Inflated housing appraisals lead to $7.8 million judgment

Anyone in Massachusetts or elsewhere looking to obtain a home loan depends on accurate appraisals to help set the home’s value for the real estate transaction. It’s the appraiser’s duty to make certain that the appraisal on a home is based on realistic pricing conditions, such as the location of the home and the condition of the property. When an appraisal management company in another state inflated the value of homes, it threw off the pricing for thousands of properties, eventually leading to a lawsuit and a $7.8 million settlement.

The company offering the settlement is no longer in the appraisal business, but five years ago its appraisers commonly inflated home values in order to increase business for lender Washington Mutual. The New York attorney general’s office said that the company conducted 260,000 inflated residential real estate appraisals nationwide, using appraisers selected from a list provided by Washington Mutual. By inflating the home prices, Washington Mutual was able to provide higher mortgage loans to homeowners.

A nationwide task force came together in January to investigate collapsed mortgage-backed securities and any other behavior that could have led to the national housing market crisis and help push the nation into a recession. The task force investigated the inflated appraisals. This investigation led to a court case and a settlement of $4 million in penalties, with the remaining $3.8 million going toward legal fees in one lawsuit brought in New York. More actions are forthcoming in other states, according to the co-chairman of the task-force.

The inflation of house values has long-term consequences for homeowners. Those who secured loans at the inflated prices are stuck paying back those loans on homes that are worth far less than the mortgage value. This makes it difficult for those homeowners to sell their houses at a profit or to refinance the homes in order to readjust high monthly payments. This could lead to possible foreclosures as homeowners struggle to pay for the homes in a difficult economy. Homeowners should make sure to learn about their legal options when they sell or refinance their houses, and also if they are facing foreclosures.

Source: The Republic, “NY attorney general settles investigation into inflated real estate appraisals for $7.8M,” Michael Virtanen, Sept. 28, 2012