Dan Grant Appraisal Fraud

Dan Grant

Colorado Certified Residential Real Estate Appraiser

Example Appraisal

Subject Property: 12403 E Tennessee Cir #E, Aurora, CO 80012 - located in the Cedar Cove condo complex. Appraised at $122,000 as of 07/17/06. This appraisal was done for a purchase mortgage.

The Players:

Appraiser: Daniel A Grant, Freedom Appraisal Services
Seller: Lisa Montez
Buyer: Aaron Huebner
Mortgage Broker: Aaron Huebner, Loan Lenders of America and/or Lending Source Direct and/or Benchmark Mortgage and/or First Source Financial USA
Listing Agent - Amy Ell / Re/Max Champions
Selling Agent - Karen Fleith of Hope Reality in Colorado Springs with inactive real estate license. Or is that Karen Coffman with an inactive license?
Lender - Encore Credit Corp - NYSE symbol = ECR

Mortgage Fraud

The Buyer offered to pay $117,000 - and the Seller agreed to accept $117,000. The offer is contingent on the Buyer (a mortgage broker) obtaining a $122,000 mortgage loan. In order to justify a loan that is $5,000 more than the purchase price, the Buyer, Seller, 2 real estate agents, mortgage broker (also the buyer) cooked up a contract with a $5,000 rebate. The rebate is also called seller concession. The $5,000 is given back to the Buyer at the closing table.

Why the hocus-pocus with the $5,000? The sole purpose of the $122,000 "contract price" is to request an appraisal in the amount of $122,000 to justify a loan of $122,000. This type of contract is very common in Aurora. I estimate 85% of Aurora real estate transactions involve a mortgage that is more than the amount paid to the seller.

Short Sale

Public records shows the subject property is owned by Lisa Montez with an existing FHA adjustable mortgage dated 11/06/02 in the amount of $122,776.

Net proceeds to the seller is going to be about $100,000, computed as follows:

Contract price $122,000 less $5,000 rebate cash given back to the buyer = gross proceeds to the seller = $117,000. Gross proceeds less: Real estate agent commissions (5.6%) $6,700, 1/2 closing fees = $1,000 = net proceeds to the seller = (approx) $100,000.

This is important because the current owner is looking at a mortgage balance of about $121,000. This situation is called a short sale. They are going to be $21,000 short of the amount needed to pay off the loan balance.

Someone is going to take it in the shorts $21,000. This is an FHA loan, which means the US Taxpayer will be picking up the tab. It also means someone from FHA must approve the sale. It is very common to have problems getting the short sale approved.

A short sale is a common occurrence in the Aurora real estate market. I estimate 30% of every home listed for sale in Aurora has a mortgage balance (significantly) higher than the net proceeds to the owner. For condos in Aurora, I estimate 65% of all properties on the market are REO, short sale, or some kind foreclosure. It's a buyers market.

For example - there are 4 active listings of similar properties that compete with the subject. 2 of the 4 are also short sales - 12454 E Tennessee #E has a loan balance of $112,000 and 12414 E Tennessee #B has a loan balance of $126,000. On the date of the appraisal, the asking prices are $117,000 and $129,000 respectively.

The only hope 12414 E Tennessee #B has of selling for $129,000 (contract price) is if they agree to rebate $12,000 to the buyer. Think I am exaggerating? Take a look at the 12414 E Tennessee #B listing history. It's a cold dose of reality.

12454 E Tennessee #E is a model match in the same complex as the subject -- it's identical to the subject. What about "condition"? Compare interior photos of 12454 E Tennessee #E with interior photos of the subject.

12454 E Tennessee #E is on the market, with an asking price of $117,000. This property has been sitting on the market since September of 2005 - and there it sits. Why would anyone pay more than $117,000 for an identical property?

The answer (obviously) is that Aaron Huebner offered to pay $117,000 for the subject - they just want (need?) a $122,000 mortgage loan to buy the $117,000 property. Any idiot can see what is going on here.

