Who would pay $68,000 for a house with no kitchen, bathroom or furnace? Particularly when it’s worth just $23,000?
Those are the same kind of questions that led a New Jersey mortgage company to file suit against appraiser James T. Hall of Owings Mills, MD., and All Financial Services, a Maryland mortgage broker.
In a federal lawsuit filed in U.S. District Court for the District of Maryland in Baltimore Freedom Mortgage Corp. claims that six residential mortgage loans it purchased from All Financial Services were so problematic they had to be bought back from third party investors and the secondary market.
The suit accuses Hall of breach of contract and negligence and alleges that he inflated the values of the Baltimore properties in what may be a property flipping scheme.
“As a licensed professional appraiser, Hall had a contractual and professional duty to perform appraisals in accordance with local and national industry standards, which duty he breached,” according to the suit.
“As a direct and proximate result of Hall’s defective appraisals and breach of contractual and professional duty, Freedom Mortgage suffered damages,” it said.
Freedom is seeking $268,000 in compensatory damages from Hall and All Financial Services and unspecified punitive damages.
Lawyers for Hall and All Financial could not be reached.
The problems were uncovered after Freedom Mortgage ordered follow-up appraisals.
In the lawsuit, Freedom Mortgage alleges that Hall did not disclose standard information typically supplied by an appraiser, such as the sales history of the properties. Several were sold frequently, often a sign of a flipping scheme.
For instance one home that sold for $26,000 was quickly sold for $54,000 to another buyer. Hall’s appraisal had put the value of the home at $54,000, when a second appraisal indicated the property was worth just $12,500, according to the lawsuit.
Another property was purchased for $8,500, but the sale was not noted by Hall in his report, the lawsuit alleges. It was then purchased for $19,000, “flipped” the same day for $68,000 even though it had no bath, furnace or kitchen, Freedom Mortgage claims in the suit.
A second appraisal put the value at just $23,000, the plaintiff alleges.
Freedom Mortgage tried to recover money from Hall, but he refused, according to the suit.
Freedom also had to repurchase loans it had sold because of the faulty appraisals, the company said.
Both Hall and All Financial benefited to the detriment of Freedom Mortgage, the suit claims.
“Freedom Mortgage purchased loans brokered by All Financial based on inflated and unsupported real estate appraisals provided by Hall, which loans were sold by Freedom into the secondary market,” the suit alleges. “The payments were accepted by All Financial and Hall under circumstances that are inequitable and, as such, the payments should be returned.”
