When prospective home owners 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.
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 over valuing 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.
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.