lower mortgage, took a little money out for some landscaping and bills. Loan was $187K, house was appraised at $225K.

This Spring, I went to refinance again, unfortunately because times have been hard, employment has been on and off and we were hoping to sell the house in a few years so I refinanced to an interest only loan, took some money to pay more bills, and kept a pretty low rate, 5.25 fixed I think. At this time, just a few short months ago, the appraisal of my house was $260K, my new loan amount 204K.

I was only willing to refinance and take out money because my home was now valued at 260K. The property tax assessment recently went up to something like 220K and has not been updated to include my finished basement, a second full bath, remodeled kitchen. A few homes on the street next to mine were recently listed at 280K and 290K, completely renovated (this is a 1948 era neighborhood of ranch homes, btw). I do know one sold at 289K, don't know about the others.

260K seemed high to me, I've also seen non-remodeled homes on my street selling for under 200K, but I thought I could probably sell for 240K.

I live in an area that realtors say is "hot". It's a neighborhood that used to be undesireable because it was near the airport, but now the airport has moved far away and the old airport is a very hip and trendy new home community. New shopping areas are springing up around this area, recently they built a brand new arts magnet school one block away. The area will only increase in popularity and value over the next few years. For that reason, I am very fortunate.

So, we decided we would try to sell the house this month. I called a realtor couple that was a friend of a friend and had sold a house on this street a few years ago. They did a very thorough comp evaluation and came back to me saying I would be lucky to get 200K for the house.

HUHHHHHH????? In my mind, I thought I would like to list it for 250K and accept 240K. I was floored. I explained the 260K appraisal and the response "oh yeah. appraisers do that for mortgage brokers to get the loans/refinances" - IS THIS LEGAL? ETHICAL?

I pretty much know the answer will be that it is legal but probably not morally ethical and that I have no recourse. I know NOW that I should have researched the appraisal, I did remember looking at the comps and they were in a more affluent area of this neighborhood, but I didn't question, I assumed since they had appraised it a few years ago, they were reputable.

I have now called another realtor, one that specializes in promoting older homes for their uniqueness, and she was a bit shocked by that 260K appraisal as well but hasn't yet been able to tell me what she thinks she could sell for. Knowing she's in competition with another realtor, my guess is that she would try to list it for 220K.

But back to the topic, what is up with an appraiser overpricing just to get a loan? Is there any recourse I can take? Even if it's just writing a pointed letter asking them if they can sleep at night?

Thanks...
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post Back To Top
Author: ToddTruby Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 89535 of 126964
Subject: Re: Appraisal Fraud? Date: 8/13/2005 8:33 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 2
But back to the topic, what is up with an appraiser overpricing just to get a loan? Is there any recourse I can take? Even if it's just writing a pointed letter asking them if they can sleep at night?


It may not be right or ethical, but as far as recourse, I doubt you would have a much of a case for fraud or any other action. I would think it very hard to show you suffered any damages. The only one potentially harmed would be the lender that was using your overvalued property as collateral.

Print the post Back To Top
Author: bogwan Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 89537 of 126964
Subject: Re: Appraisal Fraud? Date: 8/13/2005 10:20 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
www.domania.com and 'Home price check' gives some dated and in many cases misleading home price information, but it is free. I suggest you look at local home sales yourself.

You should look over the appraisal and see which local sales they use to appraise your home. Are those houses the same as yours?

Go to your court house and ask them to give you recent sales data, or to tell you how to look it up yourself. Sometimes there are tricks that they know.

Appraisals are for a specific point in time. There is a difference between a 1% interest rate and the current 3.5% the fed is using.

Sometimes price information is not 'arms length'

Appraisals are an estimate. All estimates are off. I personally think that the estimate should say something like $250,000 +- $50,000.

Realtors have a interest in the fastest not the highest transaction. You should look at what other properties are being listed for. You might consider selling it yourself for the $200K. Try to get better terms, like an 'as is sale'.

Print the post Back To Top
Author: kahunacfa Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 89541 of 126964
Subject: Re: Appraisal Fraud? Date: 8/13/2005 10:41 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Where I live, in Johnson County, Kansas, property assessments and valuations are available for every property in the County. Actually, this is generally true for every county in the State of Kansas.

There is a State of Kansas statute that requires all property valuations to be within ten percent of "actual value." If the tax assessment valuation is outside of this band, then the property owner can offer evidence at a valuation appeal board hearing to have the valuation of their property changed.

