Appraisal Fraud from the Appraiser’s Perspective

Ease of entry was a key in the jump from 11,000+- in CA in 1990, to over 21,000 by 2007.

From Steve Smith

This comment is not made to defend the actions of any appraiser, or the appraisal industry itself, but to add some dimension of what was going on transactionally.

Sadly, appraisers were Conditioned to Anchor on Sales Price. This, even though their USPAP Certifications state that they do not do that.

Those who would not play the game of committing to being able to support the Sales Price, were routinely put on exclusionary lists at the larger mortgage banking firms or departments.

Some of the best appraisers went hungry during the boom. Some choose not to play the game as lender work is the greatest source of client pressures and the cheapest fees in the world of appraisal.

When Licensing of appraisers was eminent, in 1988, my personal choice was to get away from lender work as a way to make a living. At that time, appraisers were making $250 for a house report on FNMA forms.

Rather than work fast and cheap, cutting out the due diligence that compliance with good appraisal procedures requires; my choice was not to play the game.

Unfortunately, Licensing ushered in the world of businesses who taught the Prep Courses, cramming test answers into students who became licensed, with out really understanding much more than they had been told they could make huge money, knocking off 3+- reports per day.

Even Money Magazine included Appraisal as one of the best high paying jobs in the world for several years. This was largely due to their interviews with some that had gotten on the gravy train and who had no idea of their responsibilities or liabilities. No, of course, Money does not include appraisal..

Ease of entry was a key in the jump from 11,000+- in CA in 1990, to over 21,000 by 2007.

It is easy to create a fake appraisal using Templates in a Forms program with the majority of the Fields filled in, and the Adjustments automated.

Keen minds entered appraisal and hired Trainees, often by the dozens. Larger minds opened Appraisal Management Companies, and took their rake off the top, cracking open reports when they did not come in, and changing them, etc.

Nowhere along the way has it been shown that the appraiser was the originator of the bubble, but they certainly were the enablers, and many still do not know it.

9 Responses

  1. Off topic – but worth noting in Florida.

    Evidently, shamelessness has no bounds.

    News of a new bill to convert Florida to a non-judicial state for foreclosure process.

    Time to break out the big guns.

  2. Steve,
    If you work in the OC-area, I need an appraisal. I got so fed up with trying to get a decent appraisal that I actually completed the at-hone course so I could challenge what I thought were ridiculous appraisals. Our house is non-conforming, very architectural, and there are no comps.

    We’ve had at least five different appraisals during the various construction phases of our home over the past ten years, and we’ve gone through the appraisal process 50+ times in Mexico, so I’m not your average home-owner.

