"It Wasn't Me...It Was the Other Guy"

{This is my third submission in a series on the financial crisis here in America. I want this to be an honest account of why we are where we are based on my tiny perspective of the mortgage/housing debacle.}

Well, I did it. I thought I was going to be able to publish a weekly series on this appraisal/mortgage mess, but I dropped the ball. At least I admit it, though. I wish I could say the same for some of my cohorts in this industry. My excuse for not writing...I was busy...with work! What?!? Yeppers, even with the financial crisis going on in America, I actually received work. Thank the Lord Almighty!

Well, my blog today won't disclose anything that hasn't already been revealed in my previous efforts. Plus, by now, you've probably heard enough on the national front to understand that there was a whole lot of lying going on across the board. But I thought it would be interesting to take an actual case and expose the hypocrisy and the deceit.

No, I'm not naming names. There's no reason to at this point. I'll share why at the end of this narrative.

So, here we go....

I didn't actually hear someone literally say "It wasn't me...it was the other guy". But it wasn't far from this and it happened within the past year. I was working on an appraisal of a home which is not too far from where I live. I'd like to think that I know what real estate in my immediate area is selling for, day-in and day-out. But, sometimes, sales slip through the cracks. One of the comparable sales that I decided to use for this assignment is located less than 3/4 mile from my house. This property was listed in 2007 for $158,500. After a couple of months on the market, the owner decided to reduce the price to $153,500. After 258 days on the market, the property sold...for $165,000! Huh? That's an $11,500 swing from 153,500 to 165,000. The owner must have made some improvements to the house prior to the sale, right? Wrong! Well, then, did the owner make some concessions to the buyer, you know, like paying the buyer's closing cost? Nope!

Are you bewildered? That sounds too good to be true, doesn't it? The buyer walked into the house with over $11,000 in instant equity, right? I didn't understand the sale, so I called one of the parties involved in the sale...an agent. When asked about the unusual nature of the sale, I was astounded at her response. I was even more surprised by her honesty.

Why did it sell for more than it was listed...after being on the market for two-third's of a year? First thing out of her mouth..."Well, *** *** did the appraisal." She could have stopped right there and I would have understood...but she pressed on. "He was doing it for a sub-prime lender and he was able to appraise it for $165,000, so we sold it for that. I really believe that the property should have sold between $145,000 and $150,000 because it has some settlement issues {problem with the slab}. But *** *** was able to write something in his remarks that kept the house from having an engineer's report. If the buyer decides to sell anytime soon, she's going to be out of a lot of money."

There you have it...in a nutshell. Fraud...deceit...pointing the finger at the other guy. The agent acted negligently not to disclose that the property wasn't really worth $165,000 as the buyer thought...and the appraisal indicated. She should have urged the buyer to hire an engineer to examine the slab. Instead, she swept it under the rug, so to speak. All to make a buck. That nasty engineer might have cost her that sale. He might have said something that would have spooked the buyer. Or he may have reported that everything was fine. I guess we'll never know. But what got me was the fact that she was so quick to implement the appraiser. What the appraiser did was wrong. He obviously overstated the value and hid a significant detail to the lender (possible slab problems). But the agent absolved herself from any wrongdoing. It was the other guy, not her.

So, you might ask, "Aren't there checks and balances to prevent this from happening?" I thought so. But when agents, appraisers, lenders, etc. start turning the blind eye to problems, I guess things fly through. There's a section on the front page of the URAR (Uniform Residential Appraisal Report) which specifically asks about the current listing or previous listings of the subject property in the past year. I assume that the appraiser didn't lie about the listing information. If he correctly identified that the property was listed for 158,500, then reduced to 153,500 prior to the sale, someone should have noted a red flag. My gut tells me that the lender looked the other way. Now, if the loan goes bad (homeowner defaults on her mortgage), then the lender will have to buy the loan back if they didn't document how the increase in value was justified. Chances are, they are already out of business. So, open up your pocketbooks, baby, another tsunami is coming.

Finally, you might ask me, "Have you turned anyone in for these fraudulent practices?" Nope. Not yet. For over 15 years, it didn't seem to matter. I heard of folks getting turned in to the state appraisal subcommittee...only to find out that nothing was done about it. The powers that be wanted everything to run smoothly. But now the chickens are coming home to roost. People are starting to see how these problems affect us all...where it hurts the most...our wallets.

"So, why haven't you named names?" I ran out of room to tell you. Come back tomorrow and we dive into that one.