Market Conditions

Local media (newspaper, television, radio) have reported that Colorado is leading the country in rate of foreclosure. Inventory of homes on the market (supply) is setting all time record highs, while number of sales (demand) is not keeping up.

Aurora is at or near the top of the Denver area foreclosure list, and condos are significantly worse than houses. The subject property is a condo in the Cedar Cove complex.

The Cedar Cove foreclosure summary shows 28 properties have been involved in some form of foreclosure. Market decline is demonstrated by resale of the same property at: 12414 #B, 12454 #E, 12585 #E, 12535 #E, 12483 E shows the same value July 2000 and May 2005, 12484 #B shows a $5,000 decrease over that same period.

Dan Grant describes the real estate market with this statement:

The Colorado real estate market is stable, with many areas increasing.

This is a naked attempt to sell the loan. Lipstick on the pig.

Appraisal Report

Appraisal Report - pdf 16 pages
Subject - MLS Listing
Subject - listing history
Subject Deeds Report
Subject - Interior Photos
comp 1 MLS listing
comp 1 listing history
comp 2 Deeds Report (no MLS)
comp 2 photo
comp 3 MLS listing 06/21/06
comp 3 listing history
comp 3 interior photos
comp 3 exterior photos
comp 3 prior sale 02/02/06
Better comp #1, listing
Better comp #1, listing history
Better comp #2, listing
Better comp #2, listing history

It is difficult to justify not using sales at 12585 E Tennessee #E and 12535 E Tennessee #E as comps. They are from the same complex, provide a bracket for GLA and are nearly identical to the subject age, quality of construction, bedroom count and bathroom count.

Supplemental Market Data

Each of these 3 transactions is more than 12 months old, and therefore not suitable to be included in the appraisal report. They do (however) offer a good market indication because each is a model match of the subject from the same complex.

12483 E Tennessee #B, sale closed 5/25/05 per MLS#151535. Contract price $121,500 with $2,450 seller concession, net = $119,050. Days on Market (DOM)=264
12483 E Tennessee #E, sale closed 5/26/05 per MLS#182790. contract price $121,500 with $5,700 concession, net = $115,800 DOM=386 - more than 1 year
12444 E Tennessee #E, sale closed 5/27/05 per MLS#196289. Contract price $123,300 with $4,280 concession, net = $119,020 DOM=14

These 3 sales demonstrate the market value range for the subject was $115,800 to $119,000 a year ago. With a small downward adjustment for the decline in the market - this market data tends to confirm and support $117,000 paid for the subject property.

Comp #2

The comp #2 transaction was not listed in MLS. This is unusual.

The Deeds report shows that comp #2 was purchased by Christopher Stiebler, a licensed real estate agent and employee at Core Companies. The Core Website includes this information about Chris Stiebler:

Seeing a need in the real estate market to help people who truly desire to own a home but are unable to because of credit issues, Chris and Andy Klein formed Colorado State Business Group, LLC or CSBG. CSBG allows their clients to choose the home of their chose [sic] and lease-to-own that home and receive 50% of their rent back at the end of the lease term.

Chris Stiebler recently purchased properties at:

7995 Pontiac St 4/12/06 $153,000
12414 E Tennessee Cir #F (comp #2)
14438 E 1st Dr #C12 9/6/05 $97,000
14386 E Florida #B 11/29/05 $137,000
4648 S Acoma St 2/18/05 $191,000
1570 S Quebec Way #58 1/5/05 $270,000
1030 E Mississippi Ave 05/13/06 $450,000
9770 Mayfair St #A 5/17/05 $205,000
1254 S Reed St #8 12/2/05 $155,000

Comp #2 is questionable for use in the report because it was not exposed to the open market. Was it a FSBO with a yard sign? Was it a related party sale? Is the sales price in public records indicative of the market? All good questions.

On the sales grid - the seller concession for comp #2 is "None Disclosed". There might have been a $20,000 concession - and that is the point - we really don't know any of the details.

Comp #3 - Prior Sale

The appraisal report correctly states the Comp #3 date of sale is 06/21/06. However, the appraisal report ( URAR pg2 ) says the previous sale of comp #3 was $140,018 on 07/27/05. This is PFA (pulled from ass).

