About seven years ago next month, I became aware of fraud in the databases, with illegal property flips, and in some cases, bogus sales. It was at a seminar entitled "Real Estate Fraud and the Appraisers Role" created by Steve Smith, MAI, SRA. There were like 90 people there. We did a field trip to a flipping neighborhood, one with what had been 184 fourplexes. 27 had been torn down, and others were being torn down.
There were board-ups and burn-outs throughout the neighborhood. In the background was a bulldozer knocking over fourplexes, as the City had decided one way to stop blight and the cash drain on municipal services for Police/Fire/Ambulances was to eliminate flipping neighborhoods. Yea, there was grafitti, drug dealing, gangs, bullet holes, prostitution, abandoned and junked cars, trash and debris all around. There were lots of sales in the database, the majority of which were frauds.
The idea that the data we rely on in the databases can be perverted with illegal transactions scared me. I am a risk averse person.
But, it became painfully obvious that the level of fraud in real estate deals was increasing, as if my Region was a magnet for fraudsters.
After our field trip, back at the seminar, I asked about the three best ways to limit liabilities and here is what I remember the answer to be:
- Give up your License, unlicensed appraisers can't be fined by the License Board, and are not held to the same standards of care and seldom sued.
- Stop doing lender work, 78% of the civil suits for professional liability come from the lender path, IE client, investor, mortgage insurer, regulator. 100% of the criminal suits against appraisers for professional liability come from the lender path.
- Do legal work. Work as an expert or consultant, for a professional fee. Experts do not get sued. Well, almost never.
I believe this to be as sage advise today as it was seven years ago. In the intervening years, I found my way into legal work through a girlfriend as a forensic review appraiser. When my license came up for renewal, I let it go as I had no need for it anymore.
Now I work on the average about 30-hours {billable} per week. My resources are paid for. I have no client pressures. I have no turn-time pressures. I am a consultant, and my name is not disclosed. No one other than my client knows I exist.
Now I have time for play and fun, all of which occurs outside of the world of appraisal.
While giving up the license may seem foreign to most, it truly is a way to limit liabilities. The market we are in today is going to create more liability in the next 2-3 years than in the history of appraisal.
The only reason appraisers were licensed and USPAP put into place was to make it easier for lenders to sue appraisers. The FNMA Certification 23, tightened the noose. I am surprised the fees did not double in January.
The most accommodating appraisers from this past cycle, will also be the ones sued the most.
It doesn't make sense to me that a process and procedures that take 8-10 hours to perform, is universally being billed out at 2-3 billable hours by an army of appraisers all across the country.
It doesn't make sense to me that the Appraisal organizations do not recognize that their own members can't adhere to good appraisal procedures and USPAP and do fast/cheap work for lenders.
Whether is it BofA pressing staff appraisers to do 3/day+ or Wells Fargo with its on-line bidding system that forces fees down, or the Sub-Prime lending industry that just beats the appraisers to a pulp with client pressures so they can stick to their borrowers; it is amazing to me that the licensees as a group have gone with the flow, have taken the pressures and have caved-in in general.
There is so much appraisal fraud today, way more than 10-years ago even. Why more does not get turned in by lenders is understandable. They want to fund as many loans as possible. But why appraisers do not turn it in when they see it, is not understandable unless the industry is just so complacent they do not really care more than their next meal.
AUTHOR: Roberta Stevens, Newberry Springs, CA 92365. After almost 20-years of appraising she gave up her license and now works exclusively as a consulting and forensic reviewer, in civil litigation cases, involving professional liability.
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