Appraisal fraud can cause serious problems for both borrowers and lenders. It’s important to recognize the warning signs of appraisal fraud so you don’t get stuck in a bad financial situation.
Definition and Example of Appraisal Fraud
Appraisal fraud involves intentionally misstating the value of a home. This often happens when licensed appraisers purposely understate or overinflate a home’s worth. For example, an appraiser may be pressured by a lender to inflate a home’s value so the buyer’s lender can earn more in fees from a home sale.
How Appraisal Fraud Works
Buying a home is a significant investment, and you want to know you’re paying fair market value for the property. That’s why homeowners turn to licensed appraisers. These individuals are responsible for inspecting the property, completing a report, and stating what the home is worth. By the rules of their profession (Uniform Standards of Professional Appraisal Practice) and federal and state law, they must remain objective and independent. Appraisal fraud occurs when an appraiser deliberately misstates the value of a home. This can happen when a homeowner or lender asks the appraiser to intentionally inflate or deflate the home’s value in a way that benefits the homeowner or lender. Appraisal fraud might be used to help a seller make more money from the sale of their home. In some cases, an inflated appraisal may help lower the mortgage’s loan-to-value ratio enough to where the lender can approve the borrower’s application. While the lender earns more on fees and interest from a higher sale price, the borrower is misled as to what the actual value of the property is. In the past, lenders have threatened appraisers to inflate property values or risk losing business from that lender in the future. The best way to avoid appraisal fraud is to identify it before it happens. Make sure you hire an experienced appraiser, ask a lot of questions, and stay vigilant during the appraisal process. If something seems off about an appraisal, you can ask the appraiser for clarification.
What To Do if You Suspect Appraisal Fraud
There are multiple resources you can use to report appraisal fraud. A key national resource is the Appraisal Complaint National Hotline, which is a federally run program that takes complaints and refers them to the right legal authority. Once you submit your complaint, you can also report fraud to the Federal Trade Commission, and the Task Force on Market Integrity and Consumer Fraud’s complaint sites. Additionally, if you suspect fraud, you can report the appraiser to state-level agencies. Start with your state’s appraisal regulatory agency. Also, you may be able to file a complaint with your state government. For example, if you believe you’ve encountered appraisal fraud in New York, you can file a complaint with the New York Department of State, which oversees licensing of appraisers. If you believe you’ve received an inaccurate appraisal, you may want to get a second opinion. You can have the appraisal performed by a different appraiser, who may assess the property at a different value.
Appraisal Fraud vs. Appraisal Negligence
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