Matrix Blog

Law, Ethics & Fraud

Divorce Valuations: Appraiserville Meets Splitsville

December 1, 2012 | 7:00 am | | Public |

In this week’s WSJ Mansion section there was a nice write up by Alyssa Abkowitz about the appraisal process during a divorce: Appraisers in Splitsville. Our firm does a lot of this type of consulting and we find working with attorneys much easier than dealing with retail banks.

I also find that it’s a small world – I know nearly all the appraisers in my market personally (only a handful are active in this segment). Most are professional and knowledgable but like any profession, there are a few hacks.

The challenge in the divorce appraisal business is the challenge of proper communication between the parties – the slightest miscue can snowball into a huge complicated mess billable by the hour. The key to valuation in this process is to filter out the personal element of it and just do the appraisal. When working for one party, the appraiser never gets the whole story and magically “you’re not always on the ‘right’ side so don’t concern yourself with the details beyond the valuation.” Professionals are the ones that do their job devoid of personal bias.

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Fraud Never Sleeps – 2 Contractors Sentenced

June 11, 2012 | 3:30 pm |

I got this announcement relayed by REBNY from Manhattan District Attorney Cyrus Vance, Jr. who “has made addressing illegal activity in the contracting community a high priority.”

Here’s the AP story.

The Manhattan district attorney’s office says the men claimed they were from the supposed “Committee on Contract Compliance” and threatened to report bogus violations if they weren’t paid off. They arrived at job sites with clipboards, video cameras and hardhats.

I don’t usually post this stuff on Matrix but the narrative was fascinating. Check it out:




2 get prison in NYC ‘contract compliance’ scheme [My FoxNY]

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[Interview] Adam Leitman Bailey, Real Estate Attorney, Founder, Adam Leitman Bailey, P.C., Author

October 13, 2010 | 10:11 am | | Podcasts |

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[Estate Tax] 2010: Throw Momma From the Train?

June 14, 2010 | 12:01 am | |

The New York Times had a trifecta of estate-related coverage this weekend.

In What an Estate Looks Like to the Taxman explores the lack of estate tax for 2011. The threshold could be dropped from $3.5M in 2009 to $1M in 2011 if its reinstated. The coffers are pretty empty with all the spending post-credit crunch so I would find it hard to believe that it won’t be re-instated.

When Congress passed a law that eliminated the estate tax for people who die this calendar year — with plans to bring it back with a vengeance in 2011 — the joke among estate planners was that 2010 might go down as the year of “Throw Momma From the Train.”

The Confusion Over the Dormant Estate Tax Keeps Advisers Busy talks about the scramble for estate planning this year. Since housing tends to be the biggest asset in a typical estate, and the level of property values in the region, I’m anticipating a lot of estate tax appraisals next year.

The real problem comes for the merely rich — individuals worth more than $1 million and less than $3.5 million and couples with net worths of $2 million to $7 million who previously did not have to worry about the estate tax. If Congress fails to act again this year, the estate tax laws next year will revert to their levels before 2001, and that could snare a host of people who set up the estate plans on the assumption that there would be no tax when they died.

The real estate section cover story this weekend was Loved. Lived In. Listed as an Estate Sale. The article covers a fact of life (no pun intended) in real estate. In NYC, “estate condition” is a common term that suggests the property needs significant updating.

That is when the property entered the realm of the estate sale, a segment of the market often inhabited by one-of-a-kind apartments that haven’t been touched in decades. These places tend not to be bargains, especially after factoring in the often necessary and sometimes costly renovation. But they attract a certain species of intrepid buyer, satisfying an appetite for an ambitious redo, architectural distinction or an aura of prestige.


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[eAppraiseIT Lawsuit] Cuomo Can Proceed Action Over “Inflated”, “Bogus” Appraisals

June 10, 2010 | 10:04 am | |

Ahhh, 2007 seems like only yesterday when I wrote about NY AG Cuomo’s lawsuit against First American‘s appraisal unit, eAppraisIT

Please note: eAppraisIT’s tagline is “redefining value.”

“The attorney general claims that defendants engaged in fraudulent, deceptive and illegal business practices by allegedly permitting eAppraiseIT residential real estate appraisers to be influenced by nonparty Washington Mutual,” presiding justice Luis Gonzalez wrote in today’s unanimous decision. “We conclude that neither federal statutes, nor the regulations and guidelines implemented by the OTS, preclude the Attorney General of the State of New York from pursuing litigation.”

