Defending Against Federal Appraisal Fraud Charges
Appraisal fraud involves the intentional misrepresentation of property value for financial gain.
This type of fraud can be prosecuted under a variety of powerful statutes with significant penalties, including many years in federal prison.
Prosecutors can be relentless in their pursuit of maximum penalties for fraud-related charges.
If your activities have triggered a federal investigation on suspicion of appraisal fraud, you need to engage skilled legal counsel right away to give you the best chance of avoiding the worst outcomes.
At Eisner Gorin, LLP, our federal criminal defense attorneys are highly experienced in defending against complex fraud charges.
Call 818-781-1570 or visit our contact page to schedule a confidential consultation.
What Is Appraisal Fraud?
Appraisal fraud is any act involving the deliberate misrepresentation of a property's value within an appraisal report designed to mislead a lender, investor, or buyer.
At its core, the offense involves knowingly and intentionally providing a false estimate of a property's worth to influence the decision of a financial institution or another party for illicit financial benefit.
To secure a conviction, a federal prosecutor must prove several key elements beyond a reasonable doubt:
- They must show there was a material misrepresentation or omission in the appraisal.
- They must prove the defendant acted with fraudulent intent—meaning it was a deliberate act, not an honest mistake.
- They must demonstrate that a victim, often a federally insured lender, relied on this false information, resulting in financial loss or exposure.
What Are Some Common Types of Appraisal Fraud?
Appraisal fraud can take many forms. Federal investigators and prosecutors target specific schemes where property valuations are manipulated.
The most frequent types of appraisal fraud include:
- Value Inflation: This occurs when an appraiser artificially inflates a property's value to help a borrower secure a larger loan than the property is worth, putting the lender at risk.
- Collusive Schemes: In these schemes, an appraiser conspires with a loan officer, real estate agent, or borrower to produce a predetermined, fraudulent valuation to ensure a transaction is approved.
- Fabrication of Data: This involves an appraiser using false or manipulated comparable sales ("comps"), misrepresenting a property's condition, or falsifying details like square footage to justify an inflated value.
- Appraisal "Flipping": An appraiser provides an investor with a fraudulently low valuation to facilitate a below-market purchase. Soon after, another appraisal provides a much higher valuation, allowing the investor to resell the property for a quick, unearned profit.
Federal authorities such as the FBI and the IRS often focus on real estate developers and high-net-worth individuals engaged in luxury mortgage transactions.
What Laws Are Used to Prosecute Appraisal Fraud?
There is no single federal statute titled "appraisal fraud." Instead, federal prosecutors use a combination of statutes to charge individuals involved in these schemes based on certain underlying behaviors.
The specific laws used to prosecute appraisal fraud depend on the facts of the case, such as the use of electronic communications or the involvement of a federally insured bank.
Let's look at some of the more common statutes used to prosecute appraisal fraud.
18 U.S.C. § 1343 — Wire Fraud
Wire fraud is the most common charge in federal appraisal fraud cases, as most real estate and lending transactions involve interstate electronic communication.
The statute applies when electronic means, like email, text, or wire transfer, are used to transmit fraudulent information in a scheme to defraud. Common triggers include emailing a manipulated appraisal report or submitting a loan application with false data online.
18 U.S.C. § 1344 — Bank Fraud
Bank fraud is charged when the target of the appraisal fraud scheme is a federally insured financial institution, such as an FDIC-insured bank or a credit union.
This statute makes it a crime to knowingly execute a scheme to defraud a financial institution or to obtain money or property from the institution through false pretenses.
18 U.S.C. § 1014 — False Statements to Financial Institutions
This statute gives prosecutors a powerful tool. Unlike wire or bank fraud, which requires proving a full scheme, § 1014 makes it illegal to knowingly make any false statement to influence a financial institution.
An appraiser who fabricates a comparable sale or inflates a valuation in a report to a bank can be charged under this mortgage fraud statute, even if the loan is not approved. It is often paired with bank fraud as an alternative theory of liability.
18 U.S.C. § 1349 — Conspiracy to Commit Fraud
Appraisal fraud is rarely a solo act. When appraisers, loan officers, real estate agents, or borrowers agree to commit wire or bank fraud together, they can all be charged with conspiracy.
Under 18 U.S.C. § 1349, the government only needs to prove that an agreement existed to commit fraud and that the defendant knowingly joined it. This statute expands liability across all participants in organized mortgage fraud rings.
Frequently Asked Questions About Defending Against Federal Appraisal Fraud Charges
What Is Federal Appraisal Fraud?
Federal appraisal fraud occurs when someone intentionally misrepresents the value of real estate in an appraisal report to deceive lenders, investors, or buyers for financial gain.
These cases are typically prosecuted under federal fraud statutes such as wire fraud, bank fraud, or false statements to financial institutions.
Can Appraisal Fraud Be Prosecuted in Federal Court?
Yes. Appraisal fraud is frequently prosecuted in federal court when the alleged scheme involves interstate communications, federally insured banks, or mortgage transactions affecting financial institutions regulated by federal law.
Prosecutors often rely on statutes such as 18 U.S.C. § 1343 for wire fraud and 18 U.S.C. § 1344 for bank fraud.
What Is the Difference Between Appraisal Fraud and Mortgage Fraud?
