Home appraisal fraud occurs when a real estate appraiser modifies certain details or numbers during the appraisal process in order to arrive at a fair market value that satisfies the lender. Home appraisal fraud can happen when a buyer first applies for a mortgage or when a homeowner requests refinancing in order to reduce interest rates and monthly mortgage payments. Mortgages for expensive properties require a certain amount of equity, and mortgage lenders can tweak mortgage applications for less qualified buyers by falsifying information in the appraisal to create the illusion that the house has more equity in it.
Home Appraisal Process
When you apply either for a mortgage or for refinancing, the lender will send one of its property appraisers to the property to conduct an appraisal in order to determine the fair market value. The appraiser will inspect the property and land, study the neighborhood, and survey property listings and sales for comparable homes. The appraiser will tally all of the features and dimensions of the property, including:
- Total square footage, as well as individual square footage of rooms, patios or balconies, and yard space
- Number of bedrooms and bathrooms
- Number of closets
- Features such as a pool, a fireplace, or a garage
The appraiser will also construct a diagram of the property. Features such as a renovated kitchen will add value to the property, while damages or defects such as mold growth will subtract value.
They will also evaluate the neighborhood, including its accessibility and features, its desirability, and its location. The appraiser will survey current property listings in the neighborhood to see what properties of a comparable size and situation are being listed at ,and they will also review recent sale prices for similar properties. The appraiser will then combine all of this information to arrive at the fair market value of the home.
Home Appraisal Reform
Aware of the astronomical amount of home appraisal fraud occurring in the U.S., Congress has taken action to avoid another housing bubble crisis. Fannie Mae now requires all lenders to review appraisals for signs of fraud. Fannie Mae’s database provides data on each appraiser and will flag any potential issues with an appraisal.
Disputing a Home Fraud
If you believe that you are the victim of home appraisal fraud, seek the guidance of a real estate attorney. They can review the appraisal, assist you with disputing the appraisal, and help you hire an independent appraiser to audit your lender. Lenders can be civilly and criminally liable for home appraisal fraud.