DEFINITION of 'Appraisal Fraud'

A form of mortgage fraud, whereby the value of a home is deliberately appraised above its market value. The overstated value obtained through Appraisal Fraud is commonly used to:

  • Help a seller get a better price than the market would warrant
  • Help a buyer get financing because the mortgage amount could be much less than the appraised value of the home
  • Help a homeowner get a preferable refinance, or home equity loan

Appraisal fraud can occur when an appraiser is in on the scam, and dishonestly overstates the value of the property. It can also occur when the homeowner, seller or purchaser physically alters an "honest" appraisal using methods such as digital editing.

BREAKING DOWN 'Appraisal Fraud'

Appraisal fraud, is one of the most common types of mortgage fraud. To protect themselves from this, banks will often set up the appraisal themselves when doing a mortgage or refinance. Homeowners and prospective homeowners should be just as careful, and make sure that they have an independent second opinion whenever they are going to make a decision based on somebody else's appraisal.

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