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Fraudulant Appraisals Contributed to The Housing Bubble

I just finished reading an interesting real estate article regarding the role that certified appraisals may have intentionally or unintentionally played in the creation of the now burst housing bubble in the US.  Here in Canada our real estate market did not suffer from the same situation.  In my Lethbridge real estate marketplace, we are even more insulated and have felt even less of the negative impact of the global economic troubles.

 

So here is the article, I am not sure that I am quick to believe the stats thrown out in the article, and you can check it out directly for yourself at the 'foreclosurefish.com' website.

 

Discovering Fraudulent Appraisals During Foreclosure
 by: Nick Adama

Without question, one of the enablers in many fraudulent mortgage lending schemes has been a crooked appraiser willing to give a property any value that the Realtor, mortgage broker, or lender wanted. The real estate bubble could not have been inflated to such a high level without the complicity of many appraisers who threw all conservatism out the window and began giving properties ridiculous values in order to help secure loans.

Now, with the housing market collapsing all around us, these appraisers have had to go back to valuing homes at more reasonable levels. However, this leaves many homeowners out in the cold, having received inflated appraisals just a few years ago and now finding out their homes were never worth that amount. What recourse, though, do these borrowers have, especially when they fall into foreclosure ?

The degree of appraisal inflation and fraud has been found to be astronomical in too many cases already. Homeowners have discovered that their home's value was inflated by up to 1,000% of its non-bubble price. The typical mortgage insured by the Federal Housing Administration (FHA) is inflated by 30-50% in order to raise prices of property on first-time home buyers and low income borrowers.

So clearly, there is a problem with a large number of appraisals, but homeowners may have trouble holding the individual appraiser or his company liable for the inflated value. However, there are a number of different claims that can be brought against an appraiser that blatantly misrepresented the actual fair market value of a home, especially if the borrowers relied on that appraisal in their decision to buy or refinance.

 

The most obvious claim borrowers may be able to bring against an appraiser is fraud due to the misrepresentation of the home's value. While valuing a home is sometimes just as much art as science, obviously using inappropriate comparable sales or making unreasonable adjustments to justify a higher value can be a clear case of fraud.

The only problem with this claim that homeowners may find is that the conditions may be hard to meet. For example, the borrowers will need to show all nine elements are present for a fraud claim to be made. Unfortunately, this may be easier said than done, and homeowners may want to contact an attorney to discuss the potential of a fraud case in more depth. These nine elements are the following:

1. representation of an existing fact.
2. the fact is material.
3. the representation of the fact is false.
4. the speaker knows it is false.
5. the speaker intends the listener acts on the knowledge.
6. the listener is ignorant of the falsity.
7. the listener relies on the truth of the fact.
8. the listener has a right to rely on it.
9. damages are suffered by the listener.

Far more promising as a claim against appraisers is state Unfair and Deceptive Acts and Practices (UDAP) statutes. This claim is also somewhat easier to make. The reliance on the misrepresentation does not have to be show, and some of the other conditions are also loosened. Homeowners should contact a lawyer or do some research on their state's UDAP laws, however, to find out all of the relevant information.

There are also a number of other claims that can be made against an appraiser, either in or out of foreclosure. Depending on the circumstances of the case, some of these include violations of state licensing laws, civil conspiracy, fraudulent concealment, and civil RICO claims. Again, it may be in the homeowners' best interests to speak with legal counsel or research these issues in depth before making a claim.

Far too many homeowners were given the most expensive mortgages they qualified for and their home values were inflated to justify the large loans. Appraisers played a role in these transactions, and many of the most corrupt may have engaged in acts that carry significant legal liability. Especially in cases where a lender pushes homeowners into foreclosure, doing some research on these issues and holding the appraiser accountable may be called for.

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Robert W May is a Real Estate Broker in Lethbridge Alberta, having now been in the industry for over 23 years. . He was also a licensed Lethbridge mortgage broker and financing expert with Canada First Mortgage of Calgary Alberta for the past 10 years.  He is an industry leader always willing to help train and educate others in how to improve their business models for financial and personal benefit.




 

 

Comment balloon 4 commentsRobert May • December 14 2009 08:34PM

Comments

Sorry, but I never experienced an appraiser who would bring in a sales price that I wanted.  Maybe somewhere that was done, but not in my town.

Posted by Sandra Scott, REALTOR of Choice! Payson, Pine & Strawberry, AZ (DPR Realty) about 8 years ago

Hello there stranger and it figures and these crooks are all over Las Vegas. I will bookmark this page and get a better read and thanks for the material.

VB ;o)

Posted by Robert Vegas Bob Swetz, Las Vegas Henderson Homes for Sale (Realty ONE Group) about 8 years ago

I cnnot blam the appraisers, it is these no money down loans that put over the edge. I have never understood appraisals anyway, if someone wants to pay the price, can afford it and the banks wants to give the money then I think they should. If someone (banks ) are willing to take the risk then they should and also be allowed to go under not be bailed out.

Posted by Charles Stallions, 800-309-3414 - Pensacola, Pace or Gulf Breeze, Fl. (Charles Stallions Real Estate Services ) about 8 years ago

Thanks so much for the comments.  I have never experienced this sort of thing with an appraisal either.  I have had it go the other way, where the appraisal did not come in high enough and the deal did not go as a result, but never an appraiser who was encouraging prices upwards.   The stats in the article also made me take a second look.

Posted by Robert May, Real estate consulting (Robert W May - Lethbridge Real Estate) about 8 years ago

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