The institutions in my 2007 post have seen change:

  • WAMU…gone!
  • OTS…soon to be gone!
  • First American…renamed CoreLogic.
  • eAppraisIT…business as usual.

New York can proceed with a lawsuit accusing title insurer First American Corp of colluding with Washington Mutual Inc. to fraudulently inflate home values, a state appeals court unanimously ruled on Tuesday.

Attorney General Andrew Cuomo had accused First American and its eAppraiseIT unit in a November 2007 lawsuit of having “caved” to pressure from Washington Mutual to use a list of pre-approved appraisers who provided inflated appraisals, in an effort to win more business.

I have to confess I’m not too neutral here on this issue – a few years ago, I decided not to renew one of our FirstAmerican subscription resources (floorplans) since we had access to more cost effective resources. Despite the cancellation at the end of the contract period, FirstAmerican continued to bill us every month for a year despite dozens of calls by me, then proceeded to threaten us with collection and then ultimately sent us to collection. This was because I opted not to renew my subscription. They couldn’t get us out of their billing system. Scary. On top of that, they never sent the product (they always send the product and then bill you).

I finally resorted to screaming and yelling until I finally got it resolved. I’ve never experienced anything like that before.

Double Whammy
So its hard to believe an appraisal management company owned by FirstAmerican was above reproach but the courts will decide, not a disaffected (you should see the emails between Wamu and FirstAmerican presented in the Cuomo lawsuit. The link to the original lawsuit document is broken now but trust me, the emails were a doozy – here’s the Wamu 10k filing).

A False Premise and a Certain Irony
Here’s irony I can’t shake. Cuomo’s Home Valuation Code of Conduct agreement between Fannie Mae and his office change the landscape of bank appraisal work forever. What started out as good intentions to stop the conflict of interest between mortgage brokers and appraisers, ended up enabling the appraisal management company (AMC) institution which is what eAppraisIT is. The lawsuit shows that AMC are MORE exposed to bank pressure than individual appraisers are.


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[Interview] Steven Einig, Esq, Einig & Bush LLP, Mortgage Foreclosures and Workouts

April 25, 2010 | 6:00 pm | Podcasts |

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[HVCC and AMCs Violate RESPA?] Here’s a possible solution

March 16, 2010 | 12:01 am | |

I was provided an interesting solution to the AMC appraisal issue from Tony Pistilli, a certified residential appraiser who has been employed for over 25 years in the appraisal area, at governmental agencies, mortgage companies, banks and has been self employed.

He wants appraisers to get the word out. His solution is compelling.

Anyone who reads Matrix knows what I think of the Appraisal Management Company and the Home Valuation Code of Conduct (HVCC) problem in today’s mortgage lending world.

Here’s a summary of the his article before you read it:

  • Appraisers, Realtors, Brokers HATE the HVCC.
  • AMC’s and Banks LOVE the HVCC.
  • Regulators are disconnected from the problem just like they were when mortgage brokers controlled the ordering of appraisals during the credit boom.
  • Appraisers and borrowers are paying for services the banks receive.
  • Banks should pay for the services received from the AMC’s.
  • Appraiser’s fees should be market driven.
  • Banks should be held accountable for the quality of the appraisal.

AMC/HVCC appears to violate RESPA (Real Estate Settlement Procedures Act) since a large portion of the appraisal fee is actually going for something else coming off the market rate fee of the appraiser.

(RESPA) was created because various companies associated with the buying and selling of real estate, such as lenders, realtors, construction companies and title insurance companies were often engaging in providing undisclosed Kickbacks to each other, inflating the costs of real estate transactions and obscuring price competition by facilitating bait-and-switch tactics.

The Ultimate Solution for the Appraisal Industry

by Tony Pistilli, Certified Residential Appraiser and Vice-Chair, Minnesota Department of Commerce, Real Estate Appraiser Advisory Board, Minneapolis, Minnesota

Since the inception of the Home Valuation Code of Conduct (HVCC) in May 2009, there has been much discussion, and misinformation, about the benefits and harm caused by the controversial agreement with the New York Attorney Generals office and the Federal Housing Finance Agency. This agreement, originally made with the Office of Federal Housing Enterprise Oversight, requires Fannie Mae and Freddie Mac to only accept appraisals ordered from parties independent to the loan production process. Essentially, this means, anyone that may get paid by a successful closing of the loan cannot order the appraisal.

