In an effort to deal with property flipping and mortgage problems in Baltimore, federal officials have barred a half-dozen Maryland real estate appraisers from the Federal Housing Administration program that insures home mortgages.
The action is part of a U.S. Department of Housing and Urban Development effort to deal with a growing problem of inaccurate appraisals. Aimed at appraisals that overvalue homes and fail to disclose defects adequately, the effort includes new requirements for disclosing the condition of a house and a tougher system for monitoring and penalizing appraisers.
"We are going to hold our appraisers accountable," said Matt Franklin, a HUD official in the Clinton administration. "We're not asserting that it's fraud; ... we are determining if they followed our requirements. This is strictly performance-based."
An appraisal is a key element in a real estate sale because a lender will not provide a mortgage to finance the deal unless an appraiser has valued the house at or above the purchase price. Although conventional mortgages usually cover between 60 percent and 80 percent of the purchase price, FHA-backed loans usually cover virtually the entire price.
One of the banned appraisers, Dale Schulz of Jarrettsville, is under a federal fraud and conspiracy investigation as part of a probe of a Perry Hall real estate broker who has flipped dozens of houses in recent years, according to papers on file at U.S. District Court.
Six draw citations
Schulz was banned from doing FHA appraisals for a year after HUD cited him for five faulty appraisals.
The five other appraisers were cited for one faulty appraisal each.
Lemar Wooley, a HUD spokesman, said they are: Mark R. Almony of Jarrettsville and Gary M. Henry of Catonsville, who were banned for a year each: Marc I. Tilles of Linthicum, nine months; Kevin Fitzpatrick of Parkton, six months; and Jimmy D. Moon of Street, six months.
Four of them were cited for appraisals on houses that were flipped. Tilles was cited for a $51,900 appraisal on a house that had been bought four years earlier for $11,000.
All of the appraisals in the six cases involved houses that went into foreclosure. As a result, FHA was required to pay the lenders when they filed insurance claims.
HUD notified the appraisers late last summer that it planned to ban each of them for a year, but it gave them a chance to appeal before imposing the bans. The last of the appeals was heard in late December. In some cases, the penalties were reduced.
Henry did not respond to messages seeking comment. Almony, Fitzpatrick and Tilles had no comment. Almony has also been charged by the state Consumer Protection Division with unfair and deceptive trade practices in a case involving property flips.
Moon acknowledged that he had erred in calculating the size of a house but said he thought the penalty had been severe. The miscalculation resulted in an overvaluation of the house, according to HUD.
"I made a mistake," he said in a telephone interview. "The FHA review process works. The rules say a mistake like I made is a one-year suspension. After the presentation of my case, they reduced it to six months. I think that speaks well of myself."
Schulz, the Jarrettsville appraiser, said he had done nothing wrong.
"I'm doing them the way they want me to do them, according to their guidelines," he said.
Schulz has performed 1,000 or more FHA appraisals in recent years. HUD released figures that show he did 988 appraisals between 1995 and 1999. A HUD source who refused to be identified said that in the past three years, Schulz has done more than 1,600 appraisals to support $132 million in FHA-backed mortgages.
Schulz's house and business were searched last month by agents from HUD's inspector general, which operates independently of the agency, and postal inspectors. They were looking for documents on 38 home sales from the past five years in which Schulz performed the appraisal and HUD insured mortgages totaling nearly $2.9 million.
In a sworn affidavit used to obtain search warrants, HUD inspector general Special Agent Daniel J. Ellis described Schulz's appraisals as "fraudulent."
Ellis also wrote that HUD had paid mortgage lenders $1.5 million in insurance claims on these loans as the result of buyers' defaults.
The affidavit said William Otto Schmidbauer, a Perry Hall real estate agent, or his firm bought and quickly resold 26 of the properties. In recent years, Schmidbauer has flipped about 30 houses, often getting FHA loans for buyers who subsequently defaulted. The affidavit said Schmidbauer or his firm was also involved in the other sales as agent.
One of Schmidbauer's buyers is a Pennsylvania woman, Mary Anne Shirvani Kintop, who has signed more than a dozen FHA mortgages in eight different names in recent years, including the name of a daughter who was 7 at the time.