Sentencing Guidelines Proposal

Proposed Amendments to the Sentencing Guidelines in Mortgage Fraud Cases

Proposed Amendments to the Sentencing Guidelines

Speaking at a March 14 hearing in Washington, D.C., the Appraisal Institute urged a federal judicial agency to require the use of real estate appraisals when calculating loss in mortgage fraud cases.

In prepared written testimony, Appraisal Institute President Sara W. Stephens, MAI, told the U.S. Sentencing Commission,

“We believe the Commission should adopt a special rule for determining the fair market value of real property if the mortgaged property has not been disposed of by the time of the sentencing. However, this rule should require use of real estate appraisals prepared by qualified appraisers in accordance with the Uniform Standards of Professional Appraisal Practice, as opposed to tax assessments, to ensure fairness and consistency.”

Stephens said the Appraisal Institute and the American Society of Farm Managers and Rural Appraisers oppose the proposed amendments to the federal Mortgage Fraud Sentencing Guidelines because the amendments propose using tax assessments, and not real estate appraisals, to determine fair market value when the property in question has not been sold.

She said that condition and quality inspections are necessary as part of a credible and thorough valuation of a property, noting that tax assessments do not include such inspections. She also said tax assessments rely on public records data, which can be inaccurate and therefore reduce the reliability of the valuation.

Stephens also noted that reassessment periods vary widely by jurisdiction, and that some jurisdictions have not reassessed property in several decades, adding that fairness requires use of a real estate appraisal.

She also said that assessed value may not conform to market value. And she said the two appraisal organizations recommend that the Commission establish a special rule relating to the qualifications of real estate appraisers.

Section 1079A of the Dodd-Frank Act requires the U.S. Sentencing Commission to review and, if appropriate, to amend the federal sentencing guidelines applicable to mortgage fraud and financial institution fraud offenses and to consider whether the guidelines appropriately account for the potential and actual harm to the public and the financial markets from those offenses.

Click here to read Stephens’ full testimony.

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1 Response

  1. Baggins Baggins says:

    Great letter. / Of additional note is that the liquidation approach can be inconsistent, depending on the market. Exposure time is key to understanding how long a property must be marketed in order to receive fair market value. Especially when dealing with farm and rural, typical exposure time is oftentimes more lengthy. It’s the constant lender mandates for 30-120 day quick sales that can also drive pricing downward, similar to dated assessment figures, and improperly developed automated price statistic models for home valuations. In a perfect world, an appraiser would be there to identify a wide range of considerations otherwise overlooked in mass assessment, and computer based valuation approaches. That service can be much more valuable than expected if unusual situations are present. Also the appraiser could provide guidance for lenders regarding proper exposure time for individual properties, if only the lenders would not approach their selling time frames towards bank owned sales the same way, regardless of locale and type of home. Sometimes there are too many bank owned homes which create multiple years of stock, and liquidation value & price is a must. Still, that cannot be determined using dated assessment, which by the way, assessment figures are used heavily by multiple popular automatic valuation models available to the public free of charge on the internet. In my areas of CO, reassessment happens every 2 years. I could not imagine having to muddle through complex appraisal analysis in a market where lenders are purveying properties based on highly dated assessment figures.


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Sentencing Guidelines Proposal

by AppraisersBlogs time to read: 2 min