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Letter to the editor

Fraud traced to appraisal

By SUSAN TAYLOR MARTIN, Times Senior Correpondent
Published January 24, 2008

Joni Herndon is incoming chairwoman of the Florida Real Estate Appraisal Board, which oversees 12,400 active appraisers.
	[Daniel Wallace | Times]

Miami and Tampa rank among the top 10 U.S. cities for suspected mortgage fraud, a federal crime that cost the beleaguered U.S. economy at least $1.4-billion last year.

Fraud often involves a real estate appraiser, who uses location, comparable sales and other factors to determine value and help a lender decide how much money to loan on a property.

More than 100 appraisers and other real estate professionals attended last week's Appraisal Fraud Conference in St. Petersburg, where the Times talked with Tampa appraiser Joni L. Herndon. A native of Alaska, Herndon is a member of the national Appraisal Institute and incoming chairwoman of the Florida Real Estate Appraisal Board, which oversees Florida's 12,400 active appraisers.

How big a role do appraisers play in mortgage fraud?

In most cases, you can't have mortgage fraud without an appraiser. A fraudster is not going to pay cash for a home. They have to get a lender, who hires an appraiser to inflate the value. The appraiser is key to mortgage fraud.

What's an example of a fraudulent appraisal?

In Pinellas County on Snell Isle, there are canals, harbor and open bay - three sets of sales data you'd use. If you want to pump up the value, you might compare canal front to open bay and not disclose any difference to the lender, who's in California.

Sellers and developers are offering all kinds of incentives, including closing costs and prepaid mortgage payments. How does the appraiser deal with these in valuing a house or condo?

We are required to get a copy of the contract and all the addendums and any change orders from the builder so we know what we're appraising. Sometimes the builder doesn't want you to know because they're afraid it will affect the value.

Of the nation's 102,000 licensed appraisers, 37,000 have been in business only three years. Is that a problem?

When everything is going up, the new appraisers come in and they don't have good mentoring or good training. In Florida, you only have to train for two years until you get to be state certified, and then you can bring on trainees yourself. What the heck can you learn in two years? Unfortunately, there's been no change.

Is the appraisal board getting more complaints?

In 2000, we had 220 complaints. For the 2006-2007 fiscal year, it was up to 681. At our last meeting, we revoked eight licenses. We're also getting five times as many voluntary surrenders of license.

What kind of complaints?

What we're seeing is folks who purchased their house in 2005 at the peak of the market and cannot sell it now, so they think there must have been something wrong with the appraisal. There might be or there might not be - prices cycle up and cycle down.

Would making appraisals part of the public record help reduce fraud?

Banks will fight you on that because they believe the information in there is somewhat proprietary.

Any advice for finding a good, ethical appraiser?

Key for the consumer is how long a person has been appraising, what kind of education they have and making sure it's more than the minimum requirement set by the state of Florida, which is 30 hours every two years. You can check licensing and complaints at myfloridalicense.com.

Are you encouraged by the turnout at this conference?

The element that's not going to operate by the rules isn't here. We're singing to the choir here. The ones who need to be here most aren't.

The price of appraisal inflation  

The values of these houses were artificially inflated by appraisals that made the homes appear to be worth far more than they actually were. All went into foreclosure and have since sold or gone back on the market at prices much lower than the average 11 percent sales price decline for the Tampa Bay area. Here's how the prices have changed:

52nd Avenue NE, St. Petersburg

THEN: $710,000

NOW: $384,900

This Shore Acres waterfront house sold in late 2006 to the brother of felon loan officer Victor Clavizzao. An appraiser for one lender didn't think it was worth the $710,000 contract price; the deal went through with another lender and another, unidentified appraiser. Mortgaged for the full amount, the house went into foreclosure, was re-listed and is under contract for about 45 percent less than it sold for 15 months ago.

46th Avenue N, St. Petersburg

THEN: $250,000

NOW: $149,000

This 872-square-foot house sold in late 2006 and was mortgaged for the full amount as part of what authorities say was a fraud scheme involving dozens of properties. The lender foreclosed and the house is back on the market for 40 percent less. Appraiser Ricardo Pride's license was revoked in October.

Fourth Street E, Treasure Island

THEN: $875,000

NOW: $446,000

This waterfront house sold in late 2005 to a young woman who alleges in a lawsuit that felon loan officer Jeremy Marc Morton gave her "false appraisals" valuing the property for "substantially" more than it was worth. The house went into foreclosure and sold for about 50 percent less last fall.

[Last modified January 24, 2008, 08:36:16]