Hotel worker Danny Ruiz was living with his wife and four children in a cramped New York apartment when he saw a television ad promising the family a way out. Why rent when you can own your own home?. Pennsylvania builder Gene Percudani asked. The company even offered to pay his rent for a year, while he saved for a down payment. So the Ruiz family fled the city for the Pocono mountains, where they bought a three bedroom Cape Cod home for $171,000. However, when they tried to refinance less than two years later, the home was valued at just $125,000. I just about flipped, said Mr. Ruiz. Later Mrs. Ruiz remarked about her husband. He went nuts. Percudani, a 51-year-old native of Queens, New York, built a thriving homebuilding business in this market, running folksy televisions ads offering New Yorkers homes in Pennsylvania. If they joined Percudanis program, called Why Rent, homeowners would find financing through another of his companies, Chaper Creek Mortgage, which brokered loans from J. P. Morgan Chase and the companys Chase Manhattan Mortgage unit.

For years, the Why Rent program appealed to workers with modest salaries, such as Eberht Rios, a truck driver for UPS. Rios bought a home in the Poconos for $140,000. This year, when he tried to refinance, he was told the home was valued at only $100,000. One local appraiser, Dominick Stranieri, signed off on most of the Why Rent deals that state officials now say were overpriced, including the Rios and Ruiz homes. Percudanis firm picked Stranieri as his appraiser because of the quick work and the low fee of $250, instead of the typical $300 to $400. In exchange for a steady stream of work, Mr. Stranieri accepted without questions valuations from Percudanis company.

Other common methods of creating revenues include investors and others buying distressed properties and then, using inflated appraisals, selling them for a big profit. In order to secure the efforts of a dirty appraiser, those involved with the fraud would pay up to $1,500 under the table on top of the appraisers standard fee of $400.

Another unique twist to the plot is that few of the people involved in making mortgages have a long- term interest in them. Traditionally, bankers made loans directly and held them, giving the lenders a strong incentive to find fair appraisals to protect their interest. Today, however, many appraisers are picked by independent mortgage brokers, who are paid per transaction and have little stake in the long-term health of the loans. Many lenders have also lost a long-term interest in their loans, because they sell them off to investors. Appraisers increasingly fear that if they dont go along with higher valuations sought by brokers, their business will dry up.

Do you think a county appraiser would do a lot better than a private practitioner? Joel Marcus, a New York based attorney recently had his property valued at $2.2 million by a company appraiser, up from $2 million the previous year, which means a $7,200 jump in his property tax bill. Based on recent home sales in his neighborhood, Marcus believes his property is valued at between $1.7 and $1.8 million. Based on this information, Marcus has appealed his appraisal.

Although a good appraisal requires doing hours of legwork, visiting a property to check its condition, and coming up with at least three comparable sales. Percudani says he isnt surprised that later appraisals, or even different appraisals made at the same time, could result in different values. Appraisals are opinions, he says. Value, like beauty, is in the eye of the beholder. Stranieri and Percudani deny any wrongdoing and say they operated independently and that any home that declined in value did so because of a weak economy. Its like buying a stock, Percudni says in an interview. The value goes up. The value goes down.

1. Do you think appraisal fraud is common? In fraud such as this, do you think more than one person is involved?

2. If appraisal fraud is suspected, how is it found? What type of intent is common is appraisal frauds?

3. Why do you think appraisers make valuations that are not accurate?

4. How is this type of fraud rationalized in an appraisers mind?

5. Are there any controls that could be put in place to try to prevent this type of fraud?

6. Why is it not wise for a homeowner and what controls are in place to prevent a homeowner from trying to increase or decrease the value of their home?