Since, property taxes are based on property value, no one ever appeals if they believe the assessor's value is too low - only if they believe it is too high and want it reduced.

Kahuna,CFA

Print the post Back To Top
Author: NoIDAtAll Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 89544 of 126964
Subject: Re: Appraisal Fraud? Date: 8/13/2005 12:37 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
As A few homes on the street next to mine were recently listed at 280K and 290K, completely renovated (this is a 1948 era neighborhood of ranch homes, btw). I do know one sold at 289K, don't know about the others, it *could* be that the realtors you contacted are trying to list your house for a quick sale, perhaps.


I explained the 260K appraisal and the response "oh yeah. appraisers do that for mortgage brokers to get the loans/refinances" - IS THIS LEGAL? ETHICAL?

I know of one appraiser that lost her license and a mortgage broker that's serving a prison term and owes damages for this very thing, but the actions were, pretty much, brought by lenders on defaulted loans and the overvaluations were pretty obvious and readily supported. You *may* have some recourse but, assuming the properties were reasonably comparable, the fact that neighboring homes have been listed and at least one sold for amounts approximating the appraisals of your home would, perhaps, indicate that the realtors you have contacted may not have provided a last opinion to accept.

Print the post Back To Top
Author: CatherineCoy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 89552 of 126964
Subject: Re: Appraisal Fraud? Date: 8/13/2005 4:08 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
It may not be right or ethical, but as far as recourse, I doubt you would have a much of a case for fraud or any other action. I would think it very hard to show you suffered any damages.

If I'm interpreting the OP's angst correctly, he thought he still had equity left only to find out now that, no, he already juiced his property dry when he cash out refi'd.


Print the post Back To Top
Author: mishedlo Big funky green star, 20000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 89553 of 126964
Subject: Re: Appraisal Fraud? Date: 8/13/2005 4:08 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 13
I was practically kicked off this board for wanting to discuss stuff just like that and warn about it. No one wanted to hear about it. No one wants to hear about bubble or fraud or anything else. I see it becomes relevant when one goes to sell.

Mish

Print the post Back To Top
Author: CatherineCoy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 89554 of 126964
Subject: Re: Appraisal Fraud? Date: 8/13/2005 4:15 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
I was practically kicked off this board for wanting to discuss stuff just like that and warn about it.

With my ear to the ground as a mortgage worker slave, I hear very little about mortgage fraud in the mortgage business, although certainly it exists.


Print the post Back To Top
Author: Dwdonhoff Big gold star, 5000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 89555 of 126964
Subject: Re: Appraisal Fraud? Date: 8/13/2005 4:19 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 10
Hi mew,

This Spring, I went to refinance again, unfortunately because times have been hard, employment has been on and off and we were hoping to sell the house in a few years so I refinanced to an interest only loan, took some money to pay more bills, and kept a pretty low rate, 5.25 fixed I think. At this time, just a few short months ago, the appraisal of my house was $260K, my new loan amount 204K.

OK... so far it sounds to me like you got some significant financial benefits in the financing, no?

I was only willing to refinance and take out money because my home was now valued at 260K.

OK... so it's very realistically possible that AT THAT TIME there WERE in fact sales comparables to support the value of your home at $260,000. AND, if the value *DID* get stretched to the high end of the appraiser's discretion, the only result TO YOU was that you were able to get a lower interest rate on the amount of money you were applying for.

If the value came in lower, your loan-to-value ration would have been higher, and your interest rate (and/or costs) would have been higher. The valuation may have significantly saved you money.

HUHHHHHH????? In my mind, I thought I would like to list it for 250K and accept 240K. I was floored. I explained the 260K appraisal and the response "oh yeah. appraisers do that for mortgage brokers to get the loans/refinances" - IS THIS LEGAL? ETHICAL?

A) that was a very lazy explanation. This Realtor conveniently failed to also present the very realistic possibility that the valuation could have been within accuracy tolerances AT THAT PERIOD OF TIME,

B) As also pointed out above, SOME Realtors frequently "lowball" valuations when seeking referred listings in order to set up a greater likelihood of a rapid sale. (Alternatively, some agents "highball" valuations when they are afraid they are competing to win a listing... you just have to weigh it all out together,)

C) The "Legality" of an appraisal depends on whether it is presented in fraud or not. An appraisal's analytical purpose is to certify to the underwriters that the valuation claimed by the owners is indeed reasonable and marketable AT THAT TIME, so that the underwriters can determine their loan exposures. If an appraisal presents a fraudulently inaccurate valuation, then it would be illegal.

