You recently received an appraisal on a home, and something does not seem right. The value is too high and out of whack with comparable purchases in the area. Worse still, there was a suspicious relationship between the broker, lender, and the appraiser. Perhaps you received the value of an appraisal as part of a divorce.
An inflated appraisal is the linchpin of the property flipping schemes and many predatory loan schemes. Sky high appraisals are often used as evidence in many different court cases. Mortgage brokers secure inflated appraisals to persuade lenders to extend loans larger than the borrower’s income and assets justify. The consumer ends up saddled with a mortgage that may exceed the value of the home, making it impossible to refinance or to sell the home except at a loss.
An appraiser may be liable for fraud, civil conspiracy, UDAP violations, violation of state appraiser licensing laws, and even RICO violations.
Since the consumer usually has limited contact with the appraiser, the appraiser’s involvement in the fraud may not be obvious. A thorough investigation is therefore necessary. Investigating the facts surrounding the appraisal may also reveal how others—those who arranged for or used the appraisal—are tied into the fraud.
Getting a copy of the appraisal is the first step in investigating appraisal fraud. The Equal Credit Opportunity Act requires creditors furnish appraisals to consumers either routinely or upon written request. A request must be made within ninety days of the creditor’s notice of action taken or the applicant’s withdrawal of the application. In addition, the creditor must retain for twenty-five months all written or recorded information that it used in evaluating an application and that it did not return to the consumer.
Another essential early step is to obtain a retrospective appraisal that will evaluate whether the original appraisal was correct at the time it was issued. A nonprofit organization has adopted standards for appraisals that may be useful in pinpointing how an appraisal was falsified. See www.appraisalfoundation.org. After all, the very purpose of an appraisal is to determine fair market value as estimated by a disinterested expert whose knowledge, access to information, and professional independence lend reliability to the valuation. See generally, Principles of Appraisal Practice and Code of Ethics, AMERICAN SOCIETY OF APPRAISERS, http://www.appraisers. org/ProfessionalStandards/CodeOfEthics.aspx# 2.2
There can be little question that procuring or providing a falsified appraisal meets the standard of deception in a UDAP statute and is a misrepresentation that will support a fraud claim. UDAP claims are particularly flexible since in many states privity of contract is unnecessary, and nondisclosure is just as actionable as affirmative deception.
While most UDAP statutes do not require the consumer to show reliance on the deceptive acts, they do generally require a showing of causation. In the context of fraud claims, appraisers have been held liable where the falsified appraisal enabled the scam artist’s fraud to succeed, even though the consumers never read the appraisal. This same chain of causation should be sufficient to satisfy a UDAP statute’s causation requirement. A showing that the falsification of the appraisal was a prerequisite to approval of the disadvantageous loan that harmed the consumer is sufficient. An appraiser can also be liable for aiding and abetting the other defendants’ UDAP violations even if the consumer never heard or relied on the appraiser’s own misrepresentation.
If the state interprets its UDAP statute to require a showing of reliance by the consumer, there are various ways that this showing can be made even if the consumer never read the appraisal. The loan officer may have told the consumer the appraisal amount. A Maryland court held that an appraiser’s representation about the value of a home was communicated to the buyer, indirectly, by the mere availability of financing to complete the transaction. Another court held that, by giving the appraiser access to his home to perform the appraisal, the homeowner may have implicitly relied on him to perform the appraisal without deception The lender or broker may have assured the consumer that it would take care of everything and would handle all the arrangements, including the appraisal, thereby leading the consumer to rely on the integrity of all the steps of the transaction.
A lender that makes a loan on the basis of an inflated appraisal may be liable under the UDAP statute along with the appraiser if it knew of the fraud or if the appraiser was its agent. Because the subprime mortgage boom was driven so much by up-front compensation for originating loans, many lenders were complicit in the issuance of loans based on inflated appraisals. The lender may also be liable if the consumer can marshal facts showing that the broker that arranged the inflated appraisal was acting as the lender’s agent.
Regulations adopted in 2011 under the Truth in Lending Act impose significant requirements regarding the independence of appraisers. These regulations, adopted under the authority of the Dodd-Frank Act, replace appraisal independence regulations that the Federal Reserve Board adopted in 2008.
If you have reason to believe that your home was improperly valued before purchase or sale, Titus Connors can help you collect the evidence needed to pursue a claim against the appraiser and recover damages. At Titus Connors, LLC, we help to protect the rights of real estate sellers and investors who have suffered losses due to appraisal fraud and will provide you with diligent, experience-based advice throughout your case. To meet with one of our attorneys, call us at (913) 543-4500 today.