An Inflated Appraisal Scheme With A Twist

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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 KB Home TractCountrywide 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

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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  1. 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.

  2. 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.

  3. The Multiple Listing System HAS caused inflated appraisals and this country is in Round 2 of Inflated Appraisals. MLS covers itself against liability within its disclaimer

    MLS allows Realtors/Brokers to opine square footage, always increasing sf in deceptive advertising

    Tax Assessors show lower sf than what Realtors/Brokers opine

    Home sells decieiving the sf, larger homes, higher sales price, which goes on land records however the sf is never updated to the deceptive selling opined sf

    Because buyers usually do not catch this deception once an appraisal is performed they are not aware that the home has substantially less sf that what has been advertised. Buyers need to obtain appraisals and really read/compare what is on the appraisal to what information is given in advertising

    Because that higher sales price goes on record yet the lower sf remains on land records……ta tah, INFLATED APPRAISALS, something this country can not go through again!

    MULTIPLE LISTING SYSTEM allows this, Realtors/Brokers take advantage of this

    Just go to Craigslist under real estate for sale by Brokers……….98% percent of homes listed by Brokers have the supercase 2 next to square footage, meaning they think the house has more square footage than whats on land records.

    If the homes do have the inflated square footage then current/past homeowners should be required to pay deficiency of back taxes due to doing renovations that increased sf and not reporting this and/or in not obtaining proper permits to do renovations that increase square footage (which would make the City/Town assessor aware that square footage increased.

    Hope someone in power reads this…..I’m breaking nails typing out these comments and composing letters to governing officials

    The End

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