We see many frivolous claims against appraisers. No matter how accurate or careful an appraiser may be, these sorts of claims will be filed anyway.
This particular claim relates to an appraisal for a purchase loan on a single family house in a mid-western state. The home was appraised for the lender at about $60,000. The homeowner has sent a demand letter to the appraiser demanding that the appraiser pay the homeowner about $9,000 to replace the roof and remove a tree that is causing damage to the roof. The homeowner alleges the roof recently started leaking and that the appraiser should have identified this condition in the appraisal report. Here's what makes the claim standout: the appraisal was done in 2000, 9 years and countless windstorms ago. So, here we have a non-client, non-intended user complaining about a roof that started leaking 9 years after the appraisal, a report which clearly stated that the appraiser was not a home inspector and that the report was prepared for the purpose of the mortgage transaction only.
END OF POST
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Monday, November 23, 2009
Tuesday, November 17, 2009
Should I Attach My E&O Insurance Declarations Page to My Appraisal Report?
No. We are asked this question a lot and the answer is always the same. There is no good reason to attach a copy of your E&O insurance declarations page or any other evidence of insurance to appraisal reports.
The main reason why we advise against it is that a majority of claims these days are filed by property owners and borrowers. These parties are neither clients nor intended users. Attaching your E&O declarations page to an appraisal report simply invites these parties to threaten or bring claims against you. The existence of insurance does not have anything to do with most claims -- institutions like the FDIC will sue you regardless. But for a few people, the fact that there is an insurance policy somewhere gives them the idea of easy money. We've seen claims from homeowners who've alleged claims about things as petty as square footage being off by 2% and then expecting a payment as if your E&O were a manufacturer's warranty. (Claims like this, of course, are defended and rarely result in any recovery to the claimant.)
We realize that some AMCs and lenders require appraisers to attach their E&O to reports. There's no law or regulation against that, but we suggest that you try to reason with them and explain:
1. You are happy to supply the AMC or lender with a copy of your E&O declarations page that they can keep on file.
2. Attaching your E&O to your report not only exposes you to unnecessary risk of claims by third parties but it also makes it more likely that the AMC or lender will be dragged into a case filed by a homeowner or borrower.
Aside from the above points, the idea of attaching E&O information to appraisals is misguided at its core. All appraiser E&O insurance is written on a claims made basis. This means that the policy that will cover you is not the policy that you have in place on the date of the appraisal but rather the policy that you have -- or should have -- in place years later when the lawsuit is filed or the claim asserted. AMCs and lenders also should realize that an E&O declarations page has little value in determining whether potential coverage exists for their prospective claim -- the fact is that a few years ago, one E&O provider was selling a policy that excluded claims filed by lenders, which is something that could only be determined by reading the policy itself and another E&O provider is currently selling a policy that excludes claims by the FDIC and other regulatory agencies.
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The main reason why we advise against it is that a majority of claims these days are filed by property owners and borrowers. These parties are neither clients nor intended users. Attaching your E&O declarations page to an appraisal report simply invites these parties to threaten or bring claims against you. The existence of insurance does not have anything to do with most claims -- institutions like the FDIC will sue you regardless. But for a few people, the fact that there is an insurance policy somewhere gives them the idea of easy money. We've seen claims from homeowners who've alleged claims about things as petty as square footage being off by 2% and then expecting a payment as if your E&O were a manufacturer's warranty. (Claims like this, of course, are defended and rarely result in any recovery to the claimant.)
We realize that some AMCs and lenders require appraisers to attach their E&O to reports. There's no law or regulation against that, but we suggest that you try to reason with them and explain:
1. You are happy to supply the AMC or lender with a copy of your E&O declarations page that they can keep on file.
2. Attaching your E&O to your report not only exposes you to unnecessary risk of claims by third parties but it also makes it more likely that the AMC or lender will be dragged into a case filed by a homeowner or borrower.