In the past 6 months while the Realtors© and Mortgage Brokers associations point fingers at appraisal management companies for their use of incompetent appraisers who don’t understand the local markets, appraisers are complaining that banks are abdicating their regulatory requirements to obtain credible appraisals by forcing them to go through appraisal management companies at half of their normal fee.

Banking regulations allow banks to utilize the services of third party providers like appraisal management companies, but ultimately hold the bank accountable for the quality of the appraisal. Unfortunately, the banking regulators have yet to express a concern that there is a problem with the current situation.

I need to state that appraisal management companies can provide a valuable service to the lending industry by ordering appraisals, managing a panel of appraisers, performing quality reviews of the appraisals, etc. However, banks have been enticed by appraisal management companies to turn over their responsibility for ordering appraisals with arrangements that ultimately do not cost them anything.

The arrangement works like this, the bank collects a fee for the appraisal from the borrower; orders an appraisal from the appraisal management company who in turn assigns the appraisal to be done by an independent appraiser or appraisal company. During this process the appraisal fee paid by the borrower gets paid to the appraisal management company who retains approximately 40% to 50% and pays the appraiser the remainder. So for the $400 appraisal fee being charged to the borrower, the appraiser is actually being paid $160-$200 for the appraisal. Absent an appraisal management company the reasonable and customary fee for the appraisers service would be $400, not the $160 to $200 currently being paid to appraisers.

Rules within the Real Estate Settlement Procedures Act (RESPA) have allowed this situation to occur, despite prohibitions against receiving unearned fees, kickbacks and the marking up of third party services, like appraisals. RESPA clearly states, “Payments in excess of the reasonable value of goods provided or services rendered are considered kickbacks”.

Banks are allowed to collect a loan origination fee. This fee is intended to cover the costs of the bank related to underwriting and approving a loan. Ordering and reviewing an appraisal is certainly a part of that process. Understanding that banks ultimately have the regulatory requirement to obtain the appraisal for their lending functions, why is it that borrowers and appraisers are paying for these services that are outsourced to appraisal management companies? Does the borrower benefit from a bank hiring an appraisal management company? Does an appraiser benefit from a bank hiring an appraisal management company? The answer to those two questions is a very resounding, no! Clearly the only one in the equation that benefits is the bank, so why shouldn’t the banks be required to pay for the outsourcing of the appraisal ordering and review process?

It is here where I believe the solution for the appraisal industry exists. Since banks are the obvious benefactor from the appraisal management company services, the regulators should require that the banks, not the borrowers or appraisers, pay for the services received. This one small change in the current business model would allow appraisers to receive a reasonable fee for their services and in turn they should be held more accountable for the quality and credibility of the appraisals they perform. Appraisal fees would be competitive among appraisers in their local markets, much like the professional fees charged by accountants, attorneys, dentists and doctors. Appraisal management companies would suddenly be thrust into a more competitive situation where their services can be itemized and their quality and price be compared to those of competing providers. This will ultimately lead to lower fees and improved quality of services to the banks. The banks will then have a very quantifiable choice, do they continue to outsource their obligations to an appraisal management company and pay for those services or do they create an internal structure to manage the appraisal ordering and review process? Either way, the banking regulators need to hold the banks more accountable at the end of the process.

When all of the previously discussed elements are present, I believe the appraisal industry will be functioning the way it was intended. Appraisal independence will be enhanced and borrowers will be rewarded with greater quality and reliability in the appraisal process. This is exactly the change that is needed, in addition to the HVCC, to stop the current finger pointing and address the poor quality and non-independent appraisals that have been and are still rampant in the industry.


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[Interview] Nancy Chemtob Esq., Chemtob Moss Forman & Talbert LLP

February 25, 2010 | 10:22 pm | Podcasts |

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[Interview] Steven R. Wagner Esq., Wagner Davis, P.C.

February 22, 2010 | 12:01 am | | Podcasts |

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[Mob Mentality] Appraisers Aren’t THAT Organized

February 2, 2010 | 1:43 am |

I always thought “The Appraiser” was a good name for a reality tv show. Unfortunately, the reality is real and the appraisal process is one of those accidents waiting to happen.

