Appraisal Fraud

Posted in Finance, Accounting and Economics Terms, Total Reads: 948

Definition: Appraisal Fraud

Appraisal fraud is a case of fraud in mortgage where the value of a real-estate property is increased above the actual market value. Since the value of the property is much higher that the market value, it increased the value making it difficult to repay the loans also.

The higher than market value appraisal is done to get the seller a better price than the market value of the property or aiding the buyer in getting financing from the bank if the mortgage amount is much less than the appraised value of the property or helping the owner of the property get a preferable refinance or home equity loan. Many appraisers have reported saying that they feel pressure from lenders or brokers to inflate the prices of properties. If they do not agree to appraise more than market value then they are blacklisted by lenders and brokers and they fail to secure further work.

Appraisal fraud may be contributing towards the housing bubble in various countries. Consumers get involved in appraisal fraud by inflated property prices so that they could procure higher loans from bank to pay off other debt such as credit card debt etc. Appraisal fraud can occur in two ways. One of the ways is when appraiser dishonestly overstates the value of the property at the behest of the homeowner, seller, buyer or broker. The other way is when these stakeholders digitally edit the appraisal.

Taking an example of how appraisal fraud is done, the real market value of the house is 150000$ and mortgage outstanding is 140000$. The homeowner also has 20000$ in credit card debt. As total mortgage outstanding is more than market value hence the owner won’t be able to get financing from the bank. So he resorts to fraudulently appraise the value of the property to be 170000$ so that he could secure refinancing from the bank.

Hence, this concludes the definition of Appraisal Fraud along with its overview.

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