People who bought a home in Southern Chase with an FHA loan arranged by Beazer Mortgage paid higher prices on average than other buyers in the subdivision.
The contrast was sharpest with the prices of 28 homes bought with loans insured by the Veterans Administration. The price of homes bought with Beazer FHA loans averaged 6 percent higher per square foot than the VA homes, adjusting for the year of sale.
The prices have not held up.
In 2006, Cabarrus County assigned a lower tax value than the original sales price to two-thirds of the 229 homes purchased with Beazer FHA loans. The county assigned lower values to only a quarter of the 177 homes purchased with other kinds of loans.
Appraisers validated the higher prices.
Lenders rely on appraisers to confirm a property is worth at least as much as the mortgage loan. That protects the borrower and the lender: If the borrower can't pay, the home can be resold to pay the debt.
Intentionally overstating the value of a home on an appraisal is illegal.
When Beazer arranged an FHA loan, it hired the appraiser. But for VA loans, the appraiser is assigned by the government. That helps to ensure the lender doesn't influence the appraiser's opinion.
A Davidson appraiser, Elizabeth Smith, said she worked regularly for Beazer. She said she appraised 15 homes in the neighborhood in 2003, but she was not sure how many homes she appraised in earlier years. Beazer arranged 16 FHA loans in Southern Chase in 2003, records show.
Appraisal documents are not public records, but the Observer obtained a complete appraisal signed and stamped by Smith from a Southern Chase resident. It was reviewed at the Observer's request by Bob Ipock, a Charlotte-area appraiser who reviews other appraisers' work for lenders. Ipock, a state-approved appraisal instructor, has testified before the N.C. General Assembly that he believes appraisal inflation is a major problem.
Ipock documented two factual misstatements and also procedural problems, which he said raised the value of the appraised home. For example, Smith cited the sales price of a similar home as evidence of the appraised property's value. The price she quoted is 7 percent above the price listed in county records for the only sale of the same home.
The appraisal also misstates the description of a second home.
Smith said the first mistake was a typographical error. She said she meant to cite another home in the same subdivision. She said she was confident the second mistake was fixed.
Smith declined to identify the address of the other home, and the Observer could not identify any property that matched her description. Smith also declined to explain why both errors appear on a final appraisal provided to the home buyer, or why, if any corrections were made, they did not affect the appraised value shown in FHA records.
Smith said she is confident her appraisals are accurate and fair. She says she was never pressured by Beazer to raise home values, and never would have done so.
"I stand by my appraisals," Smith said. "They were underwritten. They met legal standards. They met FHA standards."