On April 19, a kindly home appraiser named David C. Christian, a grandfather in his early 60's who had never been in trouble with the law before, was sentenced in federal court in downtown Baltimore to 15 months in prison.
Christian admitted to falsifying 16 home appraisals to inflate the properties' values. In some appraisals of small rowhouses that needed a lot of work to be habitable, Christian substituted interior photographs of opulently renovated rowhouses. He made lenders believe that houses worth $100,000 were worth three times that. Lenders lost about $2.4 million in the scheme.
"He understood that others were trusting him," Federal District Court Judge James K. Bredar said from the bench. "This was part of a wider epidemic in this country of ethical and even criminal lapses."
Christian was joined in court by more than 30 friends and family members, several of whom attested to his good character. Christian, according to both prosecutors and his defense attorney, Andrew White, succumbed to his desire to please his client, a mortgage broker named Joshua Goldberg, who is under indictment but apparently living in Israel.
Appraisers fall from grace this way all the time. And their work is largely secret-stored in the files at lenders and, sometimes (not always), title companies. Unlike loan documents, which become public when final, the appraisals that undergird them are hidden from the public and often even from investigators, making accountability difficult at best.
In Baltimore, that was supposed to change a decade ago.
HB 521, a bill passed by the state legislature in the wake of the so-called "flipping scandal" of the 1990s, created a database of property appraisals in Baltimore City. Since 2003, every home appraisal done in the city was supposed to be given to the Department of Housing and Community Development, to be kept in files in case investigators ever needed to track down montebanks again.
The database is not public; only investigators from the office of the state attorney general can see it. But it does give a ready tool to those investigators if they want to, you know, investigate some mortgage fraud.
So, 10 years later, how useful is this system?
"I don't know to what extent compliance is being recorded or the database is being utilized," says Robert Strupp, executive director of Baltimore Neighborhoods, Inc., a fair-housing nonprofit.
Strupp is apparently one of the very few people in town who knows even that much. Around 2007, when he was the director of research and policy at the nonprofit Community Law Center, Strupp says he ran a test of the system. "We gave them a random selection of transactions in which appraisals were required," he says. "The city indicated, of the ones we gave them, they only found evidence of appraisals being submitted for a third of them."
Despite attempts to get information from Baltimore Housing and the Maryland Commission of Real Estate Appraisers, Appraisal Management Companies, and Home Inspectors, which supposedly forwards the appraisals to the city's database, City Paper could not even confirm that the database is currently in use at all.
The database was supposed to help alert city and state officials to the kinds of shenanigans that shook the real estate market here in the late 1990s, when fast-buck operators came to town, bought shoddy rowhouses for the going rate of about $15,000, recarpeted them, slapped a coat of paint on the walls, and sold them to naive buyers for, say, $80,000 each. The houses often had leaky roofs, bad furnaces, and other problems. One actually fell down.
A Flipping and Predatory Lending Task Force was empanelled to suggest reforms. It was peopled by such leading lights of the local real estate industry as Vito Simone (who later declared bankruptcy after talking an old man out of a bunch of big houses and stiffing an array of investors and former friends). The task force issued its final report just as the housing bubble was reaching its peak-and "investors" were participating in yet another round of widespread mortgage fraud.
Bill Riedel co-chaired the task force's appraiser legislation committee. He explains how the database came to be. "The problem that came up came from the AG," he says. "She said . . . they would come across a situation they thought was probably fraudulent. They would want to see the appraisal. The investor would say they didn't have a copy. They'd go to the out-of-state lender and they'd decline to supply it."
The attorney general's office seemed to think everybody's hands were dirty, Riedel, now chief instructor for the Maryland Association of Appraisers, explains, "so I said, 'Appraisers can be part of the solution here.'"
The legislature ran with the idea, passing a law requiring all appraisers who do a job in Baltimore City to submit the appraisal to the database within 90 days. "Some appraisers thought it violated the confidentiality rule in the rules of professional standards," Riedel says.
Riedel says he doesn't know what became of the city's database or how well it's been maintained. "Unless you actually had an audit, the only way you're going to find out that an appraiser did not file it would be for the AG to actually have a mortgage transaction, say 'look into this database,' and say, 'whoops, I've got a sale, but no record of an appraiser,'" Riedel says. "It's an exception-based system."
In an email Riedel adds: "A secondary intent was that the city Housing Department, which was actually handling the database for the Maryland Commission of Real Estate Appraisers and Home Inspectors, would be able to compare the appraised values with prior sales to look for signs of widespread fraud. I don't know if that is still happening-I suspect not anymore."
City Paper asked Baltimore Housing for information about the database last fall and received no response. Last week a spokesperson for the department said she would get back to us but did not before press time.
The Maryland Commission of Real Estate Appraisers, Appraisal Management Companies, and Home Inspectors, which supposedly forwards the appraisals to the city's database, also did not get back to us.
"The only realistic solution," Riedel writes, "is for lenders-those who actually have their money on the table-to have a comprehensive appraisal-review program with proven good, unbiased review appraisers to identify the appraisers who are forcing values and file complaints against them with the Commission. Now that the Commission is self-funded-its operating budget comes from licensing fees-it has the financial resources to investigate complaints in a more timely manner. My understanding is that this is beginning to happen. We simply have to get the bad appraisers off the streets."
At its February meeting, the commission reviewed 97 cases against appraisers, according to the published minutes. Four cases were referred for investigation, six were referred for "precharge review," eight were dismissed and 73 were tabled.
At his sentencing, Christian said he was sorry for what he did. "There isn't a day that goes by that this isn't a heavy burden to me," he told Judge Bredar. "If I could make amends to the government, I would. It's a little tough right now."