How to cure the problem
Some lenders also are pursuing loss-mitigation efforts more aggressively on the back end, including using methods such as:

• Putting appraisers on internal ineligible lists when they cannot sufficiently explain inflated appraisals
• Pursuing licensing complaints against appraisers, though this can be time-consuming and provides little remedy other than disciplinary action and potential license revocation
• Pursuing claims against mortgage brokers under their broker agreements for inaccurate appraisals
• Pursuing claims directly against appraisers — while most states do not require appraisers to carry bonds or errors-and-omissions insurance, some appraisers do maintain such insurance, which may provide another avenue of recovery

Inflated appraisals are perhaps the most important component of fraud-for-profit in the mortgage industry. They provide the incentive and the key mechanism to perpetrate fraud. In short, that’s where the money is.

All industry players will continue to feel pressure to maintain volume. But all players also can and should do more to seriously address appraisal fraud.

Jennifer Stokley is an attorney in the Charlotte, N.C., office of Katten Muchin Rosenman LLP, a national, full-service law firm. Ms. Stokley is a member of the firm’s residential-mortgage-banking practice group, which focuses on representation of mortgage lenders, investors, brokers, servicers and insurers in all aspects of loss mitigation, compliance and structuring business relationships. Contact Ms. Stokley at (704) 344-3074 or jennifer.stokley@kattenlaw.com.

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