Comp #3 sold for $88,001 on 02/02/06 and was back on the market 3 months later. A real estate investor (Ray A Muller) bought the property as a HUD repo, fixed it and flipped it - in about 4 months.

This is important because lenders are concerned about flips - it raises a red flag about possible fraud. FHA has a strict 6 month waiting period. Even if there is no fraud, mortgage wholesalers worry that it may cause a problem when they package and sell the loan.

The appraisal report is factually incorrect and misleading with regard to the prior sale of comp #3.

Comp #3 Comparability

The subject property is a condo. Comp #3 is not condo.

Comp #3 is a 2 story townhouse with an oversized garage/basement. The subject property is a ranch style with a small loft. The subject property is located on the 2nd floor of a 3 story building. The subject property has no basement.

Comp #3 is located in a complex named Chesapeake, about a mile away from the subject - crossing 2 main streets, Peoria and Alameda. The sales grid says (in 2 places) that comp #3 is in Cedar Cove - the same as the subject. This is factually incorrect.

Comp #3 is within easy walking distance of a public golf course. The subject is a "stones throw" from a strip mall with 2 anchor tenants - Burlington Coat Factory and an Albertsons grocery store. In this photo, the alley runs along the Cedar Cove property line, Albertsons is the building to the right of the alley.

Burlington Coat Factory and Albertsons are both boarded up, closed, out of business at this location. Graffiti, trash, abandoned shopping carts, and deferred maintenance of nearby properties are a (growing) problem.

How does Dan Grant address these issues in the report? On URAR page 1, the report says:

There does not appear to be any factors which would have a negative effect upon the marketability of this home

Is that an independent, objective, unbiased point of view? Or is that an attempt to sell the loan?

Comp #3 has a basement of 182 sq ft, with no adjustment made. Comp #3 has no porch and no patio - it does have a balcony.

The sales grid says comp #3 is located on the 3rd floor. This is factually incorrect because it's located in a 2 story building with walk out style basement/garage. The photo of the front of the building makes it clear there is no 3rd floor.

The appraisal report photo of comp #3 is factually incorrect because it is not a photo of 254 Nome. The photo in the appraisal is misleading because someone who read the appraisal report would think comp #3 is nearly identical to the subject property. The appraisal report comp #3 photo is lifted from MLS.

Condition

The appraisal report says ( URAR pg2 ) "...the external and interior of the subject typical for the area & in average condition".

The report states (below the sales grid):

Per MLS, comparable #1 "needs TLC and carpet" and condition adjustments were deemed appropriate

The statement refers to condition adjustments, i.e., plural. But there is only one condition adjustment, i.e., singular. The one and only condition adjustment is a $5,000 upward adjustment.

Comp 3 MLS listing says

completely remodeled, new kitchen with stainless steel appliances...new carpet, paint, lighting and fixtures. (see photo)

The subject property is not remodeled, has the original kitchen with original average quality appliances (see photo). The subject carpet, paint, and lighting is/are not new.

Why is there no downward adjustment for condition of comp #3?

Days on Market

USPAP says: "...the appraiser must develop an opinion of reasonable exposure time linked to the value opinion". See USPAP std 1-2(c) comment, 2-2(b)(v), SMT-6, and item (3) in the definition of market value.

According to the USPAP terminology exposure time is not the same as marketing time. Exposure time is presumed to precede the effective date of the appraisal. Marketing time is the amount of time it might take to sell the subject property at the concluded market value during the period immediately after the effective date of this appraisal.

The subject property actual exposure time is not disclosed, discussed or analyzed in the appraisal report. There is no opinion of reasonable exposure time in the report.

The only thing in the report that even remotely addresses exposure time is the statement:

Marketing time for the subject's immediate market area is typically from 0 to 4 months.

My CMA run on July 5th, 2006 shows 14 active listings in Cedar Cove, and 8 sales over the previous 12 months. At this rate (8 sales per 12 months) it will take 21 months to sell the existing inventory.

