OTTAWA, March 3, 2015 /CNW/ - March is Fraud Prevention Month and the Appraisal Institute of Canada (AIC) would like 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 financing process. Valuation fraud is the misrepresentation of an appraisal report made by a party involved in mortgage financing who has a vested financial interest in the amount being loaned for a real estate transaction.
The 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 offering a larger loan.
"The 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 final value conclusion," states Keith Lancastle, Chief Executive Officer 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. This due diligence was the most effective way to detect the fraudulent activity."
To prevent valuation fraud, the Appraisal Institute of Canada offers the following tips:
- Look for signs of data alteration such as: typed in data (value conclusions in the Direct Comparison Approach, Cost Approach or Income Approach, adjustments of comparable sales), blank fields or fields where information appears to have been "whited-out";
- Thoroughly read the appraisal report to understand the data, the analysis and the comparable properties relied upon to arrive at the final value;
- Engage a professional appraiser to conduct an on-site inspection or drive-by of the property to validate information supplied as part of the mortgage application;
- Ask the professional appraiser for a reliance letter if you are not the original client or intended user of an appraisal report. Reliance letters are critical to the mortgage process. They are issued by the author of the report/appraiser and provide a great cross-reference tool to validate the value conclusion and data from the original report.
- Contact the appraisal professional if you suspect any fraudulent activity.
Addressing Your Concerns
Valuation fraud is a criminal activity and should not be taken lightly. The altering of an appraisal report for the benefit of someone else's financing needs brings huge risk to the intended user who is relying on the report to make an important decision. For more information please contact the Appraisal Institute of Canada at [email protected] or (toll free) at 1.866.726.5996 to discuss and seek guidance.
The Appraisal Institute of Canada (AIC) is a leading real property valuation association with over 4,900 members across Canada and around the world. Established in 1938, AIC works collaboratively with its 10 provincial affiliated associations to grant the distinguished Accredited Appraiser Canadian Institute (AACI™) and Canadian Residential Appraiser (CRA™) designations. AIC is a self-regulating organization that is guided by a Bylaws, Regulations and standards of professional practice known as the Canadian Uniform Standards of Professional Appraisal Practice (CUSPAP) and a Code of Conduct to ensure the integrity of the profession and the protection of public interest. AIC Designated Members are highly qualified, respected professionals who undertake comprehensive curriculum, experience and examination requirements. They are committed to continuing professional development to maintain the highest level of competency within the evolving marketplace. Our members provide unbiased appraisal, review, consulting, reserve fund studies and other services on all types of properties within their areas of competence defined under CUSPAP.
For more information, go to www.AICanada.ca.
SOURCE Appraisal Institute of Canada
For further information: MEDIA CONTACT: Sheila Roy, Director - Marketing & Communications, Appraisal Institute of Canada, 403-200 Catherine Street, Ottawa, Ontario K2P 2K9, Phone: 613-234-6533, Ext. 224, Cell : 613.863.0127, E-mail: [email protected], www.aicanada.ca