CFE Vernon Martin - Fraud Prevention for Commercial Real Estate Valuation

Readers of this text may be interested in the following publications from the Appraisal Institute:

• The Appraisal of Real Estate, 13th edition
• The Dictionary of Real Estate Appraisal, 5th edition
• Scope of Work, now available in print or as an audio book

by Vernon Martin

Appraisal Institute 200 West Madison Suite 1500 Chicago, IL 60606 www.appraisalinstitute.org

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2011 by the Appraisal Institute, an Illinois not for profit corporation. All rights reserved. No part of this publication may be reproduced, modified, rewritten, or distributed, either electronically or by any other means, without the express written permission of the Appraisal Institute.

Library of Congress Cataloging-in-Publication Data

Martin, Vernon, 1957

Fraud prevention for commercial real estate valuation / by Vernon Martin.

p. cm.

Includes bibliographical references.

ISBN 978-1-935328-22-3

Ebook ISBN 978-1-935328-26-1

1. Commercial real estateValuationUnited States. 2. FraudUnited StatesPrevention. 3. Real propertyValuationUnited States. 4. Real estate businessCorrupt practicesUnited States. 5. Real estate appraisersLegal status, laws, etc.United States. I. Title

HD257.5.M37 2011

333.3387230973dc23

2011034038

Vernon Martin, Certified Fraud Examiner (CFE), has been a practicing commercial real estate appraiser since 1984 and is currently president of American Property Researchan advisory practice he founded in 2006in Los Angeles. He has previously served as chief commercial appraiser at three national lending institutions and as fraud solutions product manager at First American Real Estate Solutions, now known as CoreLogic. He received his master of science degree in real estate from Southern Methodist University and an undergraduate degree in urban geography from the University of Chicago. He taught real estate valuation at California State University, Los Angeles, from 1998 to 2005 and has published numerous articles in professional journals, including The Appraisal Journal.

I am grateful to the Appraisal Institute for inviting me to write about commercial real estate fraud. This demonstrates a commitment to professionalism that can only raise the standards of our profession.

I would also like to acknowledge and thank:

• R. Wayne Pugh, MAI, CRE, former president of the Appraisal Institute, who discovered me at the Pan Pacific Congress of Real Estate Appraisers, Valuers, and Counselors in Seoul, Korea, and encouraged me to write for The Appraisal Journal.
• The staff of The Appraisal Journal, who took my awkward article and made it sparkle and shine, and the Appraisal Institutes Publications Department for their useful suggestions for expanding the article into a book.
• Attorney Peter Christensen of LIA Administrators & Insurance Services, who provided examples of actions taken against appraisers without disclosing confidential information. Also, Claudia Gaglione, a partner in the law firm Gaglione, Dolan & Kaplan, generously reviewed the manuscript and provided useful suggestions. Gaglione, Dolan & Kaplan works with LIA and many other errors and omissions insurers.
• All those who have employed me to protect them from fraud, including Home Savings of America, Bayview Financial Trading Group, Velocity Commercial Capital, Madison Realty Capital, and Kennedy Funding. These lenders and others have given me a rich case history to draw upon in studying fraud.

Real estate fraud has reached an all-time high, and litigation against appraisers in fraud-related cases is on the increase. Appraisers who are prepared to detect and prevent real estate fraud can protect their businesses and their professional reputations.

This timely and relevant book explains common types of commercial real estate fraud, factors that contribute to fraud, and ways perpetrators attempt to influence or deceive appraisers into becoming part of their schemes. It presents real-life examples from the authors professional experience, from legal cases, and from current headlines to demonstrate how appraisers can knowingly or unknowingly find themselves involved in fraudulent real estate transactions. The author discusses how such situations can be avoided and provides sensible, straightforward advice that will help appraisers feel confident in handling any suspicious situation they may encounter.

The best way for real estate professionals to deal with the problem of real estate fraud is to learn more about it. Fraud Prevention for Commercial Real Estate Valuation will help appraisers protect themselves and those who rely on their work.

Joseph C. Magdziarz, MAI, SRA

2011 President

Appraisal Institute

Today I finished an appraisal of a golf course that had been bought out of lender receivership a year ago for $3.2 million. The new owners, seeking cash-out refinancing, were eager to show me the appraisal that had been done for the prior lender in 2004, before the property was placed in receivership. The prior appraised value had been $6.7 million. Not coincidently, so was the stated purchase price at that time. The previous lender made a $5 million loan based on a loan-to-value ratio understood to be 75% ($6,700,000 0.75 = $5,025,000).