Home Appraisal Fraud Law

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 What Is an Appraisal?

Property appraisals formally estimate the worth of a house or residential property. They provide a current assessment of the property value through an examination of factors, including:

  • The property’s size, boundaries, and age;
  • Previous records of sales and transactions;
  • Whether there any improvements have been made to the home;
  • Safety and cost of living in the surrounding area; and
  • Competition for the home during recent sales transactions.

There are also other factors that may be examined. It is important to note that there is no such thing as a completely accurate valuation of a home because many of the factors are subjective.

Appraisals, however, tend to be reliable and are often used during official court matters.

What Is Home Appraisal Fraud?

Home appraisal fraud arises when a real estate appraiser modifies numbers or details in the appraisal process in order to end up with a fair market value that satisfies the lender. This may occur when the buyer first applies for their mortgage.

It may also occur when a homeowner requests refinancing in order to reduce their interest rates and monthly mortgage payments. If an individual or a lender believes home appraisal fraud has occurred during a home purchase or sale, they should consult a home appraisal fraud lawyer for assistance.

A lawyer can review the case, determine if fraud occurred, and help resolve the issue.

What Is an Example of Appraisal Fraud?

An example of appraisal fraud may arise when a mortgage for an expensive property may require a certain amount of equity. A mortgage lender may tweak a mortgage application for a less qualified buyer by falsifying information in the appraisal to create the illusion that the house has more equity in it.

Home Appraisal Process

When an individual applies either for refinancing or a mortgage, the lender will send a property appraiser to the property in order to conduct an appraisal to determine the fair market value. An appraiser will:

  • Inspect the property and the land;
  • Study the neighborhood; and
  • Survey property sales and listings for comparable properties.

The appraiser then considers all of the features and dimensions of the property, including:

  • Total square footage, including the individual square footage of:
    • rooms;
    • patios or balconies; and
    • yard space;
  • Number of bedrooms and bathrooms;
  • Number of closets; and
  • Features such as:
    • a pool;
    • a fireplace; or
    • a garage.

An appraiser will create a diagram of the property. Features including a renovated kitchen will add value to the property, whereas any defects of damages, for example, mold growth, will subtract value from the property.

The appraiser will also evaluate the neighborhood, including the:

  • Features and accessibility;
  • Desirability; and
  • Location.

The appraiser will survey the current property listings in the area to determine what price properties of a comparable size and situation are being listed at. In addition, they will review prices for recent sales of similar properties.

The appraiser will then combine all of these pieces of information to arrive at the fair market value of the property.

Who Can Conduct an Appraisal?

Any individual can make their own personal evaluation or estimation of a particular property. In order for an appraisal to have any legal significance, it must be done by a licensed professional.

There are some appraisers who are certified and will specifically conduct appraisals upon request. In some cases, more than one appraiser will be hired for one property to obtain different perspectives or opinions on the property in question.

When Is an Appraisal Needed?

An appraisal may be needed and, in some situations, required. In general, appraisals are commonly part of legal proceedings involving:

  • Foreclosure proceedings;
  • Issues with property taxes ;
  • Boundary disputes; and
  • Short sales and other types of transactions.

For example, in many property sales, a broker may present figures to clients based on their own examinations of the property. If that client wants a second opinion on the value of the property, they can hire an appraiser and compare the figures that are presented from both parties.

In addition, an appraisal can be a useful tool during a lawsuit to clarify issues, for example, the calculation of damages awards. Hiring an appraiser can also help prevent real estate fraud.

Home Appraisal Reform

Due to the numerous cases of home appraisal fraud that is occurring in the United States, Congress has taken action to avoid another housing bubble crisis. Fannie Mae currently requires that all lenders review appraisals for signs of fraud.

Fannie Mae’s database provides data on appraisers and will flag any issues that arise related to an appraisal.

Disputing a Home Fraud

If an individual believes they have been the victim of home appraisal fraud, they should consult with an appraisal lawyer. A lawyer can review the appraisal, assist the individual with disputing the appraisal, and help them hire an independent appraiser to audit the lender.

A lender may be civilly and criminally liable for home appraisal fraud.

What Are the Penalties for Committing Home Appraisal Fraud?

The crime of real estate fraud arises when an individual in a real estate transaction makes a false representation of relevant information to another individual involved in the transaction. Or, an individual may fail to disclose relevant information to another party.

Lenders and real estate brokers may commit a type of fraud that is known as appraisal fraud. A mortgage loan officer, a real estate broker, and an agent are all paid a commission for their work.

This means that each party receives a percentage of the price for which a property sells. Therefore, these individuals may be motivated to see that a buyer qualifies for a loan in the highest possible amount.

In an appraisal fraud, the real estate broker or agent, the loan broker, and the appraiser, may work together to deliberately inflate the value of the purchase price. This is done in order to increase their own commissions.

If the buyer relies on that inflated price and purchases the home, then the parties to the inflation of the value have each committed real estate fraud. Real estate fraud is a criminal offense that may be charged as a felony or a misdemeanor, depending on the severity of the crime as well as the laws of the state where the appraisal fraud was committed.

Misdemeanors are punishable by up to one year in prison, criminal fines, or both. Felonies are punishable by a prison sentence of a year or more, more severe criminal fines, or a combination of both.

Real estate fraud may also be charged as a federal crime by federal authorities in certain cases. This offense may result in charges of bank fraud or wire fraud under federal law.

These charges may result in a lengthy term of imprisonment in a federal penitentiary.

Do I Need a Real Estate Lawyer?

An appraisal can be a useful tool during any type of real estate transaction. If you are involved in a real estate transaction, it may be helpful to consult with a mortgage lawyer.

A mortgage lawyer can provide advice regarding an appraisal or if you come up against any legal issues during the appraisal process. Your lawyer can also determine whether there may be a potential violation involved and can provide you with legal representation in court.

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