In the early 2000’s South Florida experienced an all time high in the real estate industry. This was often referred to as the “real estate bubble” because prices of real estate kept increasing with the demand. But, around 2005-2006 stricter banking regulations, among other things, led to the burst of that bubble. By the end of 2008, over 3,000,000 homes had been foreclosed upon by banks and approximately $31,000,000,000 in mortgages were written off. It was at this time that “mortgage fraud” became prevalent around the country, and especially in Florida. There is no federal statute called “mortgage fraud” — these crimes are more often charged as “wire fraud.” While “mortgage fraud” is not charged as commonly as it was previously, fraud associated with the mortgage/real estate industry still exists.
Understanding Appraisal Fraud
A home appraisal is an estimate of a home’s fair market value. All lenders order appraisals during the mortgage and refinancing application process to ensure that the amount of money granted to the borrower is fair, sufficient, and appropriate. Appraisals are supposed to be both legitimate and unbiased, but appraisal fraud is far from uncommon, both nationally and in Florida.
An elaborate form of mortgage fraud, appraisal fraud occurs when the value assigned to a property is intentionally inaccurate. It usually occurs when a dishonest appraiser is participating in the scheme. However, realtors, mortgage brokers, home owners, and even home buyers have also been known to alter a legitimate appraisal, or at the very least have knowledge that it occurred. Appraisal fraud tends to be more prevalent in active markets, where property prices are going through the roof and an unusually high value isn’t as likely to be questioned. Buyers who worry about losing the chance to get their dream home might also be reluctant to obtain an independent appraisal, even if the price seems unusually high to them.
How Does Appraisal Fraud Occur?
Appraisal fraud takes place under a variety of different circumstances and scenarios; below are three of the most common:
- The appraiser appraises the property for more than it is worth in order to: help a homeowner secure an equity loan or refinance a property; assist a buyer in getting a larger loan than they should; or ensure that a seller gets a price that exceeds market value.
- The appraiser takes part in a builder bailout. This scheme involves appraising a property at a higher amount so that a builder can appear more profitable to a lender and therefore renew a line of credit or refinance more easily.
- In some instances the appraiser will understate the value of a property to facilitate short sale fraud. They claim that the home is worth a lower amount so that a buyer (who is in on the scheme) acquires it at a reduced price and the lender takes a loss. The house is then resold at a substantial profit.
So how can you confirm that the appraiser you’re working with is not trying to take advantage of you? Here are some ways.
- Hire your own appraiser instead of one recommended by another party to the transaction. The added cost is worth it when it comes to protecting your investment.
- Confirm that your appraiser is state-certified and, ideally, a member of the professional organization.
- Conduct due diligence in researching the most trustworthy appraisers in the area. Ask friends for recommendations to ensure you are working with someone legitimate.
If you are an attorney, borrower, or lender and are concerned that you may have been subjected to real estate appraisal fraud, contact Puglisi Law. We also represent those who have been falsely accused of such crimes. We have years of experience in handling federal and state criminal charges, and will spare no effort when it comes to getting justice for you.