When appraisers become prey: fighting identify theft and fraud starts with knowing how scams work and protecting critical appraisal information

Valuation Insights & Perspectives, Summer, 2007 by Rich Heyn, Dawn Molitor-Gennrich

What's the easiest way for an unethical mortgage broker to get an appraiser to do what the broker wants?

* Browbeat the appraiser?

* Promise future work?

* Threaten to withhold payment?

* Bribe the appraiser?

Actually, the answer is none of the above. The easiest way for an unethical mortgage broker to get the appraiser to do what the broker wants is to become the appraiser.

Regrettably, the "do-it-yourself" appraisal seems to be the tactic some mortgage originators are using these days. In a recent case in Florida, an employee of a mortgage company admitted to forging signatures on counterfeit appraisal reports to help defraud a New Jersey lender on 30 properties.

In another case, "Gary," an appraiser in Indiana, received a request to appraise a property for a mortgage broker. After a few assignments, Gary heard nothing more from the broker and didn't think much of it. About two years later, Gary received a call from the FBI and a letter from his state appraisers' board. The broker and her two sons were involved in an illegal flipping scheme. Using a forms software program, they scanned in Gary's signature from one of the appraisal reports he had legitimately completed for them and began producing fraudulent appraisal reports. The FBI and the state board assumed the reports were Gary's. After extensive effort, Gary was able to convince the FBI agent that the appraisals involved in the illegal transactions were not his. The most compelling issue in his favor was that he used forms software from a vendor where the signature file must be obtained directly from the vendor. The fraudulent reports used a different brand of software that allowed anyone to scan in a signature and create the signature file.

During the time it took to straighten out everything with the FBI and the state board, Gary was placed on every major lender's exclusionary list and lost his entire clientele. Unable to obtain appraisal assignments, he dropped his professional designation from the Appraisal Institute and let his appraisal license expire. Gary now drives a truck for a living.

Cases like Gary's are all too common. The problem of appraiser identity theft has grown to the point where some state appraiser boards are having difficulty determining if a "bad" appraisal report was completed by an impostor or by an appraiser who is simply claiming to be the victim of identity theft to escape punitive action.

Types of Theft

There are three main categories of appraiser identity theft, wherein either an employee, another appraiser or a career criminal forges an appraiser's identity.

Betrayed by my own -- This appraiser identity theft occurs when the trainee forges his or her supervisor's name, license and signature on appraisal reports in order to collect the appraisal fee. This often occurs when the trainee has access to the supervisor's standard personal and private information as well as passwords for electronic signatures--commonly provided by the supervisor to the trainee for the sake of convenience. For example, in Indiana, the owner of an appraisal firm employed an unethical trainee who simply watched the keystrokes every time the supervisor entered his password. After watching enough times, the trainee figured out the password, then copied the supervisor's signature file when the supervisor was out of the office. Soon, unbeknownst to the supervisor, the trainee was operating a thriving business from another location.

Wish I were you -- This type of identity theft is committed by other appraisers. In this scenario, actual/licensed appraisers steal another appraiser's name, license number and signature and assume the identity of the compromised appraiser to perform appraisals for unscrupulous clients. The fraudulent appraiser does not want to have the falsified appraisal traced back to him or her--the true author. As a result, the appraiser victim ends up taking the heat for fraud and must prove his or her innocence.

Career criminal -- A third type of appraiser identity theft occurs when fraud perpetrators who are not in the appraisal profession steal an appraiser's identity to perform appraisals for unscrupulous mortgage brokers. These are commonly hard-core, serial criminals involved with sophisticated fraud rings. Such groups of individuals have typically been involved with other types of fraud, such as credit card identity theft, and have now moved up the criminal ladder to mortgage fraud. In these situations, the fraud and corresponding financial losses to the lending institution can be extensive enough as to not only severely tarnish the appraiser victim's reputation, but also to permanently ruin his or her appraisal career.

Appraisal Software "Signature"

Most residential appraisals are reported on the URAR "family" of forms from Fannie Mae and Freddie Mac. The overwhelming majority of these appraisal reports are prepared using commercially available forms-processing software. Until relatively recently, the standard procedure was to sign the paper form with a "wet ink" signature and mail or deliver the report to the client.