Aside from the above points, the idea of attaching E&O information to appraisals is misguided at its core. All appraiser E&O insurance is written on a claims made basis. This means that the policy that will cover you is not the policy that you have in place on the date of the appraisal but rather the policy that you have -- or should have -- in place years later when the lawsuit is filed or the claim asserted. AMCs and lenders also should realize that an E&O declarations page has little value in determining whether potential coverage exists for their prospective claim -- the fact is that a few years ago, one E&O provider was selling a policy that excluded claims filed by lenders, which is something that could only be determined by reading the policy itself and another E&O provider is currently selling a policy that excludes claims by the FDIC and other regulatory agencies.
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Monday, November 16, 2009
Rotten Reviews
Appraisal reviews and "forensic" appraisals are hot items at industry conferences. AMCs and other appraisal vendors are selling thousands of reviews and retrospective appraisals to mortgage insurance companies, lender "loss mitigation" departments, the FDIC and even the FBI. Those reviews and retrospective appraisals are then being used, among other things, to make claims against the original appraisers.
Mortgage insurance companies, for example, are ordering review appraisals in connection with claims by lenders for coverage of their losses on foreclosed loans. The reason for this is that the mortgage insurance contracts often contain representations by the lender obtaining the mortgage insurance that the appraisals for insured loans will comply with regulatory guidelines and/or USPAP. The representations probably seemed unimportant when the lender obtained the policy and are not material to whether a loan goes into default. However, some mortgage insurance companies are now taking advantage of these clauses by ordering appraisal reviews in bulk and then using those reviews as the basis for denying claims. When a mortgage insurance claim is denied on this basis, we then often see the lender attempt to turn around and make a claim against the original appraiser.
We're seeing similar uses of review appraisals by lender "loss mitigation" departments and the FDIC. They're using appraisal reviews to make claims against appraisers relating to appraisals from the peak of the mortgage bubble.
The problem with all of this is that the reviews and "forensic" appraisals used for these purposes are among the most biased appraisal work we see. In many cases, there is more wrong with the freshly minted appraisal review than with the underlying appraisal, which often dates back 4 or 5 years. The reasons for this seem pretty obvious:
First, I believe that many of the firms hired to supply review and forensic appraisals know and adhere to the agenda -- their clients benefit when they find a reason to say the underlying appraisal is flawed or a reason to allege the value was overstated. I think there is pressure on them to find errors and if they can't, they know their work will dry up. Accordingly, we've seen review appraisals for "loss mitigation" stretching the facts to allege errors -- things like using "crack dens" or other blighted properties as comparables or misstating a subject property's characteristics in order to use lower value comparables. The appraisers have lost their objectivity and become advocates. Even if not intentionally biased, however, the retrospective reviews we see are widely unreliable because they usually fail to factor out: (1) deterioration of the property, (2) information acquired after the effective date of the original appraisal, and (3) the dramatic effect of market decline.
Second, in many cases, I think the review appraisers selected by some vendors in this area are less qualified that the original appraisers. The review appraisers often lack the same level of geographic competence as the original appraisers. (Sometimes, of course, the review appraisers are not licensed or certified in the subject property's state.) In addition, some appraisal vendors/users in the "loss mitigation" area are paying small fees for review work, causing rushed work, and using less experienced appraisers. Showing how little some lenders care about the quality of the review work being used for this purpose, we've seen a lender submit a complaint using a review by an appraiser on its own ineligible list and against whom the lender has filed a disciplinary complaint.
Third, review appraisals in this area of use are subject to less transparency and less accountability. The HVCC, of course, does not apply to mortgage insurers and lenders in connection with review appraisals for claims denial or loss mitigation, and fewer laws, rules and regulations in general govern review work. Also, the names and license numbers of review appraisers are often blacked out by the lenders and mortgage insurers when they use review appraisals against other parties. (Appraisers doing review work, however, should be aware that we are starting to see more appraisal reviews being investigated by state boards.)
What's the advice for the good appraiser? Be wary when someone calls you to discuss an old report. These days many of the parties contacting appraisers about prior work are: mortgage insurance company personnel, "loss mitigation" personnel working for lenders seeking to force a re-purchase by the originating lender, or third-party companies investigating alleged appraisal issues. These parties aren't your clients and appraisers need to be guarded in their discussions with them. For one thing, these parties very likely are working against the best interest of your client and, aside from that, you need to remain obedient to your duty of confidentiality under USPAP.
