Speaking at a hearing in Washington, D.C., the Appraisal Institute recently urged a federal judicial agency to require the use of real estate appraisals when calculating loss in mortgage fraud cases. The Appraisal Institute is one of the nation's largest professional associations of real estate appraisers.
In prepared written testimony, Appraisal Institute President Sara W. Stephens, MAI, told the U.S. Sentencing Commission, "We believe the Commission should adopt a special rule for determining the fair market value of real property if the mortgaged property has not been disposed of by the time of the sentencing. However, this rule should require use of real estate appraisals prepared by qualified appraisers in accordance with the Uniform Standards of Professional Appraisal Practice, as opposed to tax assessments, to ensure fairness and consistency."
Stephens explained that the Appraisal Institute and the American Society of Farm Managers and Rural Appraisers oppose the proposed amendments to the federal Mortgage Fraud Sentencing Guidelines because the amendments propose using tax assessments, and not real estate appraisals, to determine fair market value when the property in question has not been sold.
"Real estate appraisals prepared by qualified real estate appraisers in accordance with the Uniform Standards of Professional Appraisal Practice are clearly preferable to tax assessments for the circumstances described in the amendments," Stephens said in her written testimony.
She said that condition and quality inspections are necessary as part of a credible and thorough valuation of a property, noting that tax assessments do not include such inspections. She also said tax assessments rely on public records data, which can be inaccurate and therefore reduce the reliability of the valuation.
Stephens also noted that reassessment periods vary widely by jurisdiction, and that some jurisdictions have not reassessed property in several decades. "In these cases, if a tax assessment is used in the calculation of a mortgage fraud sentence, it is likely to overstate the loss to the bank, and potentially inflate the sentence of someone convicted of mortgage fraud," she noted, adding that fairness requires use of a real estate appraisal.
Stephens also said that assessed value may not conform to market value. And she said the two appraisal organizations recommend that the Commission establish a special rule relating to the qualifications of real estate appraisers. "We suggest those performing these appraisals have earned a designation from a nationally recognized professional appraisal association who awards the designation based on demonstrated competency that requires approved classroom training in appraisal practice, experience requirements, and preparation of a demonstration appraisal report or appraisal review report or a comprehensive qualifying examination," she said in her written testimony.
Section 1079A of the Dodd-Frank Act requires the U.S. Sentencing Commission to review and, if appropriate, to amend the federal sentencing guidelines applicable to mortgage fraud and financial institution fraud offenses and to consider whether the guidelines appropriately account for the potential and actual harm to the public and the financial markets from those offenses.
Published with permission from RISMedia.