Appraisal fraud is a component of many mortgage fraud schemes. This type of fraud is one of the more sophisticated techniques being used to commit mortgage fraud. As one of the fastest growing financial crimes in U.S. history, counter measurements to mortgage fraud are required. One of these measurements involves targeting the appraisers and verifying the appraisal is accurate.
Fraudulent appraisals are leading to lenders and buyers suffering billions in losses in the U.S. The expansion of the real estate market in recent years, combined with easier access to credit has resulted in additional attention needing to occur to help mitigate risk from appraisals.
How Appraisal Fraud Works:
There are a variety of ways that an appraisal can be fraudulent. This type of scam can occur from a variety of people participating in the fraudulent activity. For example, unscrupulous appraisers can artificially inflate the value of a property so they, along with mortgage brokers, property flippers, real estate agents and attorneys can profit from the higher appraisal. This fraud can also be found in markets where appraisers are pressured to inflate property value estimates.
Importance of Due Diligence:
There are several steps that can help mitigate the risk of appraisal fraud. It begins with working with legitimate lenders and buyers. These lenders and buyers must verify the mortgage originators, real estate professionals and appraisers involved in the real estate transaction. On the surface, this can seem to be a difficult task, but there are industry tools that exist to help with due diligence focused around preventing this type of fraud.
To mitigate the risk caused from a fraudulent appraisal, use the following steps.
1. Appraiser License Verification:
The first step a lender should take is to perform a check on those conducting the appraisal. By completing a professional check and monitoring licenses of appraisers, the lender is conducting due diligence. It is important to verify not only the license, but the states where the appraiser conducts business. Appraisers must be licensed in each state where he or she intends to value a property. To complete the professional check, lenders should look to the services of a company that provides appraiser license verification.
2. Evaluate Mortgage Brokers:
The second step a lender should complete is an evaluation of the mortgage broker involved. Nationally, the majority of mortgage loans originate from mortgage brokers. It is important to understand that the mortgage broker profits from the process of brokering a loan between buyers and lenders. A mortgage brokers gains when a fraudulent appraiser willingly inflates the value of the property, allowing the mortgage broker to make an increased profit.
The fallout from this type of mortgage fraud results in the buyer and lender left to deal with the risk of market fluctuations. These fluctuations can include housing depreciation, financial loss stemming from inflated housing values and an increased rate of mortgage defaults due to the fraudulent appraisal. The way lenders can help mitigate their risk of this fraud is to verify and credential business relationships among potentially risky mortgage brokers.
3. Other License and Professional Qualification Checks:
In the third step, lenders should check the reliability and qualifications of any other real estate professional that is involved in the mortgage process. Individuals that commit fraud often leave identifiable patterns. Before conducting business with a real estate agent, a diligent lender should check the person's license status. A good protection against fraud is for banking professionals to work with trusted appraisers and real estate professionals that come with positive referrals.
The federal government is collaborating with mortgage entities and lenders to investigate mortgage fraud. In many of these investigations a fraudulent appraisal is at the heart of the investigate instance. Such collaboration also helps mortgage banks identify and potentially avoid various fraud schemes.
Latest Real Estate Articles
Small is Beautiful
By: Carol Freyer | 06/10/2008
One major bonus of Shafer's homes is the low cost of heating. Heated with propane, his own home—a smaller model—costs him $170 per year to heat, and that's in Iowa, where winters are winters. Plus, a smaller home requires less maintenance. Everything is smaller and therefore the amount of work to be done is less: less to dust, less to vacuum.
Realty Remodeling Rules
By: Carol Freyer | 06/10/2008
If you are living in a lower price area and put in a swimming pool and an outdoor kitchen before you list your house, it will most certainly bring the buyers to your home. It will no doubt bring in offers for your home and all this is good news.
Get Your Heating Bill Down
By: Carol Freyer | 06/10/2008
Some statistics say that as much as 80% of the hot air can be lost up the chimney. If that is added to the amount of cold air that is pulled from the atmosphere, then the old log fireplace could almost be said to be mainly a visual experience.
Astrology, Feng Shui, Magic Spells... and Selling Homes
By: Carol Freyer | 06/10/2008
Astrology has been used to divine the future since before the Common Era. Many people today view it as a harmless amusement. Move.com even has a section for "homestrology" profiles. Realty Times did an article entitled, "Look to the Stars for Decorating Advice", featuring astrologer John Marchesella, who claims that knowing your Sun Sign can help you choose colors for your home.
Americans Want Green Homes!
By: Carol Freyer | 06/10/2008
Heating takes a large chunk of our money during the winter months; have you thought of installing a wood stove with an outside chimney (the easiest to install)? The new stoves that leave almost no residual wood and are almost 'smokeless' are part of a grant scheme offered by some governments.
Real Estate in the Top 4 Louisiana Public School Districts
By: Andrew Stratton | 06/10/2008
Louisiana Public School Districts are great areas to live as they offer excellent school system, security, and lot of enjoyable activities. A realtor can help buyers make a good deal.
The R.E.I. Revolution On The Internet
By: Damian Lanfranchi | 06/10/2008
Understand it and thrive. Ignore it, get left behind. I want to make sure that you truly grasp how the internet is revolutionizing the Real Estate investing world. It's absolutely critical to the success of your business. It's something that a lot of the Real Estate investors and gurus are missing the boat on when it comes to their real estate investing website.
Cyprus Property is Hot! But is it Getting Too Crowded?
By: Steven Clarke | 06/10/2008
The recent interest in Cyprus property has initiated a housing boom on the island. It doesn't matter where you go on the island, you can often hear the sound of construction in the background. Developers are scooping up land at an alarming rate trying to keep pace with the growing...
Finance 
