Miami Dade Real Estate Scoop

Mortgage Fraud.  These 2 words can evoke fear in people.  As well they should!  Mortgage fraud is so rampant in our industry, including here in Miami real estate, that it is being treated by the authorities with the attention it deserves. 

I'm sure most consumers aren't aware that some of the things going on are illegal.  There are many different things that constitute mortgage fraud.  I'm touching on only one thing in this post: the inflated appraisal.

Asking an appraiser to "bring the appraisal in" at a certain number is illegal!  Recent findings show that a majority of appraisers find themselves pressured in some way to appraise the home at a specific value.

Some people think that no one is being hurt if a home is valued incorrectly just to be able to close on the deal.  After all, the borrower is going to make the mortgage payments, right?  Wrong.  It is still fraud.  The bank is being defrauded.  

Aside from qualifying the applicant for a loan, a bank has to qualify the property as well.   Most consumers don't get this.  The bank is just doing their homework and covering their assets, no pun intended.  You wouldn't accept collateral on a personal loan if it was worth less than the amount you're lending, would you?  Yet, that is exactly what is happening to a bank when a property's appraisal is compromised.

Think about it rationally.  Maybe this scenario will help:

• A bank lends 90% in a transaction under the belief that the home is worth $500,000.  That means the loan is for $450,000.
• The home is actually only worth $400,000.
• The closing takes place and the buyers fully intend to make the mortgage payments.
• Six months later someone gets laid off and keeping up with mortgage payments is difficult.
• Three months after that foreclosure proceedings begin.
• The bank now has to foreclose on a property that is worth $400K, but they are owed $450K (just a tad less, considering the principal paid).  They are being shortchanged.  I have left changing property values out of this equation.  A bank does not lend money based on what a property may be worth in the future.  I am also leaving out legal fees for simplicity's sake.  Considering they can run into the thousands that just brings the amount of money to a new level altogether.

This a very simplified version of this, to be sure.  When this happens, chances are pretty darn good that money has  changed hands at the closing table months before.  And I'm not referring to the money that should have rightfully changed hands; a sale did take place after all.

So be wary if your real estate professional says, "don't worry, we do this all the time."  That may very well be the case, but it doesn't mean it's legal.  Personally, if I hear that line, I do exactly the opposite:  I worry. Make sure you're working with someone who keeps everything above board.  Even if I did look good in orange jumpsuits, I'm not ready to make them my daily attire.