D) The "Ethicalness" of an appraisal is an entirely different topic. Appraisals, in & of themselves, don't carry a great deal of ethical variance. The process of real estate appraising is primarily the application of pre-determined dollar values to specific property aspects (# of bedrooms, # baths (full? 3/4? 1/2?,) square feet, # finished rooms, type of roof, etc. etc.) with a splash of discretion (where are the similar comparables sales located (neighborhoods)? If slightly larger or smaller, what adjustment factor will be used, and how will it be justified, etc.)

Appraisers have an ugly catch-22;
1) Consistently value liberally, and underwriters will flag your work as always needing secondary review... or worse, get blackballed completely,
2) Consistenty value conservatively, and loan officers and borrowers who seek higher amounts at lower rates will choose not to hire you (in essence, again being blackballed.)

Appraisers do not have it easy...

But back to the topic, what is up with an appraiser overpricing just to get a loan? Is there any recourse I can take? Even if it's just writing a pointed letter asking them if they can sleep at night?

You seem to believe that YOU were the one who has been wronged... but in actuality YOU were the one that took advantage of the situation. You requested more money, at a lower rate, and you got it... at the detrimental market risk shoved off on the underwriters.

There is no "judgment" in that statement, by the way... the lenders are "grown ups" and understand the cyclical market risks they live in. They understand that there is some degree of porobability that the 80% LTV loan they make today may end up as a 120% LTV loan in a few years... and although they HOPE it doesn't happen, they know they face that risk.

YOU, on the other hand, have lost absolutely nothing at anyone else's bidding. You took cheap money from a lender at a certain degree of exposire on their parts, and you applied it to paying off more expensive debt, to your benefit. Had you not done so, you'd have been left with far greater interest expenses, and your property value may STILL have cycled.

YES... there is the "sting" of surprise from being told by the realtor that your property may be worth less than you thought... but the market value (whatever it ends up actually being) has nothing to do with your access to, and costs of money when you requested your debt-consolidation refi.

As it is now, even if the appraisal was wildly inaccurate to the high side, it ended up being a GIFT to your advantage. I don't see what you have to complain about in regards to the loan transaction. It appears you made out quite well, in the big picture. You saved money in the debt restructuring at the mortgage lender's risk.

Cheers,
Dave Donhoff
National Mortgage Banker/Broker

Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post Back To Top
Author: Dwdonhoff Big gold star, 5000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 89556 of 126964
Subject: Re: Appraisal Fraud? Date: 8/13/2005 4:35 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 15
Hi Mish,

I was practically kicked off this board for wanting to discuss stuff just like that and warn about it.

Not really... you got blasted by me for making a blanket insult of everyone who hangs out here.

You are COMPLETELY welcome here, as far as I am concerned, as you do excellent research and write very well. (Just wash your hands if you're coming straight over from PA, or similar.)

No one wanted to hear about it.

Well... you're kinda right there. When folks grow an angst about their market concerns (real estate on this board,) they don't attack real estate as a market (which was your only true infraction... logical as it otherwise would be.)

THEY ATTACK ME!!! (LOL!!!)
(OR Cath goes on a rampage...)

When you speak to a community, you need to first get a feel for that community's "language."

Right or wrong, the greatest majority of folks coming to the BOSAH boards are seeking real estate ownership from the long side... primarily as occupants... for a home... A Nest...

The folks focusing on turning positive cash flow and a profit from real estate tend to hang at the Real Estate Investing boards... and (as it would make sense) regularly grumble about over-valuated markets relative to sustained rental revenues, etc.

When you participate here... keep in mind you are mostly speaking to "Nest-Seekers," not real estate investors. They are in a much smaller room next door.

SO... as they say in the bars at closing time;
"Please don't go away angry.... (fill in the rest) ;~)

Cheers,
Dave

Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post Back To Top
Author: ANDROCLES Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 89557 of 126964
Subject: Re: Appraisal Fraud? Date: 8/13/2005 4:54 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 6
Hi Dave:

I enjoyed your reply to the fellow who thinks he got screwed by a too-liberal appraisal of his home. You laid the blame at the correct doorstep; the owner of the property. He says he owns a near-sixty year old ranch...probably built on a slab. It must have cost all of $7,500 new. Now the owner is disappointed that he can't get a 30X multiple for it. I'd love to know where this guy lives. Probably in an economically-depressed area like Utica or Detroit.

