Most people have heard of schemes in which a lender is defrauded by someone who uses an inflated appraisal to obtain a loan for much more than a house is worth. This type of scam generally requires the cooperation of several people. In addition to the person running the scam you need an appraiser who provides the inflated valuation, a real estate agent who goes along with it and, frequently, phony buyers. Sometimes the buyer is a victim in the scam but it is usually the lender that is left holding the bag when the other participants disappear.
However, in an unusual case of “man bites dog”, the usual victim becomes the scammer. Unlike most of these schemes, which involve small-scale criminals, this one involves some of the biggest names in the real estate industry.
The Particulars
A lawsuit has been filed in U.S. District Court in Arizona against 
Countrywide Financial, KB Homes and LandSafe Appraisal Services (article) accusing them of artificially inflating home prices. This is definitely a new twist. This allegedly took place in the Arizona and Nevada market. According to court documents the scheme netted $280 million between 2005 and 2008.
The lawsuit claims that KB Homes steered buyers to Countrywide Financial who, in turn, used LandSafe Appraisal Services to provide the incorrect valuations. Some of the appraisals may have been inflated by more than $80,000. Talk about being upside down!
The article didn’t have a response from any of the defendants, nor could I find any elsewhere. If these allegations prove to be true it could cause a lot of problems for Bank of America since they purchased Countrywide.
Housing On Steroids
Manny Ramirez Suspended for 50 Games
It’s bad enough that we have been suffering from the collapse of a runaway housing market that came crashing down. Like a baseball player who was caught using steroids, we now see that some of the housing gains were “juiced” as well. It remains to be seen how widespread this is, perhaps it was just an isolated incident. Somehow I don’t think so.
This breach of trust could make it difficult for builders in the future. Will people begin to look at them they way they look at car dealers? The housing industry could learn a lot by watching what Major league Baseball is going through with the steroid scandal. The builders need to get out in front of this problem and make sure that it doesn’t happen again.
You can observe a lot by just watching. – Yogi Berra
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Richard WarrenRichard has written 109 articles for us.
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Many consumer org’s, economists, and others have seen this going on for years. It’s a widespread problem, not at all an isolated incident. This industry was instrumental in creating an artificial housing bubble, and the resulting bust was not only predicted, but was ignored by govt and industry alike. Mainstream media has largely ignored the problem and is still talking of housing prices as if they need to be kept propped up. News shows still give air time to real estate shills who tell us it’s a great time to buy a house. Prices are still way out of line with incomes, and now that the economic meltdown has resulted in predictable job losses, even fewer people will be buying, at any price. It’s a shame that to find out what is/was really going on, a person has to be online, tuned into the internet, and alternative news sites, blogs, etc, and become a good researcher. They cannot rely on mainstream news becasue then they will feel incidents like this–if they even learn of them–are just flukes. They are not.
Some homeowners use inflated appraisals to pull more equity out of their home than they have in it. Michelle.
When home prices were soaring, one of the driving factors was that appraisers, pressured by loan officers and mortgage brokers, kept hyping home values. one should follow guidelines to reduce the pressure that real estate appraisers feel to boost home values.
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Its very sad that there is so much corruption going on. Real estate was something that didn’t take much thought because it was hard to loose money on but now you have to really think about the returns.