Can Lenders create circumstances that cause an appraiser to violate USPAP?

Any of us who have been in the business more than one week, can answer this one. As of late I have notice a growing number of reviewers from various AMC’s who insist their clients are requesting that the neighborhood section in the URAR be presented in such a way that is now becoming a logistic nightmare. Many have said the percentage built-up must equal the present land use percentages. In other words, if the one-unit percentage is 80-percent then the neighborhood built-up must be more than 75-percent. This of course is absolute non-sense.

These two sections are discussing two different components of description. The present land use includes vacant land in their descriptions. An area can have 80-percent one unit, five-percent 2-4 unit, eight-percent multi-family, and seven-percent commercial and still be built-up less than 75-percent. This is because land use is not only referring to improved land use but also to unimproved land use.

Any appraiser that simply completes the appraisal report as instructed by the client is not providing the client with a report that is accurately presented. One of the foundational concepts of Uniform Standards of Professional Appraisal Practice is to not present a report that is misleading. This erroneous instruction is misleading and any appraiser who gives into this lender pressure has committed an error of omission and commission.

As for any one who is not sure. An error of commission is one where the appraiser responds to an instruction that should not be followed. This is compared to an error of omission, where the appraiser fails to report information or analysis that should be reported.

Is it possible to commit fraud unknowingly?

I have recently read several different posts and articles on the Internet stating that some appraisers have committed fraud unknowingly. Some describe instances of stating condition to be average when the property needed work, or “tweaking” the numbers to make the deal work.

First of all it is important to note, The FBI defines mortgage fraud as “any material misstatement, misrepresentation or omission relied upon by an underwriter or lender to fund, purchase or insure a loan.” By that definition, such fraud can clearly be committed by both lenders and applicants, even though the latter may not think their misrepresentations or omissions are significant enough to be a concern.

This definition has been transmitted around the Internet and has been widely used to accuse appraisers of wrong doing. It is equally important to note that in order for a charge of gross misrepresentation to become a convict-able offense of fraud the claimant must prove that the defendant intentionally committed such a grievous transgression. Fraud my intentional omission is of course as bad as fraud by wording a report to mislead, or gearing a value towards a prearranged goal.

Appraisers must always be vigilant to make sure they have not compromised their objectivity or lost their independence during the appraisal process. Equally review appraisers must stray from calling misstatement of that is uncovered during the appraisal review, “fraud”. Fraud is a term that the judge hands down with conviction. An appraiser is not guilty of committing fraud until he or she has been convicted of such an offense.

It is my considered opinion, that review appraisers who place in their reviews charges of appraisal fraud are setting themselves up for a libelous suit from the appraisers who are being labeled fraudulent appraisers by the client and as a result are losing business due to the label.

Is it possible to commit fraud unknowingly? No. The simple answer is no. The appraiser needs to have intent in order to be convicted of fraud. This is not to say an appraiser can not, or should not his or her licensed removed if he or she show a trend of producing appraisals that are materially incorrect or misleading, even if there was not intention of fraud. But this is another discussion for another day.

The Good Old Days?

Does anybody miss the good old days of having to deal with the mortgage broker? After spending about 53 minutes on the phone with an appraisal management company, who will remain nameless, I am almost missing the good old days myself.

I originally called, because the appraisal management company called to see if I would take a forensic retrospective review for a new client they just acquired. This of course is a Fannie Mae client, and any of us who have dealt with Fannie we know there is a specific format, guideline and style in which they want their reviews worded.

Despite my better judgment I agreed to take the assignment. Having working in the fraud investigation department for Fannie Mae for the better part of eighteen months, and having had more than twenty years in experience in residential review I felt adequately up to the challenge.

The problem I encountered was that the property was a hypothetical appraisal. That is to say the report was conducted on 5 acres out of 214 acres. The property was never taxed separately and never subdivided. This lack of subdivision makes the appraisal hypothetical and the property was ineligible for residential lending standards.

I called the appraisal management company to let them know of my findings and asked to speak to their chief appraiser. This is where it got interesting. After several minutes of hesitation and asking questions so why I could not just give them a value on the 214 acre farm in Ellis County, Texas; I was finally given the phone number for “one of their appraisers”. It turned out this appraiser was an independent fee appraiser like myself, working in Michigan. He was of course very nice and professional but what bothers me is working for an appraisal management company who have no appraisers in the company structure.

Once upon a time, my father told me the appraisal industry was “going to hell” because it was filling up with women and children. Of course this was a tongue in cheek comment, because I was working for him the “children” as was his wife the “women”. But I can only imagine what he would have to say about the appraisal management company that has no appraisers and no has no idea why it is a problem to review a hypothetical appraisal for residential lending purposes.