Greed and the Real-Estate Appraisal Scam

Greed is in the news a lot these days. And the news, like greed, isn't good.

Commentators are noting that greed plays a starring role in what is now being called our nation's worst financial crisis since the Great Depression.

The crisis, so far, has focused on the mortgage, investment, and banking industries. But a recent story shined a spotlight on another industry where greed has reigned. And this industry, like the others connected to the evolving Great Bush Disaster, also has ties to our homes.

Who are these "professionals?" Real-estate appraisers. And they are another example of greed run amok in the Age of Bush.

Anyone who has ever shopped for a house on a middle-class income knows how frustrating the experience can be.

My wife and I bought our house in 1990, and we still get chills thinking about some of the wretched properties we saw--with price tags that would make us swoon like Scarlett O'Hara in the Deep South humidity.

We loved the lingo our real-estate agent dropped on us to make these "deals" seem palatable. "Isn't this one cozy," she would say. (Translation: It's tiny.) "This has so much potential." (Translation: It's currently a wreck.) "Look at this old-world charm." (Translation: It was built during the U.S. Grant administration.) "Wow, what a handyman special." (Translation: It's dilapidated.) "It's zoned to good schools." (Translation: Predominantly "white" schools, and your imaginary kids will need to be there 24/7 because the roof on this house leaks like Monica Lewinsky.)

Real-estate prices in "good neighborhoods" within a 10- to 12-mile radius of downtown Birmingham are godawful, which is why we landed in North Shelby County, about 15 miles from downtown and ruled by the kind of corrupt public officials you would expect to find in Nicaragua.
People who live in places like Maryland and Virginia have told us that home prices in Birmingham actually are wonderful compared to other parts of the country. We're supposed to feel good about that, I guess.

Anyway, Mrs. Schnauzer and I have long wondered what drives outrageous real-estate prices. We've attributed it to 3-4 things:

* Seller arrogance

* Buyer desperation

* Societal and familial pressures

* And that old standby, supply and demand

Thanks to a recent investigative report from Associated Press, we know that another factor has helped drive soaring home prices: Fraud by real-estate appraisers, often in concert with unscrupulous real-estate agents and mortgage brokers.

Given that our nightmarish experience with Alabama's justice system began with a funky real-estate deal, this report drew more than casual interest in the Schnauzer household.

Writes AP's Mitch Weiss:

After the nation's last major banking disaster, Congress set up a system to catch rogue appraisers. Their game: inflating the value of homes at the direction of equally unscrupulous real estate agents and mortgage brokers, whose commissions are determined by the size of the deals.

But a six-month investigation by the Associated Press found that the system is crippled by both the bumbling of its policemen and their inability to effectively punish those caught committing fraud.

And despite ample evidence appraisers are pressured into inflating home values — sometimes to prices in support of loans that are more than buyers can afford — the federal regulators charged with protecting consumers have thus far made a conscious choice not to act.

"The system is completely broken," Marc Weinberg, the former acting director at the federal agency charged with monitoring the appraisal industry, said before he retired earlier this year. "It's amazing that the system ever worked at all."

Boy, those are encouraging words. And what impact have rogue real-estate appraisers had on our economy?

To be sure, there are many causes of the housing crisis — lenders who allowed people with spotty credit to buy homes with little or no money down, mortgage brokers who focused on selling loans without regard to the borrowers' ability to repay, investment bankers who bought and sold risky mortgage-backed securities. A few of the worst offenders — appraisers included — have been put behind bars.

But experts and industry insiders, including appraisers who feel betrayed by colleagues who don't follow the rules, believe the failure to effectively monitor the real estate appraisal industry contributed to housing's collapse.

What about our own experience with a funky real-estate deal? I wrote about it in a post dated November 27, 2007. I have no indication that fraud of any kind took place in the deal that caused us to wind up with Mike McGarity, and his extensive criminal record, for a next-door neighbor. But the more we learned about the deal, the stranger it seemed.

Normally, I wouldn't care what took place when a nearby house was sold. But McGarity's presence unleashed a series of events that culminated with the unlawful "auction" of our house and the loss of my job at UAB under mysterious and unlawful circumstances. So you can understand why we've been more than a little curious about how McGarity came to buy the house from our previous next-door neighbor--Fred Yancey, the football coach and dean of students at Briarwood Christian School.

Here's a brief overview of what happened when Fred Yancey sold his house to Mike McGarity:

* There was never a for-sale sign in the yard;

* There was never an ad in the local newspaper or in our main area "shopper" publication;

* The house was never listed with the local Multiple Listing Service (MLS), according to an appraiser I consulted;

* Even though the house was never listed, a real-estate agent named Phyllis Tinsley was involved in the deal. At the time, Tinsley worked for Prudential Realty, but she now has her own real-estate company. Her husband, Roye Tinsley, is a real-estate appraiser.

* Phyllis Tinsley told my wife that she happened to see a for-sale-by-owner sign at McGarity's house in Cahaba Heights and stopped to talk with him. That, Tinsley said, is how she found a prospective buyer. And how did she find a prospective seller? She happened to be in our neighborhood and knocked on Fred Yancey's door. Lo and behold, he was looking to sell his house!

Maybe real-estate agents sell houses this way all the time. But it sure seems like a strange way to do it to me--awfully inefficient.

Did Ms. Tinsley just stumble upon Mike McGarity, without anyone telling her he was interested in buying, and then stumble upon Fred Yancey, without anyone telling her he was interested in selling?

Well, snip my pickle and call me Shlomo, that was a real-estate match made in heaven.

It's caused my wife and me to go through hell, but I doubt that Phyllis Tinsley, Fred Yancey, or any of the fine Christians at Briarwood School really care about that.

Oh, and here's something interesting about Phyllis Tinsley. I called her one evening a couple of years back to ask her about the funky real-estate deal that landed Mike McGarity next door to us. She didn't seem terribly anxious to discuss it, but she did pretty much repeat the story she had told my wife--that she had just happened upon a seller and a buyer, almost as if God was making this deal happen!

We had a fairly pleasant chat, and I tape recorded things for posterity's sake. When I played back the tape, something interesting happened. I could hear what I said, but when Ms. Tinsley spoke, her voice was scrambled or somehow blocked.

I have no idea how or why that happened. Just another chapter in a real-estate transaction that gets curiouser and curiouser.