Appraisal fraud is a big, big problem both in Florida and across the country. Now, it may be that this hole in the dam that is ForeclosureFraud may start to get fixed — there seems to be some movement towards fixing appraisal fraud and appraiser negligence.
Appraisal Fraud Insurance Coverage Announced – For Lenders and Investors
This week the national appraisal firm Kirchmeyer & Associates formally announced that it will be offering loss protection for faulty real estate valuations. Its going to insure its own appraisals for real estate investors and lenders by covering the losses of lenders and investors when “a valuation inaccuracy is discovered” in the case of loan default, foreclosure or buyback. More from its press release:
… [giving] mortgage lenders and investors complete assurances of appraisal quality and accuracy. The program protects against default losses including repurchase expenses, affecting eligible loans including firsts, seconds and HELOCs. Kirchmeyer’s commitment to its clients with this warranty offering enhances the appraised value backed by an iron-clad insurance policy, provides assurance to the investment community that the valuation will not ultimately impair the performance of the loan.
Expect its competitors to follow with their own bad appraisal insurance packages: appraisal fraud is a big part of the national ForeclosureFraud problem and our ongoing housing crisis and yet, appraisal fraud does not get the media attention that the actions of bad banks and bad bank lawyers have received.
Appraisal Fraud Is A Big Part of Foreclosure Fraud
For more on appraisal fraud, read our prior posts on the topic, including, “Feds Awaken to Widespread Appraisal Fraud as FDIC Sues, Alleges Florida Appraiser LPS Appraisals Wrongfully Inflated Values.” This summer, the federal government began its own investigation into how bad or inflated appraisals contributed to the current housing crisis and ForeclosureFraud.
American Home Builders Are Concerned About Appraisals
Meanwhile, the Chairman of the National Association of Home Builders spoke to the Appraisal Institute back in August (with his speech being posted on the NAHB site this month). There, the representative of the country’s home builders pointed out to the nation’s appraisers at their annual Vegas convention that:
” …[t]he appraisal industry carries a heavy burden regarding the condition of the U.S. economy…. We have learned over these last few years that the way homes are valued can have a dramatic effect on home owners’ mortgages, foreclosure rates, the health of banks and, ultimately, the condition of the U.S. financial system.”
Of particular concern to home builders: the impact that appraisals in deals involving foreclosed homes, short sales and distressed real estate has had on the real estate market, particularly when appraisers use these properties as comparables for brand new homes – doing so, brings down the appraised value of the new home unfairly and inaccurately.
More Focus Is Needed on Appraisal Fraud and Appraiser Negligence
For Florida homeowners and those wanting to buy real estate in Florida, the concern surrounding bad appraisals is real. Appraisals normally are performed by licensed professionals that are supposed to give valid, independent valuations of property – but it’s very clear that over the past few years, many licensed, and in some instances unlicensed, appraisers have made mistakes – lots of these appraisers have intentionally given bad appraisals to make deals happen for realtors, banks and for their own gain.
As we all know, the real estate appraisal, which provides the current value of real property, serves an important function in most real estate transactions. Property valuation is important to several parties including buyers, sellers, investors, financiers, and insurers. Buyers and sellers rely on the appraised value to confirm a fair price for the property. Banks and other mortgage lenders use appraisals to support their loan decisions. Insurers use the appraised value to determine the cost for coverage for items such as title insurance and homeowners and flood insurance policies. Thus, an erroneous appraisal can lead to problems for many participants, including the homeowner who, for example, will have to pay increased insurance costs.
Faulty appraisals can also cause problems in the foreclosure process. For instance, if a property is given a value that is higher than its true value and consequently over financed, a subsequent foreclosure on the mortgage could result in a foreclosure sale price substantially less than the mortgage balance. This in turn affects the amount of the deficiency judgment the lender may pursue against the borrower related to the unpaid balance of the note.
For these reasons, it is important to hire an experienced real estate lawyer if you believe that your home has been wrongfully (either fraudulently or negligently) appraised. Larry Tolchinsky has extensive experience in real estate matters for more than 20 years and is familiar with the issues homeowners are facing in today’s difficult economic times.
One of the many things that sets Larry apart from other Real Estate Attorneys is his knowledge of real estate having owned numerous properties for himself as well as having been a mortgage broker prior to practicing law. That experience allows him to understand and approach real property issues from a different view point, not just from a lawyer’s perspective.
Appraisal fraud occurs when there is an intentional and material misrepresentation of the value of real estate. Recent lawsuits have shed light on lenders coercing appraisers to provide artificially inflated appraisal values, to facilitate things like property flipping, or risk losing referrals from the banks in the future. The result is borrowers are misled as to the true value of the properties they were buying all in an effort to generate profits.
Appraisal negligence is when an appraiser does not exercise the degree of care and skill that an ordinary appraiser would exercise. For example, the appraiser may use outdated sales comparisons or improperly adjust for the value of the subject property (for items such as location, square footage, and property age) to establish value. Also, the appraiser may overestimate the cost and income capitalization approaches when valuing property or not give those methods much weight at all in determining value.
If you feel that your home was improperly valued because of any of these reasons or any other reason, you should talk to an experienced real estate attorney who can help to recover any damages that you may have suffered.