California Real Estate Fraud Report

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18
Feb

Inflated appraisals at Center of Marcus & Millichap and Other Real Estate Fraud and Mortgage Fraud

Appraisal fraud is just not given the attention it is due. In fact, without an appraiser willing to violate the code of ethics to which licensed appraisers must adhere, a large percentage of real estate fraud crimes would not have been possible.

Three examples of large-scale appraisal fraud cases come immediately to mind. The first is the notorious mortgage fraud perpetrated against Lehman Brothers by accused former Prudential California brokers Joseph Babajian and Kyle Grasso. The two allegedly purchased properties in Beverly Hills and other expensive neighborhoods in West Los Angeles at market value, then hired appraisers Scott Robinson and Lila Rizk to inflate the properties’ values to justify the prices in the phony purchase contracts Babajian and Grasso wrote when re-selling the properties to straw/dummy buyers.

Case number two: in November 2007, New York Attorney General Andrew Cuomo sued eAppraiseIT, a subsidiary of First American Corp., for caving in to pressure from its top customer Washington Mutual, aka WaMu, to use appraisers handpicked by WaMu. eAppraiseIT earned more than $50 million in revenue from WaMu from April 2006 until the time of the lawsuit. WaMu’s alleged motive was quite simple: the higher the appraised value of the properties, the higher the fees it earned from writing loans. Appraisers who refused to participate were generally blacklisted.

Case number three is currently in the news: commercial real estate giant Marcus & Millichap, a number of its agents, Marcus & Millichap subsidiaries, Paul A. Morabito, Jack Waelti and their “alter-ego” shell companies are accused in a lawsuit of defrauding investors in a complicated scheme that required the active participation of an appraisal firm to provide artificially inflated values to properties which the Marcus & Millichap and other defendants owned and sought to sell to investors.

At the core of the alleged Marcus & Millichap real estate fraud is PGP Valuation, Inc. Marcus & Millichap agents are accused of targeting and purchasing Jiffy Lube and Church’s Chicken franchises, including the land on which they were located, then creating phony inflated lease-back agreements with their co-defendants Morabito and Waelti. PGP Valuation would essentially reverse-engineer the leases to derive property values based upon “the as-is market value of the leased fee interest . . .”. PGP further provided comps on other properties submitted by and controlled by the agents that it had also artificially inflated. The investors were never informed of the relationships between the various defendants and they were certainly unaware that the appraisals were inaccurate.

In all three cases, without a licensed appraiser to put his or her stamp of approval on an inflated property valuation, there would have been no means to commit the real estate fraud or mortgage fraud. In the big picture of its economic impact, appraisal fraud is responsible for losses in the billions in the U.S. housing market.

This article was also posted in Examiner.com

© Copyright 2007-2018 Monique Bryher

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The information and notices contained on The California Real Estate Fraud Report are intended to summarize recent developments in real estate fraud, mortgage fraud, short sale fraud, REO fraud, appraisal fraud, loan modification scams, loan modification fraud and other real estate related crimes occurring in Los Angeles and California. The posts on this site are presented as general research and information and are expressly not intended, and should not be regarded, as legal advice. Much of the information on this site concerns allegations made in civil lawsuits and in criminal indictments. All persons are presumed innocent until convicted of a crime. Readers who have particular questions about real estate fraud, mortgage fraud and appraisal fraud matters or who believe they require legal counsel should seek the advice of an attorney.

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