Click Here to Read Full Post
Mortgage insurance companies, for example, are ordering review appraisals in connection with claims by lenders for coverage of their losses on foreclosed loans. The reason for this is that the mortgage insurance contracts often contain representations by the lender obtaining the mortgage insurance that the appraisals for insured loans will comply with regulatory guidelines and/or USPAP. The representations probably seemed unimportant when the lender obtained the policy and are not material to whether a loan goes into default. However, some mortgage insurance companies are now taking advantage of these clauses by ordering appraisal reviews in bulk and then using those reviews as the basis for denying claims. When a mortgage insurance claim is denied on this basis, we then often see the lender attempt to turn around and make a claim against the original appraiser.
We're seeing similar uses of review appraisals by lender "loss mitigation" departments and the FDIC. They're using appraisal reviews to make claims against appraisers relating to appraisals from the peak of the mortgage bubble.
The problem with all of this is that the reviews and "forensic" appraisals used for these purposes are among the most biased appraisal work we see. In many cases, there is more wrong with the freshly minted appraisal review than with the underlying appraisal, which often dates back 4 or 5 years. The reasons for this seem pretty obvious:
First, I believe that many of the firms hired to supply review and forensic appraisals know and adhere to the agenda -- their clients benefit when they find a reason to say the underlying appraisal is flawed or a reason to allege the value was overstated. I think there is pressure on them to find errors and if they can't, they know their work will dry up. Accordingly, we've seen review appraisals for "loss mitigation" stretching the facts to allege errors -- things like using "crack dens" or other blighted properties as comparables or misstating a subject property's characteristics in order to use lower value comparables. The appraisers have lost their objectivity and become advocates. Even if not intentionally biased, however, the retrospective reviews we see are widely unreliable because they usually fail to factor out: (1) deterioration of the property, (2) information acquired after the effective date of the original appraisal, and (3) the dramatic effect of market decline.
Second, in many cases, I think the review appraisers selected by some vendors in this area are less qualified that the original appraisers. The review appraisers often lack the same level of geographic competence as the original appraisers. (Sometimes, of course, the review appraisers are not licensed or certified in the subject property's state.) In addition, some appraisal vendors/users in the "loss mitigation" area are paying small fees for review work, causing rushed work, and using less experienced appraisers. Showing how little some lenders care about the quality of the review work being used for this purpose, we've seen a lender submit a complaint using a review by an appraiser on its own ineligible list and against whom the lender has filed a disciplinary complaint.
Third, review appraisals in this area of use are subject to less transparency and less accountability. The HVCC, of course, does not apply to mortgage insurers and lenders in connection with review appraisals for claims denial or loss mitigation, and fewer laws, rules and regulations in general govern review work. Also, the names and license numbers of review appraisers are often blacked out by the lenders and mortgage insurers when they use review appraisals against other parties. (Appraisers doing review work, however, should be aware that we are starting to see more appraisal reviews being investigated by state boards.)
What's the advice for the good appraiser? Be wary when someone calls you to discuss an old report. These days many of the parties contacting appraisers about prior work are: mortgage insurance company personnel, "loss mitigation" personnel working for lenders seeking to force a re-purchase by the originating lender, or third-party companies investigating alleged appraisal issues. These parties aren't your clients and appraisers need to be guarded in their discussions with them. For one thing, these parties very likely are working against the best interest of your client and, aside from that, you need to remain obedient to your duty of confidentiality under USPAP.
Click Here to Read Full Post
Thursday, November 5, 2009
Claims Against Residential Appraisers in 2009
In 2009, the volume of claims against appraisers remained at the same record levels experienced in 2007 and 2008. Beyond this continued high level, we've observed several new claim trends affecting residential appraisers in 2009.
I'll start with the good news. Most of the claims we see are defensible. With experienced and knowledgeable defense counsel, we find that the claims can often be defended without any liability. Second, though the volume of claims is high, the volume does not appear to be increasing to even higher levels. We are slowly winding our way through the problems created by irresponsible lending practices at the peak of the bubble. As we get further away from that time, we are hopeful that we’ll start seeing a decline in the number of new claims.
