Desktop and Drive-by Appraisals: Protecting Against Interior Photograph Fraud

Recently, Desktop and Drive-by appraisals (no interior inspection by the appraiser) temporarily replaced some interior inspection appraisals as a necessary response to health risks and quarantine orders related to the COVID-19 pandemic. This adaptation was appropriate and necessary to protect the health and well-being of homeowners and appraisers, while keeping the mortgage process moving.

However, many of these Desktop/Drive-by appraisals are utilizing interior photographs, supplied by the borrower, as the sole source of information about interior condition, quality, and features. Of course, since condition, quality and features are commonly understood to be influential to the market value of the property, there is risk that misrepresented, fraudulent, or strategically selected photographs could result in an inflated appraised value.

Fortunately, for most purchase transactions the appraiser is not dependent on one party for interior photographs, since most purchases include current listing photographs provided by a real estate agent. On refinance transactions, however, the appraiser typically does not have access to recent interior photographs from a third-party source and thus may be reliant on the borrower to supply pictures/images that illustrate the interior condition, quality, and features.  Although there is risk in both scenarios since the appraiser is not personally inspecting the interior, the latter scenario is where we’ll focus the remainder of the article since the appraiser is dependent on the accuracy and completeness of information supplied exclusively by the borrower.

What are some of the fraud risks with borrower-supplied photos?

When an appraiser relies on the borrower for photographs of the interior condition, quality, and features, it’s important to ensure that the photographs are the subject’s actual interior and provide a reasonably complete view of the interior.

Following are some ways that fraud can be committed with borrower-supplied pictures:

• Using a cell phone to take one or more interior pics of a better house
• Download interior pictures from the internet depicting a better house
• Using a cell phone to take pictures of a computer screen containing interior images found on the internet
• Altering geolocation and date/time information in the metadata of the pictures or the phone’s operating system
• Strategically photograph at angles that conceal defects

What are some steps to limit the fraud risk with borrower-supplied photos?

Fortunately, there are a few measures you can take to ensure the authenticity and accuracy of borrower-supplied photos for refinance.

• Check Alternate Sources – Compare the borrower pictures to current/prior listing pictures or to interior pictures from a prior appraisal report.
• Check for Consistency – Use satellite, aerial, street imagery, exterior pictures and the interior pictures to compare against the borrower-supplied interior pictures for consistency with the exterior quality, ceiling height expectations, design style, age, and exterior condition. For example, if the kitchen interior pictures show an excellent quality kitchen with high ceilings, but the exterior pictures show the subject to be standard wall height 1950’s one-story ranch, you might question the authenticity of the kitchen photograph.
• Check Photo Location Data – An appraiser may be able to access the photograph properties to check for consistency in location data (latitude/longitude) and consistency in date/time data with latitude/longitude data for the subject address from one of the popular online map services. If the latitude/longitude in the pictures is significantly distant from the address latitude/longitude, you might question the authenticity of the photograph. Also, if the date/time of the picture data is significantly different from the date the photograph was submitted by the borrower, you might question its authenticity.
• Require Photographs Showing Multiple Angles – Require multiple pictures with different angles of key rooms, such as the kitchen, bathrooms, living room, basement, etc.
• Facilitate Appraiser – Borrower Live Video Inspection – Have the appraiser arrange for a live video tour of the property utilizing a commonly available video chat service. The appraiser should have the borrower start at the mailbox/address, walk up to the front door, and tour the property live-time.
• Have Appraiser Utilize Third-Party Photo Capture Tool with Strong Fraud Controls – This is a great option. Applications with strong fraud controls should do the following:
  1. validate the location the picture was taken
  2. validate the date/time of the picture
  3. prevent/detect manipulation of the geocode information
  4. detect pictures downloaded from the internet (pixel matching)
  5. prevent pictures from being pulled from the photo library on the phone
  6. utilize live-time upload of pictures the instant they are taken
  7. detect manual adjustment of the phone’s location information or date/time
  8. cross-check location information
  9. notify the appraiser of photographs with suspicious characteristics
  10. require multiple pictures with different angles of key rooms

The Appraiser/Borrower live video inspection and the third-party photo capture technology are the preferred options. I do not recommend allowing the borrower to send interior photographs directly to the appraiser via e-mail.

There are circumstances where an appraiser may determine that sufficient information about the property is not available to produce a credible appraisal or that information provided by the borrower is not credible. In those cases, the appraiser may determine that a Drive-by or Desktop appraisal cannot be reliably completed.

The use of Desktop and Drive-by appraisals are a necessary adaptation to concerns about the spread of COVID-19 and may continue to be used as standard practice or as a go-to solution should we face another situation like COVID-19. By recognizing and addressing the limitations of Desktop and Drive-by appraisals and the risks of borrower-supplied photographs, we can ensure their use is credible, customer-friendly, and supportive of sound lending.