Predatory Lending Practices - 1st line of defense, the Appraiser
Posted in Appraising, Real Estate
An accurate and unbiased appraisal is the consumer’s first (and sometimes only) line of defense against predatory lending and fraud. I thought I would share a real life scenario on a particular assignment, including an appraiser’s point of view giving insight into a flawed system, where a mortgage broker orders an appraisal and pushes appraisers to hit a certain number (value) to make their deal ‘work’. This is a system which entails to ‘play along’ or lose business. It’s a harsh fact that many appraiser’s play along just to continue to get business from this type of mortgage broker. A system that insinuates that as long as you don’t ‘bite the hand that feeds you’ then you should be all right. Well that doesn’t quite work for me or my ethics.
I performed a viewing for an appraisal on a property in South Florida. There was damage to the property to put it midly. The most significant part was the mold growing in the bathroom and evidence of leaks due to half filled buckets in certain areas of the unit. There were water stains on walls and ceilings throughout the 1st and 2nd floor of this unit. I noticed a distinct smell (of moisture) that came from the downstairs half bathroom. I wondered how it must be behind (inside) the walls. I should mention that the central air conditioning did not work in this property and this only furthers the growth of mold. (Central A/C, by nature, is a de-humidifier, pulling water and moisture out of the air).
Appraisers are responsible, in their diligence of completing an assignment to speak with the management company or homeowners association to verify monthly/quarterly payment amounts and any possible special upcoming assessments. I was given the number to a management company that notified me that the association is now in control of this property, again. It became painfully obvious when I called the association to ask about possible assessments, that they mentioned the assessment paid in June of 2007 for Hurricane Wilma. Turns out the condo association was about the begin repairs on the roof from damage caused by Hurricane Wilma. That storm passed through this area in 2005, and here we are in 2007..! I also spoke with REALTORS® about the condition of the units that I was using as comparables and ask them about the buildings and maintenance issues to further verify what I already knew to be the case.. lack of good managing.
So in the end, the appraisal didn’t make their ‘magic number’. I received an email by the mortgage (who most likely got his license in a weekend course) and was clearly upset with my report. “This is a poorly done appraisal”, he said in his email. Fac is, the owner is out $325 for the appraisal and is probably upset with my report as well. In the long run, they are in better shape than if that refianance went through. Maybe they found another appraiser to go out and take the assigment as an invoice to get paid at closing.
I should mention, that the house had many materials on site, like tile, fixtures, sinks, sheetrock and more. When I asked the owner if they were pulling money to do the repairs, they confirmed it. I knew the value the broker wanted, I looked up the current mortgage on the property, and at a 80% loan-to-value ratio (minus what they owed), it just about matched the amount the owner said they were getting.
I should also mention, The order came in as a ‘no cash out refinance’.These homeowners would have been upside down in their mortgage, oweing more than their home is worth.. so in the end, being truthful and losing a client was the best thing for this borrower.
Even if they don’t know or care to admit it, I did my job to provide and unbiased opinion of vale. In the end, that protects the consumer from predatory lending. All in a day’s work for an ethical appraiser.