Here are some of the major trends and issues we've seen in 2009:
1. Overvaluation Claims by Borrowers
Borrowers – regardless of the fact that they are not the intended users of most appraisal reports – are filing a majority of the claims we see against appraisers. These claimants are mainly homeowners or property speculators who purchased or refinanced properties at the peak of the real estate bubble in 2005 through 2007. Most of their claims fit a common pattern: borrowers typically allege that they borrowed or paid too much because the appraisal overstated a property’s value and often accuse the appraiser of conspiring with the lender to make sure the loan would close. There is always more to the story with these claims, however. It is typical for us to discover that the lender overlooked its underwriting guidelines or the borrower’s inability to pay or that the borrower lied to get the loan. Or, the borrower never looked at or considered the appraisal until his lawyer started coming up with parties to sue (and therefore did not legally “rely” on the appraisal). We will continue to see these kinds of claims at historically high levels until enough time passes that the claims are no longer viable.
2. Undervaluation Claims by Borrowers and Sellers
A noticeable new trend involves demands and complaints that appraisers have undervalued properties. These claims are usually made soon after the delivery of a report and are often intended either to intimidate appraisers to change valuations or simply to strike back at appraisers who have reported lower than desired opinions. In recent months, claims that appraisals are too low have made up about a third of the claims we see from borrowers.
A typical scenario for this type of claim involves a homeowner seeking to refinance debt on a property purchased in 2005 or 2006. The homeowner will usually provide an inflated notion of his home’s value to the lender. The appraiser, however, will accurately report a value that in many cases is 20% to 30% less than what the homeowner paid. When the loan officer informs the homeowner that the loan cannot be made and provides the appraisal to the homeowner (as required by the HVCC), the next thing we see is a demand letter from the homeowner or a lawyer threatening to sue the appraiser and/or report the appraiser to the state unless the appraiser raises the value or somehow “retracts” the report. Often, we will also see a threat that if the homeowner does not obtain the loan he wants, he will sue the appraiser for the interest that the homeowner theoretically would have saved if the appraisal had come in higher and the homeowner had received his or her desired loan.
A closely related trend involves an increased number of undervaluation claims filed by property sellers (and sometimes their real estate agents). Here, these parties claim that an appraiser’s lower than expected appraisal either caused them to lose a sale when a buyer backed out or caused them to concede to a lower sales price. They typically demand that the appraiser make up the “lost profit.”
We see almost all of these claims about undervaluation for what they are: frivolous. We also take them as an indicator that appraisers are doing their job and providing accurate information to their lender clients. If residential appraisals are a bit more conservative than a few years ago, appraisers cannot be blamed for that. This is the result of a deflated bubble, new appraisal rules, and thousands of lawsuits and administrative complaints filed against appraisers by lenders and borrowers blaming appraisers for loan losses.
3. FDIC Claims
A more disturbing trend that emerged in 2009 involves the FDIC. We are seeing more and more demand letters and lawsuits being pursued by law firms working on behalf of the FDIC in connection with its takeover of failed banks. The FDIC has so far seized about 120 banks in 2009. In most cases, when the FDIC takes over a bank, the banking assets and deposits are quickly sold to another bank. In its standard sale agreement, however, the FDIC retains the right to pursue claims and lawsuits in the name of the failed bank. Accordingly, the FDIC has hired panels of private law firms to review bank records looking for possible lawsuits to file against officers, directors, accountants, appraisers, etc. in an effort to blame them for causing the failed bank’s losses and to recover funds to replenish the FDIC’s coffers. Thus, we’ve begun to see the FDIC’s private legal teams sending demand letters and filing lawsuits against individual appraisers blaming them for loan losses following foreclosure. One thing that stands out about these claims is that the FDIC’s various private counsel often pursue cases with over-the-top zeal – as if wearing the shiny badge of a newly appointed sheriff. We are hopeful that the FDIC will ultimately realize that over-lawyered lawsuits against appraisers blaming them for irresponsible lending decisions by the likes of WaMu, Indymac and Downey Savings are a net waste of its funding.
The scariest thing about FDIC claims for a few appraisers, however, is that some E&O insurance policies (but not any issued by LIA) contain an endorsement excluding coverage for claims by the FDIC and other government financial institutions. Thus, we would advise appraisers to contact their insurance providers to confirm that no such exclusion exists in their policy.