Appraisal fraud is a specific form of mortgage fraud that involves falsifying a property's value. Mortgage fraud is broader and can involve other deceptive practices such as misrepresenting borrower income, falsifying loan documents, or misrepresenting property occupancy status.
What Penalties Can Someone Face for Federal Appraisal Fraud?
Penalties vary depending on the statutes charged and the financial losses involved. Federal fraud convictions can carry significant prison sentences. For example:
- Wire fraud convictions can result in up to 20 years in federal prison
- Bank fraud convictions can result in up to 30 years in prison
- Courts may also impose large fines and restitution payments
Sentences are often determined using the Federal Sentencing Guidelines and the amount of financial loss involved in the alleged scheme.
What Must Prosecutors Prove in an Appraisal Fraud Case?
To secure a conviction, federal prosecutors typically must prove several elements beyond a reasonable doubt:
- A material misrepresentation or omission occurred
- The defendant acted knowingly and intentionally
- The misrepresentation was designed to influence a lender or financial institution
- The victim relied on the false information and suffered financial loss or exposure to risk
If the government cannot prove fraudulent intent, the case may be significantly weakened.
Can an Appraiser Be Charged Even If the Loan Was Never Approved?
Yes. Some federal fraud statutes do not require the loan to be approved or money to be disbursed. For example, under 18 U.S.C. § 1014, making false statements to influence a financial institution may be a crime even if the financial institution ultimately denies the loan.
Is a Mistaken Property Valuation Considered Fraud?
Not necessarily. Property valuation often involves professional judgment, market interpretation, and subjective analysis. If a valuation error resulted from a legitimate difference of opinion, market fluctuation, or simple mistake rather than deliberate deception, it may not meet the legal definition of fraud.
Can Multiple People Be Charged in the Same Appraisal Fraud Case?
Yes. Appraisal fraud schemes often involve multiple individuals, including appraisers, loan officers, real estate agents, brokers, and borrowers. Federal prosecutors frequently charge these cases as conspiracy offenses, which allows the government to prosecute all participants in the alleged scheme.
What Should You Do If Federal Agents Contact You About Appraisal Fraud?
If federal investigators contact you regarding an appraisal fraud investigation, you should avoid making statements or answering questions without legal representation.
Statements made to investigators can be used in a criminal prosecution. Contacting an experienced federal criminal defense attorney immediately is the best way to protect your rights and prepare a defense strategy.
What Defenses Are Used Against Appraisal Fraud Charges?
A skilled federal criminal defense lawyer will utilize a variety of approaches to defend against appraisal fraud, including proving lack of intent, acting in good faith, and challenging unconstitutional search/seizure, etc.
A federal appraisal fraud charge does not automatically lead to a conviction. An experienced federal defense attorney can build a strong strategy to challenge the prosecution's case.
Effective defenses often focus on dismantling the core element of fraudulent intent.
- No Fraudulent Intent: A key fraud defense is proving the misstatement wasn't a deliberate attempt to deceive. An appraiser's valuation is subjective, not exact. A defense can show that an alleged overvaluation stemmed from a legitimate valuation method, an error in judgment, or a simple clerical mistake.
- Good Faith Reliance: Appraisers often rely on data from other professionals, like real estate agents or inspectors. If they reasonably believed this information to be accurate, it can be argued that they acted in good faith without intent to defraud.
- Procedural and Evidentiary Issues: The U.S. Constitution protects against unlawful searches and seizures. Attorneys will examine the government's investigation for errors or violations. Evidence obtained illegally can be suppressed, potentially weakening the prosecution's case.
How Our Attorneys Can Help at Every Stage
Being charged with appraisal fraud is a serious matter, and cases like these can be complicated, which often works against the defendant. At Eisner Gorin LLP, we utilize a comprehensive approach to your defense to make sure all bases are covered:
- Pre-Charge Investigation: If you are contacted by federal agents from the FBI or another agency, it is vital to have an attorney present before answering any questions. Counsel can manage communications with investigators and protect you from self-incrimination.
- Arraignment and Pre-Trial: If charges are filed, an attorney will represent you at arraignment, negotiate for fair bail and release conditions, and begin analyzing the government's evidence. During this phase, they will file critical pre-trial motions to dismiss charges or suppress illegally obtained evidence.
- Trial and Negotiation: Your legal team will develop a comprehensive trial strategy to defend you in court. Simultaneously, they will engage with federal prosecutors to negotiate a favorable plea agreement if that is the best path forward, working to reduce charges or minimize potential sentences.
- Post-Conviction: Should a conviction occur, the fight is not over. An attorney can represent you at the sentencing hearing to advocate for leniency and handle any appeals or other post-conviction relief efforts.
For cases with high complexity or severe exposure, a team-based approach provides a distinct advantage. Clients benefit from a multi-lawyer review and a structured second opinion on defense strategy, ensuring every angle is explored.
Protect Your Interests and Your Freedom
If you're facing criminal charges related to alleged appraisal fraud, you should know that the government has likely already spent a lot of time building a strong case against you.
With the potential for long prison sentences in the picture, you need a legal team with broad experience in these cases that can mitigate the risks and give you the best chance of success. To schedule a consultation, call Eisner Gorin LLP at (818) 781-1570 or contact us here.