Ohio Sues Real Estate Firms for Pressuring Appraisers (Update4)
By Brian Louis and Sharon L. Crenson
June 7 (Bloomberg) -- Ohio, the state with the third highest number of foreclosures, sued 10 real estate companies for improperly pressuring appraisers to inflate home values.
The companies, based in Ohio, California, Arizona and New York, are accused of setting specific estimated values on properties and communicating a desired price to appraisers, according to the lawsuits filed by Attorney General Marc Dann today. In Ohio, it's illegal to influence an appraiser. Those sued include seven mortgage brokers, two lenders and an appraiser.
Foreclosure filings in Ohio jumped 135 percent in April from a year ago, pushing the state's rate to almost twice the national average, according to RealtyTrac Inc. States have opened investigations of mortgage brokers, lenders and appraisers as delinquencies rise across the U.S., led by subprime borrowers.
``It's a step in the right direction,'' said Jonathan Miller, a New York-based appraiser for two decades who says appraisers often face pressure from brokers and lenders. ``Finally someone is listening.''
`Need Aggressive Appraiser!'
A borrower who gets a home loan based on an inflated appraisal and falls behind on payments may have difficulty selling or refinancing for enough to pay off the mortgage.
The lawsuits claim brokers and lenders asked for specific home values on properties the appraisers had not yet seen, in one instance saying, ``if you foresee a problem with the value, contact me immediately'' and in another case, using the words: ``Need aggressive appraiser!''
The mortgage brokers being sued are
Ace Mortgage Funding LLC in Cincinnati;
American Home Brokerage Corp. of Garden Grove, California; Apex Mortgage Services LLC in Columbus;
First Ohio Banc & Lending Inc. of Independence, Ohio;
Island Financial LLC of Twinsburg, Ohio;
Premiere Service Mortgage Corp. of West Chester, Ohio;
and Robert C. Roach, president of The Valley Mortgage Group of Austintown, Ohio.
The lenders are
Sage Credit Company LLC, based in Irvine, California, and Wall Street Mortgage Bankers Ltd. of East Rockaway, New York.
All-Line Appraisals of Phoenix, which arranges property valuations for lenders and other clients, was also sued.
`Predatory Lending'
``Predatory lending is driving Ohio's shameful home foreclosure rate,'' Dann said in a statement. ``Today's crackdown on appraisal fraud will help protect consumers and move us one step closer to driving unscrupulous lenders out of our communities.''
In an interview, Dann said: ``There is subtle and direct pressure that has been put on these appraisers. It happened over and over again.''
Kirk Doskocil, president of the First Ohio Banc & Lending, said it's common practice for lenders to ask appraisers for preliminary estimates to avoid charging homeowners for a valuation that the bank won't use.
``There's no reason to have the homeowner pay $400 for an appraisal if the home doesn't have the value he thinks it does,'' said Doskocil, who had not seen the lawsuit. ``So you ask the appraiser, `Can you get this value?' If you can, we'll order the appraisal. If not, we can tell the homeowner it's not worth as much as they think.''
Vu Ho, a managing director of American Home Brokerage, said his company doesn't do business in Ohio. He also said it faxes a standard form to all appraisers seeking an estimated value before it commissions a full appraisal.
No Pushing Values
``We have to do a value check,'' Ho said. ``We don't push values.''
The complaint against Roach says he asked an appraiser on Jan. 11 for an estimated value range for a home, a charge Roach didn't dispute in an interview.
An amendment to the state's Mortgage Broker Act prohibiting the practice went into effect on Jan. 1, Roach said. By Jan. 11 he and his staff ``were still sorting out what was and what wasn't allowed,'' he said. ``If the attorney general's office is satisfied this isn't a pattern of conduct, I hope we can work something out.''
Patricia Amidon, a member of the Appraisal Institute's government relations committee, said people who agree to provide any valuation estimate before examining a property are in violation of the trade organization's ethics policy.
``Many appraisers accept assignments like that by doing very preliminary appraisals in their head first,'' Amidon said. ``It's a violation of our professional ethics. Those jobs should have been turned down.''
Fines Sought
All-Line Appraisal office manager Dan Duncea declined to comment until he had seen the lawsuit. Apex Mortgage denied the allegations and said they never attempted to influence the independent judgment of any appraiser.
``It is disturbing that the Ohio Attorney General office's first step in addressing these allegations with Apex is in this heavy-handed manner,'' Apex Chief Financial Officer Zachary Swartz said in a statement.
Ace Mortgage Funding, Island Financial, Sage Credit and Wall Street Mortgage Bankers did not immediately return calls seeking comment. A man who answered the phone at Premiere declined to comment or give his name.
The lawsuits, filed in the state's county courts, seek at least $250,000 in civil fines, or $25,000 from each of the 10 defendants. The attorney general also asked for injunctions barring similar acts in the future and for the courts to order an unstipulated amount of refunds to consumers.
Inflated appraisals are primarily a problem in the refinancing market where those involved may have an incentive to inflate a home's value, said Miller, who heads the appraisal firm Miller Samuel Inc.
Foreclosures Surge
Homeowners want to borrow as much as possible, mortgage brokers collect fees for finding them a bank willing to lend the money, and appraisers may cede to pressure from the brokers because they are dependent on them for future business, he said.
The lawsuits by Ohio come after Attorney General Dann said last month he may sue Wall Street firms because their bond sales enabled consumers to get mortgages they couldn't afford.
``We continue to work on the investigation,'' Dann said. ``We are looking at other players in the market and we are going to find a way to hold accountable these people who profited.''
``We're looking at everybody involved in the process,'' he said.
Dann, 45, a Democrat who took office in January, is focusing on lending practices as foreclosures surge and home prices decline in the state.
Prices Fall
Ohio reported 11,431 foreclosure filings in April, or one foreclosure filing for every 418 households, according to Irvine- based RealtyTrac, a seller of foreclosure data.
The average sales price for homes in Ohio in April fell 2.9 percent to $145,775 from April 2006.
Ohio is one of the states with the most mortgage fraud, said Joan Ferenczy, who oversees fraud investigations for Freddie Mac, the largest provider of funds for U.S. home loans.
``A lot of foreclosures are tied to inflated appraisals,'' Ferenczy said. ``If the fraud occurs in concentrated geographic areas, you get whole neighborhoods going under.''
Ohio's action comes as New York and Colorado are investigating practices in the real estate industry.
New York Attorney General Andrew Cuomo is investigating pressure on appraisers and has issued at least three subpoenas. New York City-based appraisers Mitchell, Maxwell & Jackson Inc.; the real estate appraisal unit of First American Corp., known as eAppraiseIT LLC; and the broker Manhattan Mortgage Co. have all acknowledged receiving subpoenas from Cuomo's office.
Colorado Attorney General John Suthers is investigating four mortgage brokers and has issued subpoenas to 17 companies he says may have used deceptive advertising to lure customers.
To contact the reporters on this story: Brian Louis in Chicago at blouis1@bloomberg.net ; Sharon L. Crenson in New York at screnson@bloomberg.net .
Last Updated: June 7, 2007 17:43 EDT
bloomberg.com |
