Inspection scams on foreclosed properties still a problem, IG finds

Property inspectors are likely scamming taxpayers out of millions by submitting false reports to federal officials in charge of mortgage delinquencies, a new report has found.

The Federal Housing Finance Agency (FHFA) relies on the inspectors to evaluate homes that are in foreclosure, to look for any unsafe conditions that might need repaired, and to provide an estimate on how much the home could be resold for.

But the inspectors have been lying about their inspections and submitting fraudulent reports, said a new report obtained by The Washington Times from the FHFA’s internal inspector general’s office.

In 2012, the inspector general found that one home inspection company had scammed the government out of $12.7 million from false reports and claims. Now the inspector general is warning that the practice hasn’t stopped, and taxpayers could still be vulnerable for millions in loses.

“The lack of quality controls diminishes the inspection report’s integrity and casts doubt on whether these inspections are working and necessary,” federal investigators said. “Further, the minimum attention to and oversight of pre-foreclosure property inspections poses a control weakness that vendors may be able to exploit with manipulated or fraudulent inspection reports.”

The oversight of home inspections — known as “pre-foreclosure” checks done as a family is defaulting on their mortgage — is part of FHFA’s duties ever since the government became stewards of mortgage finance companies Freddie Mac and Fannie Mae following the 2008 economic crash.

But no one is making sure the evaluations are done properly, the watchdog office said.

“There has been little attention provided to pre-foreclosure property inspections by both FHFA and the enterprises,” the inspector general said.

Servicers hired by Fannie and Freddie to oversee the inspections have been lax in their oversight, federal investigators said. Officials haven’t taken follow-up visits to properties to make sure inspectors are doing their jobs properly, and many servicers aren’t running criminal background checks before they hire the inspectors.

And at the highest level, federal officials at FHFA aren’t doing their part for oversight either, putting at risk taxpayer funds like the $91 million paid to property inspectors in 2011-2012.

FHFA officials said they agreed with the inspector general that strict quality controls need to be maintained on property inspections, but disagreed that there should be uniform standards for all inspections.

“Based on the sampling and analysis presented, FHFA does not believe that the report findings and the examples of deficiencies provide compelling support for the imposition of uniform standards and processes for all pre-foreclosure inspections of properties,” a response from the office said.

The inspector general said that some inspection reports contained inaccurate information or doctored photos of property. Some of the property inspections never stepped inside the residence, the inspector general found, and some lacked proof that the inspection had taken place at all.

For example, one report “asserted that the homeowner’s yard was in good condition,” the inspector general said, but noted that the property “was a condominium unit in a medium-rise, multi-unit structure” that did not have a yard.

Federal investigators found another series of monthly reports where it appeared the inspector had simply copied the same report over and over, not even changing the date. The comments for the property were always the same, always marked January, and, the inspector general noted, the grass on the property was measured at exactly eight inches tall for seven months straight.

And yet more reports used five-year-old pictures to claim they had visited the property, while another inspector never actually set foot inside the building he was supposed to be looking at, but billed for a year’s worth of inspections anyway.