Baltimore property valuations overinflated?

Question

Hi there,I am getting some messaging that lenders are beginning to see Baltimore market as being overinflated in terms of valuations and as a resulting are pausing DSCR loans. Does anyone have any insights on why that may be? I cannot see anything that stands out to me but probably I’m missing something thank you,

Ioulian

Ned Carey · Answer

@Ioulian Stoitchkov about 400 plus DSCR deals were fraudulent. Massive numbers of foreclosures have started long ago. However it is only recent.ly gone up the chain the wall street who bought the loans.  Here is a screen shot f just a few of the foreclosures.

A small group of investors bought Properties and refinanced them via DSCR loans with phony grossly overvalued appraisals. They then split the profits.  This shut down a large part of the back end buying these loans, which then cause the originating lenders to stop making the loans.  There are lenders who still do DSCR  loans in Baltimore. But everyone is scrutinizing deals more closely.

This could have easily been avoided with a modicum of due diligence by the lender. Just like in 2008 however it was to easy to take the money sell the bad loan and move on.

i believe the FBI is looking into this.

Tom Gimer · Answer

Here is a story from yesterday with some more detail:

https://nationalmortgageprofessional.com/news/fraud-alert-so...

Chris Seveney · Answer

Yep we have been told we cannot sell anyone loans in Baltimore that we originate right now to our correspondents and several appraisers and LLC's have been delisted

Russell Brazil · Answer

I dont fully understand what's going on, but I was contacted by a reporter to ask if I wanted to comment on it. Its common members of the press contact me for comment ans background in DC and Baltimore related real estate news.

A couple of hedge funds have gotten hit hard in Baltimore, and something related to the lending and appraisals was involved with it. So some commercial lenders have stopped lending in Baltimore currently because of the situation.

I have almost no information on it other than what the reporter gave me.

Jay Hinrichs · Answer

@Ned Carey  can shed light on it.. I talked to one of my closing attorneys yesterday.. deals are getting done but they are much tougher underwriting and such.. from what I have heard from many parties is there was one or two companies that ran a massive fraud operation with fake appraisals fake leases and loans got closed on homes that were suppose to be rehabbed and they were not.. So appraisers were in cahoots it appears with the borrowers.. So massive loss's are currently being taken by these large Hedge fund lenders. And the Brokers who brought them the deals. I dont think its valuations per se.. I mean I am still getting paid off on my BRRR loans they are just taking longer and since i have control of the rehab process my clients properties are done properly and they do have tenants..

Ioulian Stoitchkov · Answer

Thank you for the additional insights - hopefully this clears out relatively quicklyI have been thinking what impact this will have onto appraisals for future DSCR loans. On one hand, appraisals are based on actual sales so maybe not a lot. But on the other, if the sales prices have been impacted by bubbly appraisals, this could lead to lowering of prices

Ioulian Stoitchkov · Answer

Thank you both - that’s quite a situation. Curious to hear if there are any new developments. My guess is that lenders will wait a bit until this gets sorted out before resuming with their loans

David Ojo · Answer

Culled from an article online, this should provide some insights into the whole situation:

"

Rumor has it that there was some kind of a bankruptcy/default event associated with an LLC, or group of LLCs, associated with the same group of investors. This group of investors was “involved with” hundreds of investment properties in Baltimore City and in the surrounding area. These were DSCR loans, business purpose loans, not agency investment properties.

One wrote, “Evidently the LLC/group of investors went under, and Apollo started digging into it.” It turns out there was some kind of appraisal fraud going on where property values were overstated. The rumor is that they were ordering the appraisals through an AMC, but they were flagging these properties by offering to pay $444 for the appraisal. Apparently the appraisers would see the $444 and know they needed to pad the value.

“There is apparently an investigation going on right now. An Apollo-backed entity discovered some appraisal fraud in DSCR properties in Baltimore city. As a result, some investors have suspended lending in the city, at least for investment properties, until they get visibility.” DSCR lenders are a fairly small community, and they talk to each other, so a number of them have been circulating a list of appraisers they won't accept, individuals they won't lend to, as well as the associated entities. Portfolios are, no doubt, being examined to see if they have exposure, and in the interim, the path of least resistance is to cross off Baltimore (and a couple other areas) for a while."

https://www.chrismancommentary.com/post/july-2-2025-mortgage-daily-commentary?

Steve Moskowitz · Answer

I am still waiting on more information, but as Russell said, there were lenders that got hit hard from what appears to be a fraud scheme in Baltimore. Some lenders paused lending in this area while others are really tightening up their criteria. For example, some are now requiring ARV to be 300k+. Will keep you posted as I get more information.

Baltimore property valuations overinflated?

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