Thursday, December 4, 2003

Appraiser says he was duped

His countersuit: Reports altered in flipping cases

By Ken Alltucker
The Cincinnati Enquirer

A property appraiser known as "Mr. No" for his by-the-book standards unwittingly was pulled into a widespread mortgage scheme that left buyers with large payments on junk properties, his lawyer said.

Appraiser Joseph Zajac signed off on numerous appraisals that were later changed or misrepresented by investors seeking approval of lucrative loans worth far more than the value of the underlying property, lawyer Scott Thomas said.

Zajac and his son, Jody, are among nearly three dozen individuals and companies accused in separate federal and Hamilton County Common Pleas civil lawsuits of engaging in a multimillion-dollar mortgage swindle known as property flipping.

The suits say the goal of the scheme is to artificially inflate the value of ramshackle single-family homes and resell them to unsuspecting buyers. Participants receive a large mortgage payoff, but homebuyers often are left with a mountain of debt on property in dire need of repair.

The FBI has launched an investigation into the fraud believed prevalent in many of Cincinnati's poor and working-class neighborhoods. So far, three title agents have agreed to plead guilty and cooperate with investigators in a case believed of have tainted more than 500 sales of single-family homes.

Appraisals are a pivotal part of flipping because banks or other lenders rely on these independent assessments when deciding how much to lend for a particular house.

In the Hamilton County civil lawsuit, Indiana-based Trustcorp Mortgage said it purchased bad loans based on faulty appraisals with "false pictures, false values and false statements."

But the Zajacs say that their reports were changed by others who committed the fraud, according to Thomas. The Zajacs have filed a countersuit against Trustcorp and investors they believe responsible for the switches.

Thomas described Zajac as a well-respected appraiser known for his tough standards.

His Oakley firm gave customers a potential price range based on comparable neighborhood sales, and actual reports were written only after an on-site visit. Zajac would reject any request to juice the value, Thomas said.

In fact, his "strict adherence to this policy has earned Zajac the moniker 'Mr. No' within the industry in Hamilton County," the lawsuit states.

Trustcorp's lawyers said that Zajac has yet to furnish any proof that his reports were changed.

The lender last year won a $2.7 million federal court judgment against a Blue Ash lender, Midas Mortgage, which originated more than two dozen bad loans. Midas Mortgage president Mike Bowen said he didn't know the loans were bad, and he later called the FBI to report the fraud.

Beefing up regulation to require licensing of appraisers is one area that the Ohio legislature is targeting as a potential cure to curb mortgage abuses. But Thomas said such a legislative fix might not go far enough because there's no requirement that appraisers hand-deliver their reports at closing.


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