There is a tongue in cheek style article by Sheree Curry in the recently ramped up HousingWatch page on AOL

Are Appraisals the New Organized Crime?

that essentially takes some of the burden off of other parties in the real estate transaction such as mortgage brokers, and places it on the shoulders of appraisers. In many cases, rightfully so.

Of course this doesn’t apply to all appraisers and in fact many appraisers aren’t really…appraisers. More like form fillers.

And some are appraisers are going to have their day in court – but not enough of them.

Here’s a related article I authored for American Banker last summer called:

Then Don’t Call It An Appraisal.

Hey, you got a problem with that?


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[FCIC] Financial Crisis Inquiry Commission Is In Business

January 18, 2010 | 8:11 pm | |



[click to open]

I am coming up for air after the productive and engaging Inman Real Estate Connect conference last week. I got to connect (no surprise there) with a lot of great people connected with real estate and lead three panel discussions on foreclosure related topics.

One of the things I have been following has been the activity on this new Financial Crisis Inquiry Commission or FCIC to those in the (alphabet soup) know.

Aside: kudos to the web designers for all the new dot-gov web sites such as recovery.gov. Simple to read and navigate. Yay!

FCIC.gov is something readers of Matrix should pay attention to.

Not because this effort will result in some sort of punishment for those who strayed from the straight and narrow (its a wide road). Since the financial crisis was a systemic breakdown, I would guess we will see something like this happen again in our lifetime, but hopefully not on the same scale because its human nature.

However, I recommend following this site to observe how the government will systemically explore what happened even though it was an important contributor to the breakdown. Sort of a government introspective while simultaneously protect their turf and save face. All the participants of this endeavor will no longer be in power when the next crisis hits. That’s why regulatory reform is so important.

My hope is something good comes out of the vetting process – it usually does – and we place logical constraints in place to prevent the scale of this sort of breakdown from happening in the future.

If its a slow evening for you, I recommend watching the C-SPAN versions of the January 13-14 hearings and review the associated documents.

Here are some sobering charts presented by the commission.




[click to expand]


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[PhilGrammanomics] American Casino, Wall Street Edition via Baltimore

January 12, 2010 | 12:13 am | |

American Casino movie trailer from Leslie and Andrew Cockburn on Vimeo.

I was listening to the C-SPAN Q&A podcast which was an interview with producers Leslie and Andrew Cockburn on their new independent film called American Casino which chronicles the breakdown of subprime lending via Wall Street. The starting point is subprime mortgage lending in poor neighborhoods of Baltimore.

The foil is Phill Gramm, Chairman of the Senator Finance Committee who in a masterstroke of politcal management, on December 15, 2000 at 7pm, appended a 260 page financial de-regulation bill to an 11,000 page appropriations bill just before the holidays, and because it was in the 11th hour, it was likely few read it and Clinton signed it. The bill exempted the financial instruments used in the credit boom from federal and state regulations – free of any supervision.

Gramm is now Vice Chairman of UBS.

This topic is nothing we haven’t heard before but its focus on Gramm is an interesting angle. I listened to the entire C-SPAN interview and while I enjoyed it, the story feels a bit tardy (although certainly very important because the pain is still playing out).

This systemic breakdown will continue to facsinate many for generations to come – hopefully serve as case study fodder at MBA programs as well.

The film credit pronouces:

“AMERICAN CASINO IS A POWERFUL AND SHOCKING LOOK AT THE SUBPRIME LENDING SCANDAL. IF YOU WANT TO UNDERSTAND HOW THE US FINANCIAL SYSTEM FAILED AND HOW MORTGAGE COMPANIES RIPPED OFF THE POOR, SEE THIS FILM.”

-Joseph Stiglitz, Nobel prize-winning economist

A few days after I heard the podcast, a federal judge threw out the lawsuit by the city of Baltimore against Well Fargo:

ruling that the city could not prove that the bank’s lending practices had resulted in broad damage to poor neighborhoods.

Perhaps a case of bad timing for the film makers? But but still a compelling story.

ASIDE: Speaking of film making (sort of) check out my friend Andrea Powell‘s home improvement series for Lowe’s.


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