PANAMA CITY BEACH — Before a federal grand jury indicted five people for allegedly skimming more than a million dollars off the top of inflated home loans, the prices on the nine properties listed in the indictment turned some heads.
Bay County Property Appraiser Dan Sowell’s assessments determine how much tax a homeowner will pay. Recent home sales in a neighborhood carry the most weight in his determination of an area’s median home value, and the sales in the indictment caused appraisers to do a “double-take.”
If they hadn’t, those sales could have led to tax increases, said Don Giles of the Giles Appraisal Group. One of the Front Beach Road properties was so overvalued, the homes on the roads would have been paying more taxes than the owners of Gulf-front homes, Sowell said.
For that reason, Sowell chose not to factor the sale into his calculations. “I wasn’t going to do that,” he said.
Sowell was confident the inflated sales prices led appraisers to consider all the sales listed in the indictment as “outliers,” and the sales would not have impacted neighborhood tax rates.
But, what about people who bought nearby homes after the sales?
‘False market’
Because the homes in the indictment are located in three clusters, the sales could have pushed up home sale prices in their neighborhoods. At least three homes in Bay Point were purchased at inflated prices. (A fourth Bay Point property listed in the indictment could not be verified through property records.)
“It depends on the appraiser’s experience and background and knowledge of the local market,” Giles said.
It’s difficult to determine whether the inflated sales prices drove up the price of their homes for people who bought homes in these neighborhoods in the wake of the sales listed in the indictment. Certainly, many people paid nearly double the 2011 assessed value of their homes, but that happened everywhere due to the national housing market downturn.
“You have the possibility that the sales will factor into appraisals, but they don’t necessarily have to,” said John Tuccillo, chief economist for Florida Realtors, an Orlando-based professional association.
A sharp-enough appraiser might know that sales such as the ones described in the indictment are out of the ordinary, Tuccillo said.
Traditional appraisals usually are paid for by the home buyer, but they belong to, and are written for, the benefit of the lender. They are based on a number of factors, including recent sales of comparable property nearby, but also the condition of the property.
In the sales listed in the indictment, it’s not clear if the lenders even ordered appraisals. Some lenders would not necessarily require a traditional appraisal if the home buyer had good credit and there was a low loan-to-value ratio, Giles said. Under those circumstances, a lender might rely on statistical modeling to get an idea of what a property is worth.
“It’s hard to say without seeing the exact properties, but something like this could create a false market,” said an appraiser who agreed to speak if her name was not used in this report.
Housing meltdown
It used to be a lender always would order an appraisal, but around the time of the sales listed in the indictment, things got “loosey-goosey” and the statistical modeling Giles mentioned reached the peak of their popularity with lenders, the appraiser said.
“A lot of appraisers believe that’s what caused the (housing) meltdown,” she said.
Many of the banks that financed the loans began to have trouble shortly after these loans were issued.
American Home Mortgages, the parent of American Brokers Conduit, provided financing in at least two of the sales listed in the indictment. According to a Reuters report on the company’s August 2007 closing, the company “made many loans to people who could not document income or assets.”
Three senior executives of American Home Mortgages, which by 2006 was the 10th largest mortgage lender in the United States, later were charged with involvement in an accounting fraud by the Securities and Exchange Commission.