Ohio’s attorney general has filed complaints against nine mortgage brokers and lenders who allegedly tried to pressure appraisers into making inflated valuations in violation of the state’s new anti-predatory-lending law.
In nine separate lawsuits, the state charges that mortgage brokers and lenders provided appraisers with estimated values when requesting valuations, in some cases urging them not to carry out an appraisal if the estimates could not be validated. A 10th lawsuit makes similar allegations against an appraisal firm that attempted to contract out a valuation to another appraiser.
All 10 cases involved appraisal requests that were submitted to two appraisers, who forwarded them to the state attorney general because they thought they might be illegal. Most of the lawsuits involve just one appraisal request, with prosecutors seeking a $25,000 fine for each violation.
According to the complaint against Apex Mortgage Services LLC, the company faxed a request for an appraisal of a residential property that listed “estimated value” of $130,000.
“Call me if you think value is an issue,” an employee of the Columbus-based company wrote on the request, the complaint alleges. “If it is determined that the Estimated Value cannot be reached do not proceed with the appraisal without first contacting the loan officer that ordered the appraisal,” the request said, according to the complaint. “Apex Mortgage Services will only be held responsible for trip charges in cases in which the Estimated Value was not met without first contacting the loan officer … If you do not agree to these conditions do not proceed with the appraisal.”
Apex Mortgage “denies all of the allegations” in the complaint, Chief Financial Officer Zachary Swartz said in a statement. “Apex has never attempted to influence the independent judgment of any appraiser related to their function of determining the fair market value of property. The estimated value identified on these forms is the estimated value of the property per the owner.”
Swartz said it was “disturbing” that the attorney general’s office chose to file a lawsuit as its first step in attempting to resolve the allegations. “There has been no communications with the Attorney General’s office or any state agency regarding this alleged practice or these allegations,” he said.
A spokeswoman for Attorney General Marc Dann said that while the state’s goal is to negotiate settlements with companies it believes are violating the law, “a formal complaint in court is the most appropriate way to do it.” The companies have 28 days to respond to the lawsuits, said Jennifer Brindisi, the Attorney General’s press secretary.
In a press release, Dann said corrupt appraisals are one of the core components of predatory lending, which ultimately can lead to foreclosure.
“Predatory lending is driving Ohio’s shameful home foreclosure rate,” Dann said in the statement. “Today’s crackdown on appraisal fraud will help protect consumers and move us one step closer to driving unscrupulous lenders out of our communities.”
According to RealtyTrac, Ohio ranked third out of all states for total foreclosures in April, with 11,431 filings. The foreclosure rate of one foreclosure for every 418 households was 1.9 times the national average, RealtyTrac reported.
Another company named in one of the lawsuits, Premier Service Mortgage Corp., also maintains it has been falsely accused, and plans to vigorously defend itself against the lawsuit.
“I am mystified why they took this kind of ambush approach,” said Gerald Matiyow, president of Premier Service Mortgage. “If they thought we or another company was doing something wrong, it would have been simple matter to make a phone call … but you don’t get much political play out of that. It doesn’t make much of a press release.”
The state’s complaint against Premier stems from an April 25 request for an appraisal from Troy Sneddon of Sneddon Appraisals. According to the complaint, Premier provided Sneddon with an estimated value of $300,000. There were no further instructions on the request as to what the appraiser was to do if the valuation differed from the estimated value. But providing Sneddon with more information than the name and address of the property amounted to an attempt to exert undue influence, prosecutors allege.
Because the pre-printed form Premier used to request the appraisal had a blank space to write in an “estimated value,” the lawsuit charges that it’s likely Premier had done the same with other appraisers.
Premier’s “attempts to influence the independent judgment of appraisers regarding the appraised value of residential property may have resulted in inflated appraisals, causing injury to Ohio consumers,” the lawsuit charges.
Matiyow said the property owner provided the initial estimated value of $300,000. After “checking Web sites, Zillow and other value referencing items, it was apparent to us this customer had seriously misinterpreted the value of their home, and we withdrew the appraisal request,” he said.
Matiyow said the appraisal order form used by Premier was approved by two state-certified training programs for mortgage brokers.
The manager of the mortgage training program offered at Hondro College — one of the state-approved providers named by Matiyow — said no forms are provided by the program.
The school’s curriculum teaches that “the broker can’t identify in any manner of communication the loan amount or anticipated appraisal amount on any mortgage loan,” said mortgage program manager Beth Czekalski.
“We stress the opposite of what they are doing,” Czekalski said. “We stress you cannot give your appraisers any idea of what you’re anticipating.”
Other companies’ names in the lawsuits were Ace Mortgage Funding LLC, Island Financial LLC, The Valley Mortgage Group, and First Ohio Banc & Lending Inc., all based in Ohio; Sage Credit Co. LLC of Irvine, Calif.; Wall Street Mortgage Bankers of East Rockaway, N.Y.; All Line Appraisals of Phoenix, Ariz.; and American Home Brokerage Corp. of Garden Grove, Calif.
Sneddon, who received five of the appraisal requests that now form the basis of the attorney general’s lawsuits, declined to talk about any of the specific cases.
But in general, he said, such practices are “the scourge of the appraisal business,” and that many appraisers are scared to talk about them because of fear of reprisals by lenders.
Ohio’s Homebuyers’ Protection Act, which went into effect on Jan. 1, specifically prohibits mortgage brokers from instructing, inducing or coercing appraisers for “the purpose of corrupting or improperly influencing” their independent judgment on a valuation.
“When Ohio passed this law last year, I as an appraiser was very happy about it, because I don’t need somebody else’s estimated value to be communicated to me. It’s my job to determine what the property is worth,” Sneddon said.
Sneddon said instead of a full appraisal, some mortgage brokers will request “pre-comps,” or pre-comparables.
“It’s a word that’s been concocted by mortgage brokers to indicate to the appraiser, ‘I want you to tell me what this property is worth, but I don’t want you to do any work, and I don’t want to pay you,'” Sneddon said — unless the pre-comp matches a predetermined valuation.
But an appraisal, Sneddon said, is not just a piece of paper. “It’s a process. It’s a mental process, by which you eliminate certain sales, and call other sales comparable. You make adjustments, reconcile, and at the end of the process, you produce a number. You cannot short cut the process.”
Sneddon said he was not afraid that turning over appraisal requests to state officials would cost him business.
“My clients are the people who follow the law,” he said. “I do get requests that are exactly pertaining to the law, that do not have estimated value. The orders from my clients only have the addresses and names.”
Having been in the appraisal business for eight years, “I know the industry. But at the same time, you can be labeled as a whistle blower.”
The other appraiser who forwarded requests for valuations that contained estimated values to the attorney general’s office, Dusty Barrows of Central Appraisals, declined to comment.
Send tips or a Letter to the Editor to email@example.com, or call (510) 658-9252, ext. 150.