    You can write me at


  3. You’re all making good points. Appraisers who did lots
    of single-family and co-mingled or officed inside broker
    offices, as non-employees w/free MLS & all thier work loads, did contribute to this hper-inflationof values, and yes, there are few of us who did not coddle to the lenders & brokers as all their ‘needed values’ seemed to come out wth lack of valid market validated reason for conclusions to value other than complying with (bank) underwriter & biased-reviewer 15% net and 25% gross adjustment limitations set on line items on the URAR form. Yes, USPAP and Dept of Reg/License
    are the focus for defenders to go after E&O appraiser
    issues and yes they were paid the least $300-$500 while 7% residential commission & 10% land comm.
    was paid & big lender fees of thousands made for their nice offices and autos and EGOS! The abuse of AVM and realtor’s convincing public they “make the market” when actually buyers/sellers in negotiations make the market is a focval point to always be wary of as the lender “sends” his guy out to get it done … you can hire any certified state appraiser to provide value estimation on your property, you’re paying them in the loan yet the lender picks them & the values was always
    there to help so many in greedy purchases they knew they couldn’t afford means that buyers are also culpable to a certain extent. Not everyone is crooked but USPAP is Appraisal Foundation Congress-driven,
    I was honored as a member in 1997 … then local realtors & brokers hid their insider deals & had only their favorites & ‘players’ do their work … I would not, as being party to the closing of any loan is illegal as bias for any appraiser … even accepting payment as a condition of the loan approval: appraisal’s professional
    conclusion from open market facts, and not appraiser opinions and bias to please the fellow-golf buddy banker or boss broker who gives you every sale to do.
    That is collusion. It’s also fraud to prescient, or preset
    conclusion to value. Flippin is fraud the FBI will look at for you if you have facts but don’t make false allegation and use their time to make your defense, go to DRL and contact the appraiser re: E&O coverage which will be best explained by State Statute & USPAP violations.
    I’m an expert witness, have acquired easement and fee deed property in CA, MN, IL, IN, MN, WI where I’ve been a certified appraiser for 30-yrs (before licenses!)
    so I would assist in audits on this basis: I;m not an attorney, I’ve bought sites for road, cell towers, pipeline
    gas town border and ethanol sites, paid hundred of thousands for easements 100’x100′ small and done all kinds of residential & relocation appraisal & review for Fannie Mae who couldn;t even employ a great report to unprove what they already approved for loan, and I know USPAP & licensing from teaching both. Its uneasing for the appraiser to have claims against their E&O or their license investigates, both are pro-se
    and free to do … I can help you understand what to look for. I’m not wanting to undermine or pre-approve myself on Neil’s website, so please contact me with interest direct at to inquire about this aspect of your total audit & defense
    preparation. Its not rocket science, but seen from both sides of the fence, I can tell you few will tell you their weaknesses and how much they were told what to do and that their incomes were in-fact contingently made payable by the lenders from the successful sales of the broker negotiated (controlled) dealings. Few buyer
    motivations go beyond being able to see the new home & qualifying for the loan to get it theirs, the broker smiles & the lender calculates, and ‘joila’ its a loan! So none of the brokers knows squat about the level of intricate Neil can offer with respect to the securities and the legal formats to motion, proceed and defend and format legal argument. I’m very good at finding abuse in appraisal & valuation & legal description & title errors since I’ve written them in many forms on many properties and the due diligence
    area of appraisal is seldom done with professionalism
    by those who were making fast money & acting smart.
    Under critical review, even the Timmy Geithners and Paulsons of this world can be seen to shake badly when someone questrions that they could make human mistakes. But, as Aristotle would say, its the flauter & the arrogant at that which truly offend and annoy us in the course of their abuses and uncaring!
    This is a high time for us Aristotelians: did I mention I used to teach college logic/critical thinking too? I do know how and have much experience with attorney and private utility, DOE gas right-of-way, and DOT roadway projects all requring terse review and full transparency in spending money of taxpayers budget or private buildout cost for cell towers. Without checks and balances from local lenders & stoppage of broker
    infusion of self-paid appraisers (few if any are truly independent anymore, so I feel special) and as such
    Neil has truly awoken all our eyes to what MERS is and does and doesn’t do. In eminent domain appraisal
    its incumbent upon the acquiring agency to prove 5-yr Certificate of Title for all acquisitions from partial easement total buyout (including agency paid relo & new equivalent fair market value appraisal of your home all at their cost!) so imagine what happens when MERS doesn’t record transfer assignment in the public record, we put in a road or pipeline or essential
    electric utility, then the property owner defaults or is then foreclosed on, then a true Holder of Note or hidden investor comes along within 2-yr jurisdictional recourse limit to sue and demands removal as true owner in course! because no one could know they ever had an interest per MERS Rule 8 & 9 hidings?!?
    Let’s re-examine our 4th Amendment rights tonight OK.
    I’ll begin to do appraisal audits in February en masse,
    so reach out for honest advice if you want my help then.
    Thanks Neil for being our modern day NOAH, building
    us an arc to help save our (economic) drowning … if we’re smart enough to grab hold of the boat, that is.
    Todd Schmidt
    Appraisal Expert Witness
    715-347-3952 (WI)

  4. Regarding appraisals, I have wondered whether the loan originators were misrepresenting appraisals as eagerly as they were forging borrowers’ signatures, inflating income and assets,etc. If the appraisal backing for example a 300,000 dollar mortgage was whited out and changed to 4-500,000.dollars and turned in to the underwriter? Maybe there were multiple frauds occurring prior to the mortgage even being funded? Any comments? Thanks, Ian

  5. thats why a forensic audit without an official appraisal is worthless.

  6. Judge David O Carter of Santa Ana, believes the big guys suffered during the time when lenders were commiting loan fraud while the little guys were being charged with bank fraud when the bank themselves were involved actively in their transactions and manipulating the market and loans and the transactions. False settlement statements, false appraisals were the highlight of yester year transactions all coltrolled by the big guys that Judge David O Carter seems to believe were hurt. Will some one educate the judges how all this works and worked so they may do their job in such a way that promotes justice and not threaten the little guys to assume responsibility for what the banks are doing.

  7. I have to agree with you re: this matter. In a recent case being litigated in Federal District Court, Pan American Bank that went out of business between 2000 and 2004 had their appraisers create appraisals to suit their values and then flipped their loans into the secondary markets. Their business entailed originating loans through their subsidiaries a mortgage brokerage firm registered with Securities exchange commission. In fact they sold their loans even before the loan consumated and packaged them within three days to be resold. Other players involved included Lehman Brothers. There was a scapegoat for their actions. The little guys like appraisers, brokers and buyers and sellers of the properties that they essentially aided and abetted to close. Nevertheless, this matter will be in the limelight sometime in march/April 2010. Wait for the news!

  8. Once again…don’t know where to put this.

    Support Paul L. Muckle by following this link.

    (Fingers crossed that it works)

  9. This is why we’ve been providing a forensic appraisal as part of our forensic audits for years.

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