Speakers at Fraud Conference Name Appraisers as Root of Problem; AI Members Defend Role

The June 2006 Appraisal Institute's Appraiser News Online reports on appraisal fraud topics from the recent MBA conference in Chicago. Mortgage fraud has grown more sophisticated and dangerous, "but its basis always is a fraudulent property appraisal," David McLaughlin, assistant attorney general of Georgia, said at a recent Mortgage Bankers Association of America conference, which took place in Chicago May 15-16. By pegging values higher than warranted, McLaughlin said, "the fraudsters pocket the extra cash." However, a couple of speakers reminded the conference that the Appraisal Institute has long sought more governance of, and legal independence from, the loan originators who typically hire them, said appraiser James R. Blaydes, SRA, of Peru, Ill., who was in attendance. Additionally, Robert C. Gorman, MAI, an appraiser in East Hazel Crest, Ill., who serves on the Illinois Real Estate Appraisal Division board, told bankers, "You need to know a little bit more about who you're hiring than a phone call to someone on a list of qualified appraisers. If you'd just check where you're sending checks, that could solve a lot of problems." Other tips suggested by the two appraisers included scrutinizing the details of real estate transactions – including the reputations of the professionals involved – and not allowing loan originators or underwriters to choose the appraiser for their property deal. McLaughlin’s comments weighed heavily at the conference due to his state’s recent Residential Mortgage Fraud Act, which has become a model for other state laws nationwide. The act came on the heels of Georgia being named the top mortgage fraud hot spot in the nation for three straight years. The Georgia Residential Mortgage Fraud Act makes it a felony, punishable by one to 10 years in prison, to misstate, misrepresent or omit facts in a real estate transaction, with intent to defraud, he said. The law also provides for fines of up to $100,000 an offense if a pattern of illegality is proved, he said. "It's getting people's attention," said Baker, whose office has more than 100 cases underway. "Most importantly, we don't have to wait until money is actually taken. We can intervene as soon as a proposal for fraud has been made. That's allowed us to get to the core – the deceit – before the lending institution has been bilked of millions, and a neighborhood has literally been destroyed." Georgia's law won praise from conference speakers but not all audience members. One possible reason: it makes lenders criminally liable for fraudulent loans. "You could be a defendant. Please bear that in mind," said mortgage-law specialist Michael J.M. Brook, an attorney with Lanahan & Reilley LLP in Santa Rosa, Calif. For more information about mortgage fraud, visit www.fbi.gov or www.usdoj.gov (type mortgage fraud in search box) or the trade group Web sites, www.mortgagebankers.org (see consumer section) and www.appraisalinstitute.org (type mortgage fraud in search box).

• FBI - The Rise of Mortgage Fraud And How It Impacts You
• Inflated Appraisals Put Homeowners, Lenders At Risk

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