Appraisal fraud a growing problem that can hurt you in many ways

Nation’s high foreclosure rate is tied to an increased amount of appraisal fraud

The problem of appraisal fraud continues to grow in the Untied States. Unheard of until just a few years ago, the term “appraisal fraud” is now being heard more and more often as homes go into foreclosure.  According to the Mortgage Asset Research Institute, fraudulent appraisals are a factor in as many as 40% of all foreclosures.

What is appraisal fraud?

When a property is sold, lenders are generally only willing to lend money for it if they can first determine that the property is worth at least as much as the selling price. In order to determine this, an independent property appraiser is hired to examine the property in order to determine its market value. This is done by examining the property in person and looking over its condition, age, size, amenities and location. In addition, the appraiser looks at other property in the neighborhood that has recently sold and tries to find comparable houses to the one for sale. From all of this information, he or she is able to come up with a fairly accurate assessment of the market value of the property in question.

Fraud comes into play if the house is actually worth less than the asking price. Lenders want to issue loans; they make money when they do. Because of this, appraisers are often under pressure from lenders and buyers to offer appraisals that meet the “target.” In other words, they aren’t asked to assess the value so much as they are asked to produce a document that affirms the asking price. This happens often, and most of the time it simply allows the buyer to get the financing that he or she needs in order to buy a house that they want to live in. While it isn’t really legal, for the most part, no one is hurt by this type of appraisal fraud.

Appraisal fraud can turn ugly when it is conducted without the knowledge of the buyer. In many cases that have recently hit the news, appraisers and lenders, working together with sellers, have arranged for properties to be valued at prices that are significantly higher than their actual worth. These properties are then sold to unsuspecting buyers who fail to realize that they are paying way to much for the house. This often happens in cases where the buyer is a real estate investor who may live out of town or even out of state. Sometimes there is an agreement between the lender and the seller to split any profits that may be made on the sale.

This becomes a problem for the buyer when he or she tries to rent the property, only to discover that the property cannot be rented for enough money to make the mortgage payments. Sometimes the buyer will want to sell the house, only to discover that it isn’t worth nearly as much as previously described. Sometimes the buyer is simply someone who wanted to live there and has discovered, for whatever reason, that the home is not affordable. When the buyer tries to sell, he discovers that it isn’t worth anywhere near the amount that’s owed on it. This often leads to foreclosure.

At the moment, this is a problem without a solution.