Inflated Appraisals as Assumption of Risk and Joint Venture with the Pretender Lender

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Editor’s Comment:  

The allegation of an intentionally inflated appraisal of the property supports many claims, defenses, affirmative defenses and positions. A property that is appraised at $300,000 was usually coming in at precisely $20,000 more than the target value used for the contract for purchase or the commitment for funding a refi. The appraiser was selected, directly or indirectly by the so-called lender whom I have dubbed the “pretender lender,” so named because the borrower is deceived into thinking that he/she is entering into a financial transaction with one party — the one named on the promissory note as payee or named as the mortgagee, beneficiary or lender on the mortgage or deed of trust. In fact, however, the financial transaction took place between the  borrower and an undisclosed party while the paperwork revealed no such dichotomy in violation of federal and state lending laws).

But in addition to the documents smelling like 3 day-old fish based upon the failure of the documents to describe an actual financial transaction between the pretender lender and the borrower, the terms of the loan are different than the ones stated in the note and mortgage.

The pretender lender is merely an originator whose name is “rented” for the purpose of creating a bankruptcy remote vehicle (so-named by the banking industry) that could commit every violation of lending laws under the sun. When the homeowner seeks redress he/she finds himself confronting a non-existent entity that was never legally formed, and/or a bankrupt entity, or a dissolved entity that in any event never supplied the credit or cash for the transaction recited in the mortgage documents.

The inflated appraisal is performed by appraisers with the full knowledge that they are doing the equivalent of appraising a car’s value as being 40% above the retail sticker on the showroom  floor.  Industry standard appraisals withstand the test of time. A reasonable period of time for an appraisal to stand on its own legs is expressed in years not months. In most cases the homeowner  quickly found out in days, weeks or at most months, that the fair market value of the property was at least vastly over-stated in order to make the loan as large as possible, and, as we have seen, the inflation of the appraisal ranged from 30% to 75% in those areas that were targeted by Wall Street — with the worst offenses occurring in areas of low financial sophistication or people with language issues because they had recently moved to the U.S.

The appraiser is selected by the lender and, as stated by the 8,000 appraisers who signed petitions in protest in 2005, threatened with no employment if they didn’t come back with an appraisal at least $20,000 over the target contract price (the contract being given to them, which is a violation in itself of industry standards. Many appraisers refused and went to work only for small banks who were making loans with their own money and credit. The pretender lenders were not worried about risk of loss because the originator whose name was loaned to the Wall Street bank for a price above rubies, was not using its own money and credit. In fact, the originator usually had not money or credit, with some notable exceptions where a major institution originated the loan, but was not bankruptcy remote (thinly capitalized). None the less they were not the source of funds, not using their own money or credit and thus assumed no risk of loss for the “decline” in the value of the property after closing —a decline precipitated by the free market providing a value range that is in line with median income.

This article is meant to provoke discussion amongst both bankruptcy lawyers and civil litigators as to whether a known inflated value places part of the risk of loss on all loans, not just those that went into default. By inserting a false value into the equation, the borrower reasonably relied upon the appraiser as supposedly confirmed by the “lender” under OCC regulations. That risk can be quantified — i.e., an appraisal at $300,000 for property worth only $200,000 created an immediate risk of loss not assumed by the borrower but rather assumed by the lender named in the documents.

Thus when the loss is realized in the conventional sense, it should  be “realized” in the accounting sense and applied against the lender, thus reducing the allowable claim to the value of the property. This isn’t lien-stripping. This is contract law and assumption of risk. The borrower did not come up with the appriser or the appraisal. It was the lender and under industry standards the appraisal was presumed to be confirmed through due diligence by the lender. In the old days, the bank officers would go out and visit the property a few times and check on the work done by the apprisers. Some form of that due diligence is required under current regulations (see OCC regulations) and industry standards.

The latest time that the loss attributable to the inflated appraisal should be applied is at the time the loan is subject to foreclosure. At that time, I would argue, the amount demanded in wrong and therefore an illegal impediment to reinstatement, redemption, settlement or modification. Since the borrower was the victim of the new standards for underwriting mortgages without any announcements of new standards, the borrower can hardly be held responsible for the inflated appraisal regardless of what they did with the money from the loan and regardless of the source of funding (the real party who transacted business with the borrower where money exchanged hands).

The terms of repayment are changed by the inflated appraisal. Since the inflation of the value of the property was not only known but caused by the pretender lender, the transaction converts from a standard mortgage deal to a joint venture in which if the property value continues to go up, the lender gets its money but if the property value goes down, the lender has assumed the risk of loss to the extent that the value of the property declined — or at least that portion of the decline attributable to the inflated appraisal.

This supports fraud accusations, slander of title and a variety of other causes of action. But just a importantly it makes the pretender lender a partner of the borrower and raises an issue of fact that must be resolved by the court before allowing any foreclosure to proceed or before any attempt can be made to modify the mortgage under HAMP or redeem the property under state law. The successor lenders in the securitization chain are alleging in one form or another that the amount due is strictly computed from the amount stated on the note. But in fact, the co-obligor in the securitization chain is the pretender lender who assumed part of the risk of the loss. Any notice default or attempt to foreclose in which an inflated appraisal was part of the original transaction, regardless of the identity of the real lender, is plainly  wrong or even a misrepresentation to the borrower and the court. hence the notice provisions in all states, judicial or non-judicial, are violated in virtually all foreclosures.

