Foreclosure Defense And Appraisal Fraud

Last updated on: May 26, 2023

Appraisal fraud has long been a concern for potential home buyers, as it can lead to devastating financial consequences, including foreclosure. When a home’s value is artificially inflated, buyers may end up borrowing more than the property is worth, leaving them underwater on their mortgage and at risk of losing their home. 
If you suspect that you’ve been a victim of appraisal fraud and are now facing foreclosure, it’s crucial to seek legal assistance from a skilled Miami foreclosure lawyer. At the Charlip Law Group, L.C., our experienced Miami foreclosure attorneys may be able to help you navigate the complexities of foreclosure defense, and predatory lending and foreclosure. Don’t let an unfair appraisal leave you facing the loss of your home; contact us today at (305) 354-9313 for a consultation and explore your options, including applying for a foreclosure assistance program.

When prospective homeowners are applying for mortgage loans to cover some or the entire purchase price, they are often only allowed to borrow up to the value of the home to be purchased or lower.  Because of this, homes that are to be purchased through mortgage loans are appraised for value before the mortgage loan can be finalized.  In some cases, the appraisal process can be used to induce buyers into buying homes that are worth significantly less than the appraised value, and less than the amount the buyer will borrow from the bank for the sale.  This inflation of a home’s value can lead to a homeowner being underwater on their home pretty soon after acquiring it, depending on how much of a down payment the homeowner used to buy the house.

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Inflating a home’s value above its true market value is known as appraisal fraud, and it can be the basis of a defense in a foreclosure proceeding because it is considered mortgage fraud.  Appraisal fraud was part of what caused the housing crisis because lenders were working with or pressuring appraisers to inflate home values in order to justify lending more money than the borrower could otherwise be qualified to borrow.  When the homeowner was later unable to make payments on the loan, he or she would face foreclosure.

Although the practice is not as prevalent as it once was, potential homeowners should still be vigilant throughout the appraisal and loan application process to avoid or at least spot appraisal fraud.  There are red flags that every homeowner should watch out for as part of the appraisal process.  Some of these include, using comparable homes for pricing that are not similar to the home to be purchased, comparable homes used are in different towns than the home to be purchased, and that the appraisal is ordered before the loan application is submitted.  Homeowners should also consider paying for their own independent appraisals, especially if purchasing the home in order to flip it.

If an appraiser’s fraudulent valuation is material in inducing a buyer to purchase a certain home that he or she would otherwise not have purchased, the buyer may be able to sue the appraiser for the fraudulent misrepresentation in some circumstances.  In order to use a fraudulent appraisal as a defense to foreclosure, the buyer may have to prove that the lender was aware of the fraudulent nature of the appraisal and still went on to approve the mortgage that was based in part on the appraised value.  If the appraiser is overvaluing a property to benefit a seller and not the lender, then a court is unlikely to find mortgage fraud, and the fraudulent appraisal cannot be used as a defense to a foreclosure.

What is Appraisal Fraud?

Appraisal fraud occurs when the value of a home is artificially inflated during the appraisal process, exceeding its true market value. This deceptive tactic is often employed to justify lending larger amounts of money to borrowers who would not qualify otherwise. Unfortunately, this fraudulent practice can leave homeowners in a precarious situation, with their mortgages exceeding the actual worth of their homes. Appraisal fraud played a significant role in the housing crisis, as lenders coerced appraisers into inflating property values.

Although less common nowadays, it is crucial for prospective homeowners to remain vigilant in order to avoid falling victim to appraisal fraud. Some warning signs include the use of dissimilar comparable properties for pricing, the inclusion of properties from different towns in the appraisal, and ordering the appraisal before submitting the loan application. To protect themselves, homeowners may want to consider paying for independent appraisals.

In certain instances, if an appraiser’s fraudulent valuation significantly influences a buyer’s decision to purchase a property they would not have otherwise bought, the buyer may have grounds to sue the appraiser for fraudulent misrepresentation. To use a fraudulent appraisal as a defense against foreclosure, the buyer may need to demonstrate that the lender was aware of the appraisal’s fraudulent nature yet still approved the mortgage. However, if the appraisal fraud primarily benefits the seller rather than the lender, it is unlikely to be categorized as mortgage fraud and cannot be used as a defense against foreclosure.

Appraisal Fraud Warning Signs Details
Dissimilar comparable properties for pricing Appraisals should use comparable properties that are similar to the property being appraised. Dissimilar properties may indicate potential fraud.
Properties from different towns in the appraisal Appraisals should include properties from the same area for accurate valuation. Properties from different towns may signal potential fraud.
Ordering appraisal before submitting the loan application Complete the loan application first before ordering the appraisal to ensure accurate valuation. Ordering early may indicate manipulation attempts.
Consider independent appraisals, especially for property flipping Opt for independent appraisals for unbiased property valuations, particularly for flipping. Reduce the risk of biased valuation by professionals not affiliated with the lender or seller.

Contact Us For Legal Assistance

If you are going through foreclosure, there may be defenses available to you; you should discuss your options with your attorney before making any decisions on how to proceed.  Contact an experienced North Miami foreclosure attorney at the Charlip Law Group, L.C. for a consultation.

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