4. Claims Involving Trainees and Independent Contractors
About 25% of the claims we see against appraisers have some tie to work or assistance provided by trainees. A large number of additional claims relate in some way to work performed by independent contractors. It’s not always that the trainee or independent contractor was at fault or caused the problem – it’s just that many claims have this tie. We urge appraisers to be diligent and hands-on in their supervision of work by trainees and contractors and to make sure that the quality of their own work product is not compromised by such assistance. Also, it’s very important that if an appraiser has ever used or now uses trainees or independent contractors, the appraiser should review his or her E&O coverage with his provider to make sure there is coverage for any claims that may arise from the supervision of that work – many current insurance policies sold to appraisers contain an exclusion of such claims (policies issued by LIA do not contain such an exclusion).
Click Here to Read Full Post
I'll start with the good news. Most of the claims we see are defensible. With experienced and knowledgeable defense counsel, we find that the claims can often be defended without any liability. Second, though the volume of claims is high, the volume does not appear to be increasing to even higher levels. We are slowly winding our way through the problems created by irresponsible lending practices at the peak of the bubble. As we get further away from that time, we are hopeful that we’ll start seeing a decline in the number of new claims.
Here are some of the major trends and issues we've seen in 2009:
1. Overvaluation Claims by Borrowers
Borrowers – regardless of the fact that they are not the intended users of most appraisal reports – are filing a majority of the claims we see against appraisers. These claimants are mainly homeowners or property speculators who purchased or refinanced properties at the peak of the real estate bubble in 2005 through 2007. Most of their claims fit a common pattern: borrowers typically allege that they borrowed or paid too much because the appraisal overstated a property’s value and often accuse the appraiser of conspiring with the lender to make sure the loan would close. There is always more to the story with these claims, however. It is typical for us to discover that the lender overlooked its underwriting guidelines or the borrower’s inability to pay or that the borrower lied to get the loan. Or, the borrower never looked at or considered the appraisal until his lawyer started coming up with parties to sue (and therefore did not legally “rely” on the appraisal). We will continue to see these kinds of claims at historically high levels until enough time passes that the claims are no longer viable.
2. Undervaluation Claims by Borrowers and Sellers
A noticeable new trend involves demands and complaints that appraisers have undervalued properties. These claims are usually made soon after the delivery of a report and are often intended either to intimidate appraisers to change valuations or simply to strike back at appraisers who have reported lower than desired opinions. In recent months, claims that appraisals are too low have made up about a third of the claims we see from borrowers.
A typical scenario for this type of claim involves a homeowner seeking to refinance debt on a property purchased in 2005 or 2006. The homeowner will usually provide an inflated notion of his home’s value to the lender. The appraiser, however, will accurately report a value that in many cases is 20% to 30% less than what the homeowner paid. When the loan officer informs the homeowner that the loan cannot be made and provides the appraisal to the homeowner (as required by the HVCC), the next thing we see is a demand letter from the homeowner or a lawyer threatening to sue the appraiser and/or report the appraiser to the state unless the appraiser raises the value or somehow “retracts” the report. Often, we will also see a threat that if the homeowner does not obtain the loan he wants, he will sue the appraiser for the interest that the homeowner theoretically would have saved if the appraisal had come in higher and the homeowner had received his or her desired loan.
A closely related trend involves an increased number of undervaluation claims filed by property sellers (and sometimes their real estate agents). Here, these parties claim that an appraiser’s lower than expected appraisal either caused them to lose a sale when a buyer backed out or caused them to concede to a lower sales price. They typically demand that the appraiser make up the “lost profit.”
We see almost all of these claims about undervaluation for what they are: frivolous. We also take them as an indicator that appraisers are doing their job and providing accurate information to their lender clients. If residential appraisals are a bit more conservative than a few years ago, appraisers cannot be blamed for that. This is the result of a deflated bubble, new appraisal rules, and thousands of lawsuits and administrative complaints filed against appraisers by lenders and borrowers blaming appraisers for loan losses.