IMHO, there is nothing typical about a marketing time of 0 months for a condo in this market.

The subject property actual days on market is 138 and therefore outside the range, i.e., greater than 4 months. Someone reading the appraisal report would not know this, because the subject property days on market is not disclosed in the report.

Subject Listing & Contract

Pursuant to USPAP Standards Rule 1-5(a) and 2-2(b)(ix), the appraiser is required to review and analyze the contract and the listing (market exposure) and to "summarize the information analyzed, the appraisal procedures followed, and the reasoning that supports the analyses, opinions and conclusions."

Pursuant to USPAP AO-1, the appraiser must take into account the listing, the agreed price, and the pending sale of the subject. The appraiser’s failure to analyze these facts may exclude important information....(See AO-1, lines 32-39).

From 03/14/06 the publicly stated asking price is/was $119,000 - except for a 3 day period in April when it was reduced to $115,000. How could anyone look at the listing history and see this property on the market for 138 days, and then conclude the market value is $3,000 higher than the publicly stated asking price? How could Dan Grant conclude that the market value was $122,000 when it was obvious (after 138 days on market) that you, I, or anyone else could have bought the property for $119,000? There is no answer in the report.

USPAP AO-1 details the appraiser's responsibility to consider the pending sale of the subject. The plain meaning of USPAP Standards Rule 2-2(b)(ix) requires that the report provide sufficient detail for the intended user(s) to understand the reasoning and the rationale for how the market value could be higher than the publicly stated asking price. Common sense dictates that there needs to be some stated reason, and the reason must be plausible.

My dictionary defines analysis as an examination of the parts to find out their nature, proportion, interrelationship, etc. A detailed examination. A statement of the results of this process.

There is no analysis of the sales contract. For a description of the seller concession, the report says "See Contract".

The appraisal form asks the question - Is the subject property currently offered for sale or has it been offered for sale in the 12 months prior to the date of this appraisal? Dan Grant checked the box that says "no" - which is obviously factually incorrect.

The sales contract demonstrates that a buyer offered to pay $117,000, and the seller agreed to accept $117,000.

The buyer wanted a $122,000 mortgage loan, and the property was appraised at the amount needed to get that loan approved. How does Dan Grant account for the $5,000 difference between the $117,000 "agreed price" and the appraised value of $122,000? He does not. There is no analysis, explanation, reconciliation or rationale. This is a violation of USPAP Standards Rule 1-5(a) and 2-2(b)(ix). There is no mention of the appraisal procedures followed. This is a violation of USPAP Standards Rule 1-5(a) and 2-2(b)(ix).

Appraisal Fraud

Comp #1 supports the $117,000 value - so presumably Dan Grant gave the most weight to comps #2 and #3.

Comps #2 and #3 are both investor transactions. Comp #2 has no MLS data and details (such as seller concession) are not available. Comp #3 is located 0.9 mile away in another complex with noticeably superior surroundings.

Comp #1 is a model match in the same condo complex. Why not give the most weight to comp #1? Why give the most weight to the data with the poorest quality? Why not give some/most weight to the pending sale of the subject?

Is Dan Grant unbiased, independent, objective? Does his opinion of value favor the cause of the mortgage broker? Could it be any more obvious?

Conclusion

The final MLS listing shows an asking price of $119,000, sold price of $122,000 and 138 days on market. The listing agent (Amy Ell) correctly reports the seller concession of $5,000. The listing (maybe incorrectly) shows that Amy Ell was both the listing agent and selling agent, and she collected a commission both sides of the transaction. The commission is reported as 2.8% to the buyer and 2.8% to the seller - about $6,700 total. The $6,700 was likely split 50/50 between the Amy Ell and her employing broker.

Effective 09/28/06, Amy Ell is inactive status on her license. Karen Fleith is now Karen Coffman and she in now active license status. I believe Karen Fleith-Coffman got paid something under the table.

The deeds report shows a $122,000 (80/20) mortgage by Encore Credit Corp.