Invesor ring artificially boosting property values

11 Replies

How common is for a group of investors to sell properties amongst themselves to inflate the apparent value of the property before approaching a HML to draw out the value?

Came across one such group. If I understand it correctly, they are hoping our appraisers will just use the last sale price as the preferred comp.

I don't think they realise our professional underwriters are not dumb. Nor that people in the industry speak to each other.

I am however wondering how common this is.

Very interesting! Money sure makes some people do funny things, wouldn't you say? I'm going to keep my eyes peeled for these types of non-arm's length transactions.

There’s Nothing New Under the Sun, @Benjamin Hurwitz .

Shills and straw buyers were popular and quite common in the mid-2000’s to inflate the price of properties, when it was easy to obtain a mortgage and walk away with the large cash profit. As I’m sure you recall, neither the mortgage companies or appraisers seemed to care. It was fraud then and it now. Here’s a recent article.

With prices rising “naturally” as fast as they’ve been these past years, I’m surprised this tactic has been necessary. Of course, “greed knows no bounds,” and I can’t say that anything shocks me anymore.

If you’ve been a victim and/or have any convincing evidence, this is something the FBI would be very interested in hearing about -- especially if the dollars are big. You might make a call.

Thanks @Jeff S.
And much appreciated for the article link. Greed knows no bounds. 

 

in our world appraiser discount off market sales and will usually only use MLS comps.

Originally posted by @Jay Hinrichs :

in our world appraiser discount off market sales and will usually only use MLS comps.

Monday morning I plan to raise this matter with our usual appraisal AMC to discuss/find out their guidelines with the appraisers.

Whatever happens, any loans requests we suspect come from this group will only be appraised with our appraisers and our appraisal requests will have capital letter comments probably like: "STRAWMAN PRICE FIXING SALES SUSPECTED ON PREVIOUS SALE(S)".

Cheers.

@Benjamin Hurwitz I have been seeing it a lot in Denver. Seeing some really inflated numbers. You're right about Underwriters not being dumb. They should easily get discovered by a loan originator before it even gets to an Underwriter. 

We have seen some of our borrowers refi with small banks at 3X what the property is worth. Not sure how or why, but it can’t be good in the long run. 

Originally posted by @Mike Malloy :

We have seen some of our borrowers refi with small banks at 3X what the property is worth. Not sure how or why, but it can’t be good in the long run. 

 FWIW usually there is cross-collateralization involved. EG, you see a mortgage for $1.5m recorded on 123 Main St because you are looking at 123 Main St's title history. Dig a little deeper into other things owned by the borrower, and you might also find that same $1.5m recorded against those other properties as well. 

Originally posted by @Mike Malloy :

We have seen some of our borrowers refi with small banks at 3X what the property is worth. Not sure how or why, but it can’t be good in the long run. 

this is very prevalent in lower value asset land.   IE buy house for 25k get it to appraise at 75k..   pretty rare out west your not going to buy a house for 500k and all of a sudden get an appraisal for 1.5 mil.

but there was a ton of abuse pre 07..  I did see one guy I know ( courthouse steps competitor)  he bought one for 1 mil was able to get a 2 mil appraisal refi 1.5 pocketed the 500k and defaulted..  he ended up in jail for mortgage fraud.. actually prison. just one of many

 

@Chris Mason   good point we see that when we are selling new construction and we have not paid off the dirt yet.

house is being sold for 500k and there is still a 2 mil construction loan.. of course we have release clauses.

Originally posted by @Jay Hinrichs :

@Chris Mason  good point we see that when we are selling new construction and we have not paid off the dirt yet.

house is being sold for 500k and there is still a 2 mil construction loan.. of course we have release clauses.

 I've come up against it w/ SBA loans, smaller scale. Person owns 2 storefronts with 3 apartments upstairs, that sort of thing. 

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