3. FDIC Claims
A more disturbing trend that emerged in 2009 involves the FDIC. We are seeing more and more demand letters and lawsuits being pursued by law firms working on behalf of the FDIC in connection with its takeover of failed banks. The FDIC has so far seized about 120 banks in 2009. In most cases, when the FDIC takes over a bank, the banking assets and deposits are quickly sold to another bank. In its standard sale agreement, however, the FDIC retains the right to pursue claims and lawsuits in the name of the failed bank. Accordingly, the FDIC has hired panels of private law firms to review bank records looking for possible lawsuits to file against officers, directors, accountants, appraisers, etc. in an effort to blame them for causing the failed bank’s losses and to recover funds to replenish the FDIC’s coffers. Thus, we’ve begun to see the FDIC’s private legal teams sending demand letters and filing lawsuits against individual appraisers blaming them for loan losses following foreclosure. One thing that stands out about these claims is that the FDIC’s various private counsel often pursue cases with over-the-top zeal – as if wearing the shiny badge of a newly appointed sheriff. We are hopeful that the FDIC will ultimately realize that over-lawyered lawsuits against appraisers blaming them for irresponsible lending decisions by the likes of WaMu, Indymac and Downey Savings are a net waste of its funding.
The scariest thing about FDIC claims for a few appraisers, however, is that some E&O insurance policies (but not any issued by LIA) contain an endorsement excluding coverage for claims by the FDIC and other government financial institutions. Thus, we would advise appraisers to contact their insurance providers to confirm that no such exclusion exists in their policy.
4. Claims Involving Trainees and Independent Contractors
About 25% of the claims we see against appraisers have some tie to work or assistance provided by trainees. A large number of additional claims relate in some way to work performed by independent contractors. It’s not always that the trainee or independent contractor was at fault or caused the problem – it’s just that many claims have this tie. We urge appraisers to be diligent and hands-on in their supervision of work by trainees and contractors and to make sure that the quality of their own work product is not compromised by such assistance. Also, it’s very important that if an appraiser has ever used or now uses trainees or independent contractors, the appraiser should review his or her E&O coverage with his provider to make sure there is coverage for any claims that may arise from the supervision of that work – many current insurance policies sold to appraisers contain an exclusion of such claims (policies issued by LIA do not contain such an exclusion).
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Wednesday, November 4, 2009
The FBI is on the Phone for You
The FBI released a report earlier this year entitled 2008 Mortgage Fraud Report "Year in Review". It indicated the obvious: that reports of mortgage fraud and investigations of it by the FBI increased significantly in 2008. The FBI further indicated:
One result of the FBI's intensified effort seems to be that appraisers have been getting more calls than usual from FBI special agents wanting to ask questions about particular reports. The agents almost never indicate specifically what they are investigating (other than "fraud"), who initiated the investigation, or who is the direct subject of the investigation. Often, the agents try to be friendly and say something like: "I'm looking at your report here and I'm just wondering if you can tell me a bit about how you arrived at your value" or "I have a review of your appraisal that has a much lower value, can you help me understand why?" Sometimes, the agents suggest that giving them some information will help them close up the file and not have to bother the appraiser again. The agents will then often also ask the appraiser to come down for an interview or tell the appraiser they'd like to come by and have a look at the file.
I have no doubt that there are some appraisers spread across the country who actually may have crossed the line and may have some culpability for engaging in intentional fraud. My post here is not for those appraisers. The typical situation I see, however, is much more innocent. The appraiser receiving the agent's call is more typically scratching his head trying to figure out why the FBI would be interested in the subject report. It usually seems like the report under scrutiny is no different than any other assignment, except maybe there's been a subsequent foreclosure on the property. And, I do think that in most of these cases when an FBI agent is inquiring about an appraiser's report, there is likely nothing wrong with the report itself. In fact, I've recently seen inquiries from the FBI and other state and federal investigative agencies that seemed to be based on nothing more than a lender having a foreclosed mortgage and a low-ball retrospective appraisal in the file.
