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May 29th, 2009 3:56 PM by David W. Welch
I know that you may find it hard to believe, but there have been acts of fraud in real estate transactions. Specifically, there have been acts of loan fraud where values of homes have been falsely inflated. I have no idea what percentage of transactions have closed over the years that fall into this type of scheme, but I have heard the 2% floated out there as an estimate. I have also heard that out of the hundreds of thousands of closings back in the boom there were about half a dozen frauds prosecuted. That does not mean that only six were perpetrated, but my point is that it is a very small number.
In comes the Attorney General of NY. Is that the same guy that got rid of the trans fat in my KFC original recipe? I already don't like him. I don't pretend to know how this came to fruition, but in the end a whole new set of procedures came into being for obtaining appraisals for certain loans. It is known as the Home Valuation Code of Conduct or HVCC. Essentially, it is meant to put lenders and appraisers at arms length to prohibit or at least limit the possibility of collusion to inflate values of properties being financed.
To pull off this type of loan fraud, you pretty much need the buyer, lender, appraiser and buyer's real estate agent to be involved. If the buyer is not involved then, they have to be completely unaware of the internet. An easy check of internet will yield all types of sites eagerly waiting to show what homes are for sale and sold and how much they are valued. That still means that you have to have a lender and appraiser and a real estate agent who are all crooks. In Florida, the appraiser and the agent are both licensed by the state. They have had criminal background checks, fingerprinted and have at least some degree of education regarding these illegal activities. If the lender is a mortgage broker, they too have gone through the licensing process.
HVCC seeks to separate the lender from the appraiser by creating an intermediary that orders the appraisal on behalf of the lender. This adds a layer to the process which adds expense to the borrower/buyer and time which is always an enemy of the real estate transaction. Check out this link to a website that seeks to have the current HVCC rules repealed. This went into effect May 1st, and I am going through a deal right now that has been delayed as a direct result. The lender ordered the appraisal through the intermediary. The order was placed with an appraiser. I met him at my listing to let him in to do his inspection of the property. The lender had know idea who he was and had no contact information for him at all. The inspection was done on May 15th. The lender did not think to contact me to let me know that they still did not have a copy of the appraisal as of May 28th. They have the file completely ready for closing with that one exception. They have been contacting the intermediary, the intermediary claims they have been trying to get in touch with the appraiser, the appraiser says he had been trying to reach the intermediary for a copy of the contract.
This is just one example of how these new rules are making things more difficult to solve a small problem that has been blown out of proportion. Politically, it sounds great to fight corruption in the system. There are better ways to deal with this like aggressively investigating the few deals that do pop up. That way everybody does not have to pay for the crimes of a few.
Orlando Real Estate, David Welch Real Estate Optimist, @RealtyOptimist