Mishedlo loves to read posts like this one. They tend to confirm his conviction that Americans are stupid and most will be run out of their homes when the "housing bust" he's been forecasting for the past three years happens. Fortunately, most Americans aren't as dumb as this semi-employed refugee from reality. If his house is underwater because of refinancings and too-liberal appraisals he almost deserves to lose it. To me he sounds like the guy in Las Vegas who keeps doubling up on red convinced that he is bound to score before he runs out of money. They never learn.

Andy



Print the post Back To Top
Author: CatherineCoy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 89558 of 126964
Subject: Re: Appraisal Fraud? Date: 8/13/2005 5:10 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Probably in an economically-depressed area like Utica or Detroit.

Poor Detroit. All those homes in the Rosedale Park area--gorgeous brick mini-mansions--simply wasted by the downhill slide from which Detroit will probably never recover.

*sniff!*


Print the post Back To Top
Author: kahunacfa Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 89560 of 126964
Subject: Re: Appraisal Fraud? Date: 8/13/2005 5:23 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
...SO... as they say in the bars at closing time;
"Please don't go away angry.... (fill in the rest) ;~)
- Dwdonhoff | Date: 8/13/05 4:35 PM | Number: 89556

If I were running a bar, at closing time I would say - "Please don't go away angry, drunk, or alone!"

Kahuna,CFA


Print the post Back To Top
Author: Dwdonhoff Big gold star, 5000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 89561 of 126964
Subject: Re: Appraisal Fraud? Date: 8/13/2005 5:41 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Aloha Kahuna,

If I were running a bar, at closing time I would say - "Please don't go away angry, drunk, or alone!"

... so then.. what WOULD you do with the drunks? And the acerbic loaners that showed up to become drunk?


I also always liked this line;
Ladies & Gentlemen, you DO NOT have to go HOME.....
You... Just... Can't... Stay... HERE!!!

Ta,
Dave
(Bouncer & DJ in previous incarnations...)

Print the post Back To Top
Author: mew5280 Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 89562 of 126964
Subject: Re: Appraisal Fraud? Date: 8/13/2005 5:44 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
Thanks to those who addressed me questions/concerns.

RE: As it is now, even if the appraisal was wildly inaccurate to the high side, it ended up being a GIFT to your advantage. I don't see what you have to complain about in regards to the loan transaction. It appears you made out quite well, in the big picture. You saved money in the debt restructuring at the mortgage lender's risk

My main point is that I trusted the appraiser/appraisal. I paid $225 for the appraisal and expected an honest assessment. I made my decision to take money out with the expectation that my house would still have 60K in equity.

Addressing the "AT THAT TIME" ...this was only 6 months ago and the values in my area have increased not decreased since that time. As I review the report right now, I can see that the appraiser went to the other side of a major thoroughfare to get the comps. There is a DRASTIC differences in property values from one side to the other. There are million dollar homes on that side, not so on "my side." So the homes he used, although similar to mine in SF and the same zip code, they were on the "better side of the tracks."

When I refinced, I used the equity to pay off a second mortgage/line of credit (10K) and then took about 8K cash to help pay off some higher interest debt. So it wasn't all that much. My main concern was to get an interest only loan so I could pay off some other debt.

Now I do realize that appraisals are not black and white and that nobody can really say what a property is worth. EXAMPLE... a friend of mine listed her 850 SF home last Spring. Her realtor said she should list it at 225K and expect to get a little less. She refused, listed it at 250K and it sold the first day on the market.

And lastly, even though that first realtor didn't think I could get 200K for the house, after thinking about it, I disagree. Like my friend, I will decide when I sell, what I want to get from it, what I think it's worth. My house has some great amenities that do not necessarily add to a home's value in a straightforward way, so I would market my house for it's amenities (i.e. sprinkler system, landscaping, original restored 1948 features that you can't purchase today (EX: we actually used a heat gun to burn the paint off the kitchen cabinets so we could repaint and restore the original cabinets. They were custom built to the kitchen and have character not found in cabinets you would buy today, unless you spent a lot of money).

Thanks for the replies.

Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post Back To Top
Author: bankingintern Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 89563 of 126964
Subject: Re: Appraisal Fraud? Date: 8/13/2005 5:46 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 2
Dave nailed it.

Basically, if the appraisal had come in lower you could have always gotten the loan but at a higher rate.

I suspect that part of your angst is that you pulled some money out that you considered "equity" for landscaping etc. Perhaps you didn't think about that long and hard and realize that appriasal values and comp sales don't always set your price. Thus you thought you were spending "money in the bank" that turns out to not be so sure.

Would it be accurate for me to say looking back you wouldn't have spent those funds? In general if you look at how people accumulate wealth, if the equity was there or not, looking back part of the spending was a bad call REGARDLESS of how much equity you had. If felt good because you were experencing the cognitive bias described in behavorial finance as the "house" or "found" money effect. The mental pain someone feels when this gets reversed is very high which is what I suspect your suffering from.



Print the post Back To Top
Author: Dwdonhoff Big gold star, 5000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 89564 of 126964
Subject: Re: Appraisal Fraud? Date: 8/13/2005 5:47 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
Errr.... ummm....

And the acerbic loaners that showed up to become drunk?

... should have read as loners...

BUT, I'll admit, makes it even more funny & ironic that way... LOL!

Cheers,
Dave
National Loaner

Print the post Back To Top
Author: parger Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 89568 of 126964
Subject: Re: Appraisal Fraud? Date: 8/13/2005 5:56 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 4
Every time I have had an appraisal done, the appraiser was aware of the loan amount I was taking out. I think that perhaps the appraisers should NOT be told this, and that way you would have a better chance of getting a fair valuation, rather than just a valuation that allows the home to qualify for the loan. Just my opinion, of course.

Print the post Back To Top
Author: ToddTruby Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 89572 of 126964
Subject: Re: Appraisal Fraud? Date: 8/13/2005 6:15 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
But back to the topic, what is up with an appraiser overpricing just to get a loan? Is there any recourse I can take? Even if it's just writing a pointed letter asking them if they can sleep at night?


That's how I read it too, but since OP got cash for said equity, there really aren't any damages.

Print the post Back To Top
Author: CatherineCoy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 89573 of 126964
Subject: Re: Appraisal Fraud? Date: 8/13/2005 6:15 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
Every time I have had an appraisal done, the appraiser was aware of the loan amount I was taking out. I think that perhaps the appraisers should NOT be told this, and that way you would have a better chance of getting a fair valuation, rather than just a valuation that allows the home to qualify for the loan.

I think you're right, parger. I tend NOT to tell the appraiser what loan amount is being sought. I simply say, "give us your best estimation of value." Appraisers appreciate this, too. They cannot STAND being pressured to "meet" a certain value. In fact, they've taken steps as a group to mitigate against what they perceive to be the insidious practice of holding it against the appraiser when certain value targets are not met.

***

Lenders accountable for FHA appraisal fraud

Real estate trade groups applauded last week when HUD revised its final rule for lender accountability for fraudulent appraisals. In 2003, HUD had proposed harsher regulatory language about, and stiffer penalties for, lenders who submit fraudulent appraisals with their FHA loan paperwork. (HUD said it was merely codifying what had been its practice all along.) Concern in the mortgage lobby led to a toned-down final rule in which lenders are answerable only for fraud about which they knew or should have known.

The reaction against the proposed rule from the Mortgage Bankers Association and other groups struck us as odd. We're sure no MBA correspondent (originating) member has ever submitted a fraudulent appraisal with their FHA loan file without knowing it, because no appraiser in the history of the world has ever inflated a value on his or her own, without coercion from the responsible broker or loan officer. As to sponsor (underwriting) MBA members, they are hopefully doing due diligence and reviewing the appraisal report with a critical eye before agreeing to lend money on the mortgage. If so, chances are they "have reason to know" when an appraisal is fraudulent.

In comments to the proposed rule, some groups protested that lenders and underwriters don't have the necessary expertise to review an appraisal. But under the FHA's Direct Endorsement process, the lender's Direct Endorsement underwriter (or, in the case of a loan correspondent, its sponsor's Direct Endorsement underwriter) is already required to review the appraisal documentation. Under federal regulations, when a mortgage is submitted to FHA under the Direct Endorsement process, the application must contain, among other things, "[a]n underwriter certification, on a form prescribed by [HUD], stating that the underwriter has personally reviewed the appraisal report ... and that the proposed mortgage complies with HUD underwriting requirements." As far as we know, lenders do not object to this longstanding rule.