What should the good appraiser do when the FBI or any law enforcement officer calls? First, of course, you need to be friendly and polite. The last thing you want to do is give the impression that you're hiding something by being short or difficult. Second, try to determine if the appraisal report that the agent or officer has in front of him really is your work. We've seen cases were law enforcement launched investigations without any idea that the report in their hands obtained from the lender had been altered or forged. Thus, without discussing the results in your report, try to ask the agent or officer to tell you information from the report in front of him. Third, if the agent or officer wants to talk about the specifics of the report, you need to realize that your USPAP ethics duty of confidentiality to your client prevents you from doing so, unless you've received a subpoena (or court order) or have been authorized by your client. (If the investigator is with your state licensing or enforcement agency, the duty of confidentiality, however, does not prevent you from discussing or providing the report.) Thus, you'll need to politely advise the agent or officer that you have that duty to your client and that you cannot violate it by talking about the assignment or results. The same thing goes for complying with a request (as opposed to a subpoena) for your work file. Use this as an opportunity to politely and professionally break off the discussion and then consult with an attorney. Even when a law enforcement investigation is not covered by insurance, your E&O provider should be able to provide a reference to a knowledgeable and economical attorney with whom you can discuss the situation.
Click Here to Read Full Post
"With the anticipated continued upsurge in mortgage fraud cases, the FBI has created the National Mortgage Fraud Team (NMFT); fostered new and existing liaison partnerships within the mortgage industry and law enforcement; and developed new and innovative methods to detect and combat mortgage fraud.
In December 2008, the FBI established the NMFT to assist field offices in addressing the financial crisis, from the mortgage fraud problem and loan origination scams to the secondary markets and securitization. The NMFT provides tools to identify the most egregious mortgage fraud perpetrators, prioritizes investigative efforts, and provides information to evaluate resource needs."
One result of the FBI's intensified effort seems to be that appraisers have been getting more calls than usual from FBI special agents wanting to ask questions about particular reports. The agents almost never indicate specifically what they are investigating (other than "fraud"), who initiated the investigation, or who is the direct subject of the investigation. Often, the agents try to be friendly and say something like: "I'm looking at your report here and I'm just wondering if you can tell me a bit about how you arrived at your value" or "I have a review of your appraisal that has a much lower value, can you help me understand why?" Sometimes, the agents suggest that giving them some information will help them close up the file and not have to bother the appraiser again. The agents will then often also ask the appraiser to come down for an interview or tell the appraiser they'd like to come by and have a look at the file.
I have no doubt that there are some appraisers spread across the country who actually may have crossed the line and may have some culpability for engaging in intentional fraud. My post here is not for those appraisers. The typical situation I see, however, is much more innocent. The appraiser receiving the agent's call is more typically scratching his head trying to figure out why the FBI would be interested in the subject report. It usually seems like the report under scrutiny is no different than any other assignment, except maybe there's been a subsequent foreclosure on the property. And, I do think that in most of these cases when an FBI agent is inquiring about an appraiser's report, there is likely nothing wrong with the report itself. In fact, I've recently seen inquiries from the FBI and other state and federal investigative agencies that seemed to be based on nothing more than a lender having a foreclosed mortgage and a low-ball retrospective appraisal in the file.
What should the good appraiser do when the FBI or any law enforcement officer calls? First, of course, you need to be friendly and polite. The last thing you want to do is give the impression that you're hiding something by being short or difficult. Second, try to determine if the appraisal report that the agent or officer has in front of him really is your work. We've seen cases were law enforcement launched investigations without any idea that the report in their hands obtained from the lender had been altered or forged. Thus, without discussing the results in your report, try to ask the agent or officer to tell you information from the report in front of him. Third, if the agent or officer wants to talk about the specifics of the report, you need to realize that your USPAP ethics duty of confidentiality to your client prevents you from doing so, unless you've received a subpoena (or court order) or have been authorized by your client. (If the investigator is with your state licensing or enforcement agency, the duty of confidentiality, however, does not prevent you from discussing or providing the report.) Thus, you'll need to politely advise the agent or officer that you have that duty to your client and that you cannot violate it by talking about the assignment or results. The same thing goes for complying with a request (as opposed to a subpoena) for your work file. Use this as an opportunity to politely and professionally break off the discussion and then consult with an attorney. Even when a law enforcement investigation is not covered by insurance, your E&O provider should be able to provide a reference to a knowledgeable and economical attorney with whom you can discuss the situation.
Click Here to Read Full Post
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