Appraisers stand as an independent party to real estate transactions. If we do our job well, we are impartial witnesses reporting facts. Sadly, facts have a sneaky way of gumming up real estate deals, and some less scrupulous lenders, agents and appraisers are willing to look the other way, and thereby become party to mortgage-related crimes.
Sadly in my time as an appraiser, and after the time of the reforms after the mortgage crisis of 2008, I still witness mortgage elated crime on a bi-weekly basis. 15 US Code § 1639e is a major source of mortgage-related crime definitions in relation to appraisers. While there are whole sections of the banking industry that I am not in connection with and cannot speak to, the three forms of fraud that I witness on a regular basis are:
Attempts to inflate asset values - Agents, lenders, and homeowners attempting to influence value. This is pretty common and subtle at times... probably because it now carries a $10,000 fine, with an increase to $20,000 for subsequent offenses.
On two occasions in 2021, I was directly asked to arrive at targeted value conclusions in order to "make the deal work." However, far more times the phrase, "What do we need to do to make this work?" is thrown around. I've never once entertained this language, deflecting to inform them that I don't need anything other than the time needed to produce my report, but I do wonder what the answer would be if I responded, "What are your offering?"
Attempts to hide material defects - Whenever an agent meets me at the property and insists of "hovering" and talking to me through my inspection, I begin to wonder. Its an interesting coincidence when the rate of conversation goes up at the same time that I'm nearing a material defect on a property that might cause the loan to be slowed or fail altogether.
However, sometimes the efforts aren't this subtle. In the past year, three large mortgage providers (numerous billboards and locations throughout RVA) attempted to get me to change my report to hide serious material defects that would cause the loan to not be able to be written. Let's be clear, this is an attempt to influence the appraiser to commit fraud, and an ethics violation.
Attempts to misrepresent a property - This is similar to the above, but with a minor difference. Fannie Mae won't underwrite a loan on a property that can be subdivided at a later date for the purpose of development. Period. This is covered in the Highest and Best Use analysis of page 1 of the URAR report. SO, if a 100-acre parcel with a farmhouse is located in the middle of multiple new developments, and the owner thinks they're land is worth millions because it could be developed, it doesn't take much to realize that the HBU of the property is not As-Is.
But, if the appraiser marks their report in this way, the lender can't make 30 years of interest on the loan. So, what does Classless Valuations do (name changed to protect the guilty)? They ask the appraiser to misrepresent the property by only saying there are 5 acres, not 100, and write the report (side note: this was common practice pre-2008... but is expressly an act of fraud now due to lending requirements).
I believe that my experience is typical, but I also believe that many appraisers are numb to the attempts. There may be a small percentage who are willing to sacrifice their credibility for a few dollars or clients, but I don't believe (or at least hope) that they are the majority. The attempts are so frequent and without an attempt to hide, that I have to believe that most appraisers let them pass from one ear to the other. However, what would happen if appraisers began to take 15 US Code § 1639e seriously, and reported these crimes to the authorities? What would the industry look like?