A new report by the independent Demos group has revealed what may not be a surprise to many people – corruption is rampant in the home appraisal industry. The bust in the dot-com market of some five years ago has left would-be lenders with a surplus of cash to lend. This has led to a huge boom in both mortgage and home equity loan lending. That’s not a bad thing; a record 69% of Americans now own their own homes. Owning a home is easier than ever; in 2004 the average down payment was a record low of only three percent.

So if everyone is buying a home, and loans are easier to obtain than ever, what is the problem? The problem is that nearly 55% of the appraisers polled in the survey said that they had been pressured by lenders to deliver appraisals that met a “target” value. The appraisers said that failure to meet the “target” value resulted in either their not being paid, or not being hired again.

Since most appraisers want to keep working, they have had a tendency to meet the target value, even if it means that they have overestimated the value of the property. This drives prices artificially higher and leaves many homeowners with mortgages that may be worth more than the homes they were meant to finance. This problem becomes acute should the owner need to sell the home, only to discover that it isn’t worth as much as he or she owes on it.

The worst-case scenario to result from this would be a burst in the current real estate “bubble” and a nationwide collapse in home values, leading to massive foreclosures. This probably will not happen, but there are several things prospective borrowers can do to avoid being caught in the appraisal trap:

# *Become educated about the appraisal and lending process. The more informed you are, the less likely you are to be caught in a scam.

# *Be aware that refinancing your home isn’t a cure to all problems. It may seem appealing to use the equity in your home for such uses as debt consolidation but if the result of that is that you owe more on your home than it is worth, you probably haven’t gained anything.

# *Be active in the appraisal process. Talk to the appraiser, and ask to see the finished appraisal, along with the data used to create it. Appraisals are based in part on the sales of similar properties in your area. Check them out yourself and compare the home you saw with the stated appraisal value.

# *Be bold. Ask your lender if they pressure their appraisers to provide inflated values. You might not get an honest answer, but pay attention to how they respond. You might be able to determine if they are lying.

Ultimately, if you take out a home equity loan or a mortgage for more than your home is worth, you are the one that suffers. That can be easily avoided if you simply pay more attention to the process and educate yourself about the possible pitfalls. The last thing you want to lose is your home.

About the Author:

©Copyright 2005 by Retro Marketing. Charles Essmeier is the owner of Retro Marketing, a firm devoted to informational Websites, including http://www.End-Your-Debt.com/ and http://www.HomeEquityHelp.net/

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1 Comment for 'Home Equity Loans - Beware Of Appraisal Fraud'

1.  
   Bob Ipock
   August 12, 2007 | 3:09 pm
    

   Good article and advice…..except…..

   Unless the borrower/homeowner is the CLIENT the appraiser is not allowed to discuss the appraisal results with them. The USPAP (Uniform Standards of Appraisal Practice) Ethics Rule does not allow the appraiserto advise or interact with the borrower(or anyone other than their CLIENT) in the manner suggested in the article.

   The CLIENT is the party that hires and engages the appraier. If the loan is beiing made by a lender under Federal banking laws the appraiser MUST be directly engaged by the lender….not the borrower.

   In MOST cases if money is being borrowed the CLIENT will be the lender. When the client is the lender, the appraisal is for use of by the lender/client in their decision making process and is not intented for the borrower’s use. . Without an appraisal the lender will be unable to get the loan funded or sold in the secondary market.

   If a borrower believes their home has been over valued or that the appraisal is in any way fraudulent they should contact the state appraisal board that regulates appraisers in their state. The FBI is very interested in frudulent or inflated appraisals.

   It is often a good idea for a borrower to hire and engage their own appraiser when they are truly interested in a honest, truthful and factual opinion of value. Far too many real estate appraisers have sold their souls to dishonest lenders.

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