sales in the neighborhood for amounts
between $70,000 and $90,000. He
requested that the appraiser not make
the appraisal “subject to completion” as
this would cause the loan underwriter
to delay the closing of the loan. His
workmen would be done with the
house quickly, and the mother and her
kids needed to move in right away so
he did not want any delays.
The appraiser thought the investor
was a good guy. He saw the workmen
and they were making the house look
nice. By the time the investor paid the
closing costs, his workers, plus paid for
all the new appliances and materials,
he would not make much of a profit
on the deal. The appraiser agreed to
prepare the appraisal report “as is” and
utilized the comparable sales his client
provided him with.
The investor had told the buyer he
would sell her the house for $50,000.
After the loan closed, she realized her
loan amount was $64,000 and the
sale price was $80,000. She could not
afford to make the mortgage payments
and she defaulted on the loan. The
majority of the work that the workmen
were doing on the day of the appraiser’s inspection was never finished
and the appliances were removed from
the premises. The only ‘improvements’
the workmen made were to apply a
cheap coat of paint and some new
floor coverings. The lender foreclosed
on the outstanding loan amount and
took back the property. They discovered that the investor had purchased
the property a few months before for
$20,000. The documents the investor
had provided to the appraiser were all
false. The quality of the improvements
was poor; the paint was peeling and
the vinyl floor was buckling throughout
the house. The lender had a BPO that
said the property would sell for about
$25,000, which was about $40,000
less than the loan amount.
The borrower had no money. After
months of searching, the lender finally
found the investor who allegedly had
no money and was involved in an
FBI investigation. The lender sued the
mortgage broker (who had no E&O
insurance) and the appraiser, who
became target of the lawsuit. Although
he clearly made some mistakes, his
biggest mistake was trusting the wrong
person.
Liability Insurance Administrators manages the
Appraisers Liability Insurance Trust E&O Insurance program. Reach LIA at www.liability.com
or 800-334-0652.
{{
New Release
A New Take
on a Classic Appraisal Workbook
An essential resource for practitioners and students
of the income capitalization approach to value.
Chares B. Akerson, MAI, and
David C. Lennhoff, MAI, Editor
While markets, methodologies and technology may change, the need
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Study Guide, third edition. The new edition offers:
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• Key terms, symbols, formulas, financial tables and calculator
keystrokes as well as references to important appraisal resources
• Fifteen lessons with hands-on exercises, more than 50 practice
problems and two case studies
Learn about income capitalization
from a legendary valuation leader!
}