Part of the reaction to the proposed rule may have been academic. The rule is phrased in terms of the "quality" of appraisals, not "inflated" or "fraudulent" ones. It's not beyond the realm of possibility that someone sitting in a regulatory compliance office somewhere reacted sensibly to the suggestion that lenders would know one way or another whether an opinion of value on a particular property somewhere is too low or too high, whether the best comps were used, and so on.

The reality, of course, is that if the value is "too low," the mortgage loan is never made, and nothing is ever submitted to the FHA. So, the rule for all practical purposes only addresses inflated values. And values (again) don't inflate on their own, they inflate as a result of pressure to "make the deal work." And appraisers don't work on commission. If originators want to be paid a percentage of the final loan amount, they should be liable for inflated values they coerce out of appraisers to score a bigger payday.

http://news.alamode.com/04/0727.htm







Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post Back To Top
Author: CatherineCoy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 89574 of 126964
Subject: Re: Appraisal Fraud? Date: 8/13/2005 6:20 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
That's how I read it too, but since OP got cash for said equity, there really aren't any damages.

"Damages," as perceived by the OP, are as he said: "I made my decision to take money out with the expectation that my house would still have 60K in equity."

His property has been fully juiced but now he wants to sell it and, after sales commission, he'll get nada because he already got everything there was to be gotten out of the property.

Tough break but there are no damages, in my opinion.






Print the post Back To Top
Author: KlatuBaradaNiktu Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 89582 of 126964
Subject: Re: Appraisal Fraud? Date: 8/13/2005 8:01 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 3
Thanks to those who addressed me questions/concerns.

It can get pretty jocular at times around here. If you have looked through any of the recent threads you might see that the Real Estate "Battle Bots" have been at it lately.


My main point is that I trusted the appraiser/appraisal. I paid $225 for the appraisal and expected an honest assessment. I made my decision to take money out with the expectation that my house would still have 60K in equity.

I interpret this as saying that you would not have taken out the "extra" money had you known the home's value did not support it.

Addressing the "AT THAT TIME" ...this was only 6 months ago and the values in my area have increased not decreased since that time.

If you are correct that values have increased in the interim, than I must assume that whoever gave you the current "lowball" value estimate is considerably off the mark. Lenders are pretty careful about avoiding making a partially unsecured loan. In addition to your appraiser's appraisal, it is reasonably likely that your lender also had access to a computerized/electronic underwriting/appraisal database to double-check.

As I review the report right now, I can see that the appraiser went to the other side of a major thoroughfare to get the comps. There is a DRASTIC differences in property values from one side to the other.

...or, "the other side of the tracks," so to speak?

There are million dollar homes on that side, not so on "my side." So the homes he used, although similar to mine in SF and the same zip code, they were on the "better side of the tracks."

Like I said! Hey, I wrote that before I read what you wrote.

When I refinced, I used the equity to pay off a second mortgage/line of credit (10K) and then took about 8K cash to help pay off some higher interest debt. So it wasn't all that much. My main concern was to get an interest only loan so I could pay off some other debt.

Since you apparently used the "bonus equity" in wise fashion, i.e. not for mindless consumption, it seems like you came out ahead. You paid off higher interest secured debt on the second mortgage and apparently the higher interest debt as well (credit card debt?) Of course using a home loan to pay off CC debt securitizes the debt, nevertheless, by trading higher-interest rate debt for lower-interest rate mortgage debt, you come out ahead. Had you expended the largesse upon consumption items, of course, the conclusion would be different.

Now I do realize that appraisals are not black and white and that nobody can really say what a property is worth. EXAMPLE... a friend of mine listed her 850 SF home last Spring. Her realtor said she should list it at 225K and expect to get a little less. She refused, listed it at 250K and it sold the first day on the market.

And lastly, even though that first realtor didn't think I could get 200K for the house, after thinking about it, I disagree. Like my friend, I will decide when I sell, what I want to get from it, what I think it's worth. My house has some great amenities that do not necessarily add to a home's value in a straightforward way, so I would market my house for it's amenities (i.e. sprinkler system, landscaping, original restored 1948 features that you can't purchase today (EX: we actually used a heat gun to burn the paint off the kitchen cabinets so we could repaint and restore the original cabinets. They were custom built to the kitchen and have character not found in cabinets you would buy today, unless you spent a lot of money).

