Stopping Valuation Fraud and the Human Element

In the spirit of fraud prevention, this month we draw attention to fraud awareness. The only way to prevent mortgage fraud is to first become aware that it is occurring. There are many different types of mortgage fraud, some that involve the borrower/buyer and some that involve the representation of the property itself.

A very common type of mortgage fraud that involves a property is property valuation fraud. This relates to the misrepresentation of a property’s value that bodes to the root of your security.

Because appraisals are delivered as a report prepared by an individual, after the appraisal is completed it may pass through the hands of the client and mortgage agent or broker. After an appraisal has been completed, in many instances the appraiser will send the appraisal to the broker and in turn to you.

Also, let’s remember that appraisers not only depend on lenders and being on a lender’s list to get business, they also depend on mortgage brokers and agents to select them from the list. So, while their customer may be you, the lender, not keeping mortgage agents and brokers happy means that they may not be selected on your behalf. This can create an environment where even an appraiser can look for ways to beef up a property’s value by a few thousand to save a broker or agent’s deal.

Anytime a human is involved in anything – even if they are an accredited professional – there is a potential for fraud.

This is why if you are going to order an appraisal, coupling it with an automated valuation model (AVM) is the most prudent way that you can avoid valuation fraud.

Also, make sure to ask for the original appraisal to be delivered directly to you by the appraiser – this way any discrepancies can be attributed directly to the appraiser.

Closely review all of the data in the appraisal and pay attention for fields that are blank or that may even appear to have been whited out.

Validate the sales comparables used in the appraisal yourself. This simple step can quickly identify alterations that may have been made to sales comparables. Also, validate the subject property characteristics against what is being generated in the AVM.

Since an automated valuation model is not human, thereby without the emotion or motivation to see your deal happen, an AVM should always be your first line of defense against property valuation fraud.

For more about the benefits of adding an AVM when attempting to avoid or identify property valuation fraud, please contact Purview For Lenders today by calling 1.855.787.8439.