Florida Home Appraisals Under Scrutiny

St. Petersburg property appraiser Frank Gregoire couldn’t help but chuckle when an appraisal request, sent by a California loan originator, came through his fax machine.

“Please call if unable to attain this value BEFORE INSPECTION.”

Photos of the property, the request said, could not include “unfinished construction or damage.”

Gregoire knew right away that the company was trying to influence his valuation of the home through the home inspection stipulation, and it would be unethical to take on the work.

“It was the most blatant request I’ve seen,” said Gregoire, who is chairman of the Florida Real Estate Appraisal Board. He said he’s seen a recent spike in unethical requests like the one from California.

With the Florida housing market bottoming out and lending fraud on the rise, professional appraisers say they’re under more pressure to value homes at specific, and often inflated, amounts.

As a result, some big national lenders and law enforcement officials say they are taking a harder look at the role of appraisers in questionable loan deals. It’s against state law for an appraiser to agree to value a home at a pre-determined amount or intentionally omit information that could mislead a lender about the value of a home.

Sales involving a Florida mortgage typically can’t move forward without an appraisal showing the lender that the home is valued at close to the sales price.

Law enforcement and industry investigators say that mortgage fraud involving obtaining inflated loans so someone can illegally pocket thousands of dollars is an epidemic.

It can leave investor homebuyers and Florida home mortgage lenders on the hook for loans worth more than the property. Prices of nearby homes can be artificially driven up and neighbors can end up paying higher taxes because of the inflated values.

This type of mortgage fraud requires a string of real estate professionals willing to go along. A key to the scheme is having an appraiser willing to overvalue a property. Historically, such unscrupulous appraisers have not been caught, or were let off relatively easy, experts say.

That may be changing.

“Without an appraiser coming in at the magic number, the fraud is stopped in its tracks,” said Tampa police Detective Jim Bartoszak, who’s working on several loan fraud investigations.

The Tampa Tribune recently uncovered a series of such deals in Pinellas and Hillsborough County. In many of the cases, the same person provided the appraisal for a number of homes for the same client. Lenders and regulatory boards are now reviewing the accuracy of some of those appraisals.

Borrowing additional money on top of a Florida mortgage loan to help with closing costs or repairs is not unusual and not illegal - as long as the lender knows about it.

The fraud, experts say, happens when the appraisal is skewed and the lender is misled about the home’s cost. It is against state and federal laws to misstate who receives loan money on federal housing documents.

Why would appraisers risk their licenses for so little? The president of the Appraisal Institute, Richard Powers, says appraisers are tempted to overvalue a home when they’re starved for work.

During the recent real estate boom a lot of people became appraisers. Now that the market has cooled, there isn’t enough work to go around.

“Appraisers who do this are often guaranteed more work from the client,” Powers said.

The pressure to inflate an appraisal, he said, comes from Florida mortgage brokers, loan officers and real estate agents - who are also competing for work in a slow market.

Phillip Wallen said such intense pressure prompted him to up and leave the business. Wallen worked as an appraiser in Pinellas County for 12 years and owned his own business.

“Every day I would get calls that I needed to do an appraisal for X amount,” he said. “There are so many appraisers out there willing to give out whatever value a client wants. That makes it tough for the honest appraisers to compete.”