Potential for Increased Valuation Fraud in Down Economy
In this time of economic hardship, many people are looking to or are being forced to liquidate their assets. The potential for scams regarding asset valuation will only increase, as will the number of individuals who fall victim to these schemes. In addition to individuals being taken advantage of, other larger-scale problems can arise from valuation fraud. Schemes that involve artificially inflated real estate appraisals drive up property tax assessments, and foreclosures resulting from fraud lower surrounding home prices. To prevent being taken advantage of by less-than-reputable appraisers, it is important to find an appraiser who will conduct a fair and accurate valuation.
The FBI recognizes that valuation fraud, specifically with regard to real estate, is a growing problem. During Fiscal Year (FY) 2008, mortgage fraud Suspicious Activity Reports (SARs) increased more than 36% to 63,173. The total dollar loss attributed to mortgage fraud is unknown. However, 7% of SARs filed during FY 2008 indicated a specific dollar loss, which totaled more than $1.5 billion. Only 7% of 2008 SARs reported dollar loss because of the time lag between identifying a suspicious loan and liquidating the property through foreclosure and then calculating the loss amount.
Currently, most of the mortgage industry is not required to participate in any mandatory fraud reporting, and there is presently no central repository to collect all mortgage fraud complaints. However, SARs from financial institutions have indicated a significant increase in mortgage fraud reporting.
Increased monitoring and enforcement would be helpful in preventing mortgage fraud because many mortgage fraud schemes include an appraisal component. A joint task force between the FBI and the Department of Justice – the Mortgage Fraud Working Group – has been created to investigate these issues, but there has been little agreement on exactly how to best fight this type of fraud.
To help combat valuation fraud, it is important for individuals, including real estate owners, CPAs, and attorneys, who are faced with the challenge of accurately appraising real estate assets to find appraisers who have experience in their specific regions.