But wait there is more. Foreclosures already completed can be more easily overturned by these allegations with the assistance of an honest appraiser. And for those foreclosures, whether overturned or not, the borrower can seek contribution from the co-obligor(s) pretender lender or those who used the originator as a vehicle to shield them against predatory lending claims. In our example above, this would mean that the homeowner might have a clear cause of action against the  pretender lender and its successors for the $100,000 loss in value. It would also pull the rug out from “credit bids” based upon documentation allegedly from the originating lender. If the credit bid lieu of cash was higher than the amount due, this created a barrier for others to bid cash on the property making the loan paid in full and the excess proceeds payable to the borrower.

By denying that the pretender lender used an honest appraisal and  denying that the borrower is the only obligor, and denying the debt to at least to the extent of the inflation of the appraisal the borrower puts in issue a material fact in dispute and the amount of the bifurcation of risk of loss between the borrower and the amount to be attributed to the originating lender opens the hallowed doors of discovery. affirmatively alleging that the appraisal was inflated puts the burden on the borrower, so it should be avoided if possible.





22 Responses

  1. Rome will effectively take over Medjugorje, already one of the
    smartest cheap and had some impressive starts for the Hawks, Carroll seemed to
    leave that door open.

  2. […] Inflated Appraisals as Assumption of Risk and Joint Venture with the Pretender Lender ( […]

  3. […] Read more… Posted in Banks, MERS, News Around The Country, States « Cities, Counties Realize They Have Common Interests With Homeowners Registers of Deeds in Five NC Counties Take Issue with Fannie and Freddie’s Tax Exempt Status » You can leave a response, or trackback from your own site. […]

  4. @B.R. Oh, Really?? you went to FBI in 2004, and they started taking action in 2011?? Meantime hundreds of trillions of bogus mortgages, their derivatives, and drug money were laundered by the very banks which reaped the benefits of these criminal actions!!. Have you seen anyone prosecuted in banks which paid mortgage fraudsters to fabricate banks’ loans, and paid drug traffickers to bring them drug money so they can invest it in “MORTGAGE BACKED SECURITIES”, and float them as bogus “INVESTMENT VEHICLES” on global money markets??? have a website for that prosecution???

  5. To “Guest”: Uhhh, no, they got 1/2 billion from Obama to go after mortgage fraudsters and they’re sending the sleaze-merchants to prison in droves. See:

  6. @ B.R.: Yes. & didn’t they tell you go pound sand because FBI backed any cimes for lenders’ benefit??

  7. Take it from a former appraiser who threw his license in the trash and went straight to the FBI in 2004, appraisers are the scribes of the real estate industry. If an appraiser doesn’t inflate values, they don’t work.

  8. Neil, as Amy and I’ve shared with you and Katherie, and all choose to ignore because you have not researched and do not look at the actual documents which are transactions which are directly related to the harms:
    Title “COMMITMENT” during

    Closing, consumer agress to purchase Mortgage Note.
    Syndicates used by CONGRESS to use cash of consumer instead of Central Bank. Cash being lost by JPMorgan is expense right? Where is all the money going?

    SYNDICATE of Investors use REO proceeds as hedge fund!
    Now what?

    How much longer will attorney’s like you choose to look at what is recorded in public record and ignore what is recorded in private investor world?
    Sales of Real Estate start with a Real Estate Sales Contract. That Sales Contract in exhange for a Mortgage Note in name of Consumer sold to Wall St. The Note is not a loan. The Note is a receivable and rights to Title held as encumberance as ‘REAL ESTATE OWNED’ PROPETY held and proceeds of Settlement are the Hedge Fund’s play money!


    Norwest Mortgage Inc. ‘ATI’ Attorney Title Company LLC Amendment

    The consumer is the investor! We buy the mortgage note and sell the Title commitment to SYNDICATE, Syndicate holds COMMITMENT, note goes to WALL ST. receivables posted against Trust Fund $/Share book entry form and during default of either Delegated Underwriter Servicer and/or acceleration of Title by Delegated Underwriter, Commitment, released as an Accomodation Only by First American, the SYNDICATE, and Wells Fargo Bank NA TRUSTEE SELLER Originator does it again sam, uses real estate waivers claiming they work for government Fannie Mae/Freddie Mac to scam consumers and municipalities out of taxes using REAL ESTATE TRANSFER TAX WAIVER FORM…. and the SYNDICATE of Investors use the settlements of REO as the flipping hedge funds. I’m the first to figure this out? Come on. Now what is wrong with this picture?

