Tuesday, December 15, 2015

By John Voket I recently took note of re-emerging concerns about fraudulent home appraisals. According to one post at realestateeconomywatch.com, a study by Platinum Data Solutions, a company that analyzes appraisals to reduce lender risk, found that 39 percent of approximately 300,000 appraisals contained property quality or condition ratings that conflicted with previous ratings of the same location.

These conflicts can result from a number of factors: human error, appraiser subjectivity, actual changes in the property’s condition or quality, or even possible appraisal fraud.

Phil Huff, president and CEO of Platinum Data Solutions says causes aren’t easy to determine, so they need to be investigated. He said doing this after UCDP submission opens lenders up to numerous issues including costly delays.

Despite Platinum Data Solutions’ findings, the Treasury Financial Crimes Enforcement Network reported that loans with appraisal or valuation fraud fell to 15% - to 2,033 incidents in 2014 from 7,641 in 2013.

Fannie Mae's housingindustryforum.com recently published the following list of red flags for mortgage professionals that could signal a fraudulent appraisal:

• The purchase price is substantially higher than the predominant market value.
• Large positive adjustments were made to comparable properties.
• Comparables’ sales prices do not bracket the subject’s adjusted value.
• Comparable sales are not similar in style, size, and amenity.
• All comparable sales are located in subject development.
• Comparable properties are a significant distance from the subject, or located across neighborhood boundaries (main arteries, waterways, etc.).
• Map scale distorts the distance of comparable properties from the subject.
• Photos appear to be taken from an awkward or unusual standpoint.
• Significant appreciation in a short period of time since last sale.
• Prior sales are listed for the subject and/or comparables without adequate explanation.
• Do the addresses return the same property(ies) as pictured in the appraisal?
• Is the appraiser’s map scale skewed to make the comparables appear as if they are within the subject’s neighborhood, when they are actually in different neighborhoods?
• How did the real estate agent describe the subject’s and comparables’ characteristics and condition?
• Does the listing history make sense when compared to the sales price?

Stay tuned as we continue to follow this story in future reports.

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