Appraisals not Assessments Should Determine Losses in Mortgage Fraud Cases

An Appraisal Institute official told thernU.S. Sentencing Commission that appraisals rather than tax assessments shouldrnbe the standard for computing losses in mortgage fraud cases.  Institute President Sara W. Stephens toldrnBoard members that they should adopt a special rule where properties have notrnbeen disposed of by the time of sentencing that would determine the fair marketrnvalue using real estate appraisals prepared in accordance with the UniformrnStandards of Professional Appraisal Practice. </p

The Dodd-Frank Act requires thernCommission to review and, if appropriate, amend federal sentencing guidelinesrnapplicable to mortgage and financial institution fraud cases and to considerrnwhether the guidelines appropriately account for the potential and actual harmrnto the public and financial markets from those offenses.  Under this directive the Commission has proposedrnamendments that require using tax assessments to determine the fair marketrnvalue of properties when the property has not been sold.</p

Stephens told the Commission thatrnconditions and quality inspections are necessary as part of a credible andrnthorough valuation of a property and tax assessments do not include suchrninspections.  She also noted that taxrnassessments rely on public records which can be inaccurate and reduce thernreliability of the valuation.  Reassessmentsrnalso vary widely by jurisdiction and some areas rely on assessments that arerndecades old.  “In these cases,” Stephensrnsaid, “if a tax assessment is used in the calculation of a mortgage fraudrnsentence, it is likely to overstate the loss to the bank, and potentiallyrninflate the sentence of someone convicted of mortgage fraud.  Fairness requires use of a real estaternappraisal.” </p

The Appraisal Institute and thernAmerican Society of Farm Managers and Rural Appraisers both oppose the proposedrnamendments.  Stephens said the two organizationsrnrecommend that the Commission establish a special rule relating to thernqualifications of real estate appraisers including an earned designation from arnnationally recognized professional appraisal association “based on demonstratedrncompetency that requires approved classroom training in appraisal practice,rnexperience requirements, and preparation of a demonstration appraisal report orrnappraisal review report or a comprehensive qualifying examination.”

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