  9. and yes, guest, the inflated appraisals caused the “borrowers” to pay thousands more in interest than they would have on the true value. My lender used their own crooked, inhouse appraisers until 2006. They switched to outside appraisers that year, who they strongarmed into giving them the price they requested, not what the property was really worth. There were multiple reasons for switching to outside sources; volume, industry wide conspiracy made it easy, and in the case of WaMu who was my loan originator, it gave them an out–plausible deniability that they were responsible–so they would look less guilty when the thing inevitably blew up. They could falsely claim that the independent appraisers were responsible for the inflated values. Like most criminal enterprises WaMu hung themselves and they exited the securitization game early, but not before they collected many of my mortgage payments while simultaneously collecting from investors in Mortgage Backed Securities on the same “debt”.

  10. ” …the borrower can hardly be held responsible for the inflated appraisal regardless of what they did with the money…” WHAT MONEY? No one got money of exchange when they got a loan. They got CREDIT. The bank capitalized the “borrower’s” transaction account by using the Promissory Note like we would use a check.

    The banks are all connected; money moves around the banking system in the form of electronic debits and credits. It has been this way since 1933 when the federal reserve system, which actually has no reserves, set up the present fiat currency system. We came off gold first, then silver in 1967 under Lyndon Johnson. Money of exchange and money of account are not the same. Read the affidavit of Walker F. Todd in the Harshavardhan case. Todd was an attorney who worked for the New York and Cleveland Federal Reserve Banks for 20 years, nine of them as the economic research officer at the Cleveland branch. See; Bank One, N.A. v Harshavardhan Dave and Pratima Dave, Case No. 03-047448-CZ


    IF in the WHOLE UNITED STATES there exists only TWO databases,on insurance claims of “HOMES”, one called C.L.U.E and one called A-Plus, both owned by Lexis-nexis-schmeckis.

    THEN WHY, was the house I was entrapped in an escrow in” (in 1999 with forged grant deeds of a 1/4 owner siblings) ALLOWED to be ( not to my knowledge) called a COMPLETE TOTAL LOSS due to the NORTHRIDGE QUAKE, two years AFTER MY ESCROW, and yet

    the insurance companies have DINGED me for ten year for the “STRUCTURE VALUE” of a FALSE AMOUNT, when they knew it was a pile of screwed up broken sticks on moving sand, and a completely SHATTERED SLAB, and they HAD ALREADY PAID A TOTAL LOSS on the STRUCTURE??????



  12. @guest: looks like your loan never materialized, and if you are living in it you may be able to declare it free & clear. Which state?

  13. @guest- can you be more specific and provide names?

  14. Carie,

    Thanks for responding!

    No, this commitment to buy relates to my loan to purchase my home. The loan was sold before I even went to closing. Maybe that’s the way it’s done all the time, I don’t know, but it seems to me that the lender in the loan docs was not the lender. It’s too late for a TILA complaint. I think the SOL for that is three years.

  15. @Guest—-sounds like typical convoluted illegal shenanigans by junk debt buyers…do they want you to sign anything new?

  16. After reading this blog, I think I might have received certain documents by mistake from the servicer. I can’t imagine that the paperwork was sent on purpose, in light of reading Neil’s comments. I couldn’t fully understand what they meant, until now.

    I would appreciate comments from anyone who might know how this could help me defend against foreclosure. Or whether it is of no significance.

    I received documentation proving the pretender lender funding debacle mentioned. It proves that another entity, not the pretender lender, was “credited” the loan amount for the funding. I also received a Commitment Confirmation Letter stating that an entity (a third fictitious name), not disclosed at closing, had entered into a “binding agreement” with the pretender lender to buy the loan. Pretender lender agreed to sell and deliver the loan and the fictitious party committed to buy. The letter is dated before the note was signed. Three loan numbers were assigned to the loan. The one sued on is not the loan number on the note and recorded mortgage. And the first endorsement stamp on the alleged note attached to the petition is a completely different party than was named in the commitment letter.

    Can anyone tell me how I could use this best in my defense? Or is it even admissible evidence?

  17. And you are right. That IS crime.

  18. I should have said “farce.” I don’t mean it’s funny at all. I mean that I was made a fool and cruel trick was played on me. (and others) That, apparently, is the second definition of “joke.”

  19. Not a joke, Linda—CRIME.

  20. As a novice investor and convinced by others it was a good deal, I bought a new home in Utah in 2008 appraised at 2.6 mil at 52 LTV. Immediately after I applied for a HELOC, thinking I could use the equity to finish the basement, etc. I applied seven times with various banks and the appraisals came back no higher than 1.4 less than a month later! The loan was 1.5. After that I realized I was duped and the appraisal was grossly inflated. I sold the property short to get out from under it, but then the bank had the nerve to get a 1.3 deficiency judgment against me.

    What a joke!!

  21. “When the homeowner seeks redress he/she finds himself confronting a non-existent entity that was never legally formed, and/or a bankrupt entity, or a dissolved entity that in any event never supplied the credit or cash for the transaction recited in the mortgage documents.”

    Yes, Neil. And here we are so many years later still having our homes stolen by debt collectors who never lent a dime to us.

    And the truth about Fannie/Freddie false default and insurance fraud is the big story you haven’t even touched on.

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