Mortgage Broker is the magazine of the Canadian Mortgage Brokers Association and showcases the multi-billion dollar mortgage-broking industry to all levels of government, associated organizations and other interested individuals.
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MORTGAGEBROKER mbabc.ca | 29 fraudprevention MARCH WAS FRAUD PREVENTION Month and the Appraisal Institute of Canada (AIC) took the opportunity to remind Canadian consumers, lenders, mortgage brokers, lawyers, appraisers and anyone else relying on an appraisal, to be diligent about potential valuation fraud that may occur during the mortgage nancing process. Valuation fraud is the misrepresentation of an appraisal report made by a party involved in mortgage nancing who has a vested nancial interest in the amount being loaned for a real estate transaction. e market value of the property is a key element in validating the equity of the collateral that is being used to secure the mortgage loan. Valuation fraud occurs when a legitimate appraisal report completed by a professional appraiser is altered by shrewd fraudsters in an attempt to mislead an unsuspecting lender into o ering a larger loan. " e past two years has seen an increase in valuation fraud whereby AIC-designated appraisers' reports have been altered because someone with a vested interest in the process did not like the nal value conclusion," says Keith Lancastle, Chief Executive O cer of the Appraisal Institute of Canada. "In almost every suspected case of fraud reported to AIC's Director, Professional Practice, this potential fraud was uncovered when a diligent intended user (e.g. the lender, broker, lawyer, private lender) thoroughly read the appraisal report and discovered that it was altered. When things didn't add up, they contacted the appraiser to verify the value and validate the information. is due diligence was the most e ective way to detect the fraudulent activity." Examples of fraudulent behaviour Here are examples of good lender (instit- utional, broker or private) or intended user (private lender, lawyer, private individual) due diligence that resulted in the uncovering of fraudulent activity. • An appraisal is done for a homeowner who brings a copy to his lender. e lender contacts the appraiser to obtain a reliance letter. e appraiser issues a reliance letter in the amount of $635,000, his nal value estimate. e lender calls him saying there is a typographical error in his letter because the appraisal report shows a value of $675,000. e bank declines the loan and advises the applicant. e appraiser unsuccessfully tries to contact his client to assess why the value was altered and reports the matter to the local authorities. • A broker/potential-intended user contacts the appraiser to discuss the appraisal report because he cannot understand how the property in the subject area could be worth $550,000. e appraiser's original report shows a value of $235,000. e appraiser's client, the homeowner, altered the report and provided a copy to their broker. e appraiser contacts his client, who became threatening, and reports her to the local authorities. Appraisal fraud can involve a legitimate appraisal report that has been altered. On page 31 is an example of a progress inspection Good lender due diligence o en uncovers fraudulent activity Mortgage and Valuation Fraud BY JANICE P. O'BRIEN