Thanks for the replies.


I really think the bottom line here is the use to which you put the "extra" funds to. Since apparently all the funds were used to pay off higher interest debt, financially, you should come out ahead,assuming of course you intended to pay off the other debts eventually anyway. It might be helpful to do a simple spreadsheet and figure out how much money you are saving, overall, on interest rate payments before getting too bent out of shape over this.

It sounds like what is really irritating you is not so much that the house over-appraised, but rather, the "let down" you got when you were told that it was worth dramatically less than the level to which your expectations had been raised.


Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post Back To Top
Author: ToddTruby Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 89588 of 126964
Subject: Re: Appraisal Fraud? Date: 8/13/2005 10:06 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
I live in Johnson County Kansas as well.

When I bought my home last year, the tax value and subsequent taxes went up significantly.

Yes, my home is now valued for tax purposes at what I paid for it, but considering the huge gap in the value before and after my purchase, I don't think the actual tax values in general are reflective of the market value...at least until a transfer.

My neighbors, some with very comparable properties, have significantly lower tax values assigned to their property. I would guess that the longer you own the property, the less accurate the assesment.

Print the post Back To Top
Author: lowellches Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 89628 of 126964
Subject: Re: Appraisal Fraud? Date: 8/14/2005 10:28 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0

1. Sounds like the appraiser accomodated YOUR loan app.


2. Sounds like you are a few years late in being introduced to the LYBM board.



Print the post Back To Top
Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 89631 of 126964
Subject: Re: Appraisal Fraud? Date: 8/14/2005 10:47 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 2
CatherineCoy:

<<<<I was practically kicked off this board for wanting to discuss stuff just like that and warn about it.>>>>

"With my ear to the ground as a mortgage worker slave, I hear very little about mortgage fraud in the mortgage business, although certainly it exists.'

You may need to check your sources (or get new ones); a weekly e-bulletin I receive describes mortgage fraud at least every second or third isssue, it appears to me.

Regards, JAFO





Print the post Back To Top
Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 89632 of 126964
Subject: Re: Appraisal Fraud? Date: 8/15/2005 12:06 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 4
JAFO31: www.mortgagedaily.com 8/11 - two recent headlines

CitiMortgage Rep Bribed on Broker Loans -

Two California mortgage brokers have admitted in federal court to paying nearly $50,000 in bribes to a Missouri mortgage agent in a scheme to get favorable loan terms.

Fraud Insights at FraudBlogger.com -

The feds have busted up a pretty good sized mortgage fraud ring in Indianapolis allegedly run by appraiser James Lee Spicer.
read mortgage fraud insights@FraudBlogger.com

Id. 8/6

Mortgage Fraud White Paper -

This mortgage fraud analysis was authored by fraud journalist Patrick Crowley. Fraud statistics and estimates, an examination of fraud types/players and fraud prevention are reviewed.

Broker Pleads Guilty -

The owner of an Illinois brokerage firm potentially faces up to 50 years in prison after pleading guilty to her role in a $10 million fraud scheme.

Former Executives of Failed Firm Going to Jail -

In an abrupt about face, one of the former leaders of a failed South Carolina subprime lender has pleaded guilty to charges she deceived thousands of investors and now faces a long prison term.

etc., etc., etc.

JAFO


Print the post Back To Top
Author: CatherineCoy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 89633 of 126964
Subject: Re: Appraisal Fraud? Date: 8/15/2005 1:01 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
You may need to check your sources (or get new ones); a weekly e-bulletin I receive describes mortgage fraud at least every second or third isssue, it appears to me.

I'm talking about fraud as a percentage of total appraisal performed. Of course, when fraud does occur, it's of concern to everyone.

Print the post Back To Top
Author: xtn Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 89644 of 126964
Subject: Re: Appraisal Fraud? Date: 8/15/2005 10:41 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
>>>I would think it very hard to show you suffered any damages.<<<

If I'm interpreting the OP's angst correctly, he thought he still had equity left only to find out now that, no, he already juiced his property dry when he cash out refi'd.

How can the fact that he got his equity in his pocket instead of in his house be considered damages?

xtn

Print the post Back To Top
UnThreaded | Threaded | Whole Thread (28) | Ignore Thread Prev Thread | Next Thread
Advertisement