Yesterday (and nearly every day) our appraisal firm received a fax from a mortgage broker with a checklist. This checklist included all aspects of the loan package that the bank felt needed to be corrected by the mortgage broker. There was only one item pertaining to the appraisal and it was the cryptic:

>Appraiser is to remove time adjustments

It never ceases to amaze me how cavalier this type of request is. The underwriter generally has no concept of what they are requesting. Essentially they are asking us to misrepresent the market so that the mortgage can meet their own portfolio criteria by reducing the perceived risk associated with the collateral. Isn’t this fraud?

The sad thing is that many appraisers, in order to keep their relationship going, will simply comply. We see this frequently when we do appraisal reviews. The same appraiser will tell Bank A that the market is flat while Bank B gets a report on another property in the area that the market is rising. The adjustments are made up under other amenities so the value is the same and everyone is happy. Isn’t this fraud?

A few years ago, a local lender issued a policy forbiding time adjustments. I sent them a letter explaining that this was unethical and that this was an underwriting policy, not an appraisal matter and we were sorry but we would be forced to resign from their appraisal panel. Since we were their primary and most trusted appraiser, they exempted only us from the policy. Of course, other members on the appraiser panel complied so they could continue to receive work.

Just imagine if all appraisers withstood this systematic pressure? Of course its important to remember that it is unfair, unethical and probably illegal that we are put in this position in the first place.


  1. Lee September 15, 2005 at 7:41 am

    I too have had lenders request that time adjustments be omitted. And I share your opinion that such a request is no different than banning adjustments for garages or porches. Clearly many markets have record appreciation….and to say otherwise is fraudulent. However, I have typically been able to deal with this in a manner that adheres to USPAP. We note in our report that our value is subject to a Hypothetical Condition that no appreciation has occurred since the sale of our comparables….and we attribute this to the Lender/Client’s instructions.

  2. Jonathan J. Miller September 15, 2005 at 7:50 am

    Thats an excellent way to comply with USPAP. However, I have found that lenders do not accept this solution because the “subject to” keeps the loan from closing. Perhaps its different in your market area. I’d be curious as to what transpires after you turn in a report with that condition.

  3. ralph roberts September 17, 2005 at 9:34 pm

    Ralph Roberts Crusades Against Mortgage Fraud
    by Blanche Evans

    Mortgage fraud is the real estate cancer, says broker Ralph Roberts. He’s busy writing a book, meeting with government agencies like the FBI, and taking his crusade on the road to inform the real estate industry, lenders, and consumers about the tricks of the mortgage fraud trade.

    “We’ve put together a mortgage fraud war room,” says Roberts, “and created a Power Point and a lesson plan for continuing education so I can go out and speak about this topic. Realtors are getting fooled, too.”

    Roberts suggests that as many as one out of four loans made today might be fraudulent. “This is the biggest lending crisis since the Savings and Loan meltdown of the late 1980s,” says Roberts.

    Roberts says most of the fraud schemes involve variations of several of the following elements in which the “fraudsters”:

    pay “straw borrowers” or “investors” to sign and submit documents containing false qualifying information such as false and counterfeit drivers’ licenses, pay stubs, tax returns, W-2 tax forms, rent checks, bank statements, earnest money checks, Social Security numbers, and verifications of deposit, employment, rent and mortgage.

    induce appraisers to inflate property values in order to obtain a larger mortgage loan for the “straw borrower.”

    submit bogus invoices for phantom “upgrades” or “renovations” that falsely inflate the value of the property. This allows the fraudster, “straw borrower,” or “investor” to obtain a larger mortgage.

    promise “investors” that their properties will be leased or rented and all mortgage, insurance, property tax and home owner association payments will be paid for them. In actuality, these payments are not made and there may or may not be any tenants.

    Pay “straw sellers” to falsely claim ownership of a property, appear at a closing where the property is sold to “straw borrowers,” disburse the sale proceeds at the fraudsters’ direction and thereafter appear at another closing to purchase the same property at a lesser amount with a portion of the sale proceeds, a practice sometimes called “flipping.” Some flips are the same day and others within days, weeks or months.

    advance down payment amounts which are falsely represented as being paid by the borrower.

    cause “straw sellers” and “straw borrowers” to assume the identity of other people for the purpose of fraudulently obtaining mortgage loan proceeds.

    file false and forged quit claim deeds transferring property from true owners to “straw sellers” and “straw borrowers,” thereby gaining control of the property to use as security for fraudulent loans.

    file false satisfaction, cancellation and assignment of security deeds on a number of properties to eliminate the security interest of legitimate lenders, by either fraudulently transferring interest to a co-conspirator’s company or showing the property to be free of all mortgage liens before obtaining additional mortgage loans on the property.
    “The scheme, commonly called “house flipping,” has been a problem across the United States in low-income neighborhoods,” says Roberts. “Flipping is when someone buys a house and then quickly resells it for a big profit. It becomes a federal crime when it’s part of a scam to defraud banks into approving mortgage loans for more than the property is worth, typically because those involved submit false appraisals and loan documents.”

    Mortgage fraud has happened once already to Roberts, and once to one of his agents. Particularly vulnerable are innocent homebuyers, says Roberts, because they end up paying money down and owning nothing.

    “If a deal seems too good to be true, it probably is,” he says.

    “The fraud perpetrators are advertising cash back at closing, they go and record a fake deed, put the owner’s name on it, get fake witnesses, notarize the documents, and order a new title,” explains Roberts. “Someone stole a house I owned. The mortgage officer sold the house to her sister, and the sister was an innocent party. We went out and had to do a quiet title, and I was more concerned about getting my house back. They tried evicting my tenant. I settled this case, and we agreed to take a payoff. I only had $50,000 or $60,000 in the house and the title company said they would settle it, and now that title company is going after the sister, and the sister has already blown the money.”

    Listing agents are fraudsters if “an agent says they need to raise the listing price by $100,000 and you have a REO, and you don’t put it on the MLS, it hides the fraud. The buyer’s agent goes to the data, and there isn’t any,” suggests Roberts. “The gullible seller goes along with it to sell the house, and the buyer thinks their payments are going to be made for them.”

    Roberts recalls when one of his agents almost got involved in a scam. “We sold a house for $1.8 million, and they wanted to sell it for $3.5 million and get it to appraise. The agent working for me wrote the offer, and I looked at it and got sick. She didn’t know she was doing anything wrong, and it was within days of closing. I told the buyers they could go to prison if they did that, and they sent me a letter and said thanks. They had answered an ad and the bad guys said, “We will give you back $1 million at closing. We will rent it to executives and you’ll have cash flow, and we’ll make the payment for you.”

    “You send in $5,000, and he’ll verify that you have the money deposited with one of his institutions. It is like an octopus and goes in all different directions.”

    Yet, fraud is simple to understand.

    “If you are lying about income, value, or anything it takes for the fraud to go through, you’re guilty,” says Roberts. “If the numbers don’t make sense, any person at the closing table can stop it. It takes everyone agreeing for the fraud to go through.”

  4. John Doe March 6, 2006 at 2:12 pm

    My question is who is looking out for the little guy? I live in Tampa FL where the market is 40% inflated. Investors are buying homes before they even get to the market then flipping them for a profit of 30 to 40K making the price of the home out of range for the average middle class family. It’s makes me sick at my stomach at how far people will go to make a buck and the real-estate companies are just as bad.. SO WHAT CAN WE DO???

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