US DOJ Press Release — May 11, 2004
Washington, D.C. - United States Attorney Roscoe C. Howard, Jr. announced that today United States District Judge Paul L. Friedman sentenced Watson T. Goffney, Jr., 58, of Arlington, Virginia, to 30 months of incarceration and three years of supervised release for his part in falsely appraising properties in a real estate/mortgage fraud conspiracy. Goffney pleaded guilty on April 19, 2002, to one count of conspiracy. Judge Friedman also ordered Goffney to pay restitution of $935,309 to the Department of Housing and Urban Development (HUD). In sentencing Goffney, Judge Friedman said, “without the appraiser’s false statement, the scheme would have been unlikely to succeed.”
According to the government’s evidence, at the time of this offense, Watson T. Goffney, Jr. was a licensed appraiser. In addition to his ability to appraise properties for conventional bank loans, since 1996, Goffney had a special certification which allowed him to appraise homes which were the subject of financing the government provided to lower/middle income families through HUD’s Federal Housing Administration (FHA). In order to be an HUD-approved appraiser, Goffney was required to take additional classes, pass examinations, and certify that he understood that FHA relied upon the truthfulness and the accuracy of his appraisals. For FHA mortgage loans, once a FHA-approved appraiser (like Goffney) assured FHA of the value of the property, and with a buyer qualifying for the loan, then FHA would insure the mortgage loan. If the buyer were to fail to pay the mortgage, FHA would reimburse the lender 100% of the value of the loan, as well as pay any costs incurred by the lender in the foreclosure process.
The co-conspirators bought distressed property and then sold it (often on the same day) for a significant profit. Generally, the property was in disrepair and the seller did little or no work on the property before he “flipped” it to a buyer for a much higher price, which was supported by Goffney’s fraudulently inflated appraisal. As part of the plea, Goffney admitted that he agreed with co-conspirators to lie about the condition of the properties and inflate the value. For instance, several of his appraisals for property in the District of Columbia stated that: “the property was recently renovated,” when it was not, or that “the house has under gone complete renovation” when no such work had been done at the time of the appraisal.
Goffney’s appraisals “supported” mortgages which were in an amount much higher than the property was actually worth. The buyers were usually not financially able to qualify for such a mortgage. The sellers and others would help the buyer get the loan by providing fictitious income records and undisclosed financial assistance. After settlement, the homes typically were not habitable, and many times the planned renovation was not completed. The unqualified buyer would be unable to pay the mortgage, and as a result, the mortgage would often go into default and the home into foreclosure. FHA, which insured the loan, would reimburse the lender for its losses, but upon reselling the property, would not be able to recoup the amount it paid to the lender to cover the defaulted loan. The property would sell for less than the outstanding loan partly because Goffney appraised the property for much more than the property was actually worth at the time of the initial sale (and thus the mortgage loan was more than the value of the property).
As part of its investigation, special agents with the Federal Bureau of Investigation (FBI) recorded conversations between a seller and Goffney. In one such conversation, the seller mentioned a particular property which he had sold and which Goffney had appraised. In this consentually recorded conversation, Goffney explained to the seller, “Alright, I have, uh, lied on my appraisal …Okay, in saying that the house was in average condition when it’s a shell.” Goffney admitted later in the conversation, “I have committed fraud.”
Goffney appraised approximately 36 properties which were bought and sold by one or more co-conspirators and for which the mortgages were insured by FHA. At the time of the plea agreement, twenty of the 36 FHA-insured mortgage loans had been foreclosed; HUD had acquired and resold 13 of these properties at the cost of the total loan and lender’s foreclosure expenses, with an actual loss (after resale) to the government of approximately $935,000.