A Sammamish couple has been arrested in a massive mortgage fraud scheme that may have put hundreds of home loans in jeopardy and could affect property values in certain neighborhoods.
According to prosecutors, Douglas R. White, 54, stole the identity of a licensed real estate appraiser and used it to conduct more than 400 fraudulent home appraisals from January 2009 to October 2012.
White charged between $150 and $800 for each appraisal, using the name “Tom M. Reed,” as detailed in court documents.
The real Tom Reed has been conducting legitimate home appraisals in the state of Washington since 1977, and opened his own appraisal business, Washington Appraisal Reviews, Inc., in 1994, according to state records.
“(White) was actually conducting appraisals and using Tom Reed’s license number and electronic signature to do that. There are a couple of instances in which he actually did introduce himself face-to-face as Tom Reed,” according to King County Senior Deputy Prosecuting Attorney Jennifer S. Atchison.
White was hired as Reed’s apprentice in 2004. During that time, White tried twice, but failed to pass the exam required to become a licensed real estate appraiser. According to prosecutors, White stole Reed’s identity sometime before he was laid off in 2008 and began conducting home appraisals under Reed’s name.
Special agents with the U.S. Department of Housing and Urban Development began to investigate White and his girlfriend, Diana Merritt, after Reed became suspicious that his name was being used to conduct appraisals.
The investigation began in 2010 and culminated in the arrests of White and Merritt at their home on Lake Sammamish Parkway last week.
White was charged Friday with 24 counts of second-degree identity theft and 16 counts of mortgage fraud. Merritt, 50, was charged as White’s accomplice and faces five counts of second-degree identity theft.
White posted $75,000 bail and was released from jail last week. Merritt was released by a judge on her personal recognizance.
Implications of the couple’s alleged actions are unclear.
Of the fraudulent home appraisals White conducted, a majority were through a lender called Reliance Mortgage, with 15 others through Stay In Home Mortgage, a Washington-based company specializing in reverse mortgages for seniors.
White allegedly conducted the appraisals in cities across three counties, including Seattle, Bellevue, Renton, Sammamish, Issaquah, Shoreline, Kirkland, Bothell, Woodinville, Mercer Island, Lynnwood, Maple Valley, Kenmore, Federal Way, Tukwila, Lake Forest Park, Mountlake Terrace, Newcastle, Kent, Mukilteo, Redmond, Everett, Vashon Island, Puyallup, Longview, Edmonds, Duvall, Auburn, Snoqualmie, Lacey, and Clyde Hill.
Since federal law requires that lenders use licensed real estate appraisers, Atchison said hundreds of home loans could theoretically be at risk.
“You could actually have a huge loss to either a lender or individual borrower who received one of these appraisals,” she said. “There could be cause, potentially, for a lender to invalidate the loan, which would be a huge problem for the borrower. Certainly, the borrower may have an argument that the lender should have done something more and the borrower could try to invalidate the loan.”
If White’s appraisals were too high or too low, it is also possible that his alleged actions could affect the value of surrounding homes.
“If you’re not accurate, then the lender is lending out more money than it should be for a given property, which is of course an additional cost to the borrower,” said Atchison, “and certainly increases the cost to society as whole, because anybody that’s buying property in that area will then see that this individual property [value] is higher and that will drive the cost up of other homes in the area,” said Atchison, who specializes in prosecuting white collar crimes.
The overall impact on home values could depend on the number of appraisals White conducted in a specific neighborhood.
After plotting the addresses of his appraisals, KIRO Radio was able to determine neighborhoods that were more likely to have been impacted.
For example, White conducted appraisals on 11 homes in a single community near the Evans Creek Natural Area in Redmond, and on 16 houses in a neighborhood west of the Soaring Eagle Regional Park in Sammamish.
Michael Spence, an attorney who specializes in real estate law, said he has never seen a case like this one before.
“He was clever, I’ll give him that,” Spence said.
He questioned why White would choose to perpetrate this type of fraud, calling it high risk for little reward. He said appraisals can be incredibly detailed and time intensive, yet the appraiser earns just a few hundred dollars.
“These [appraisals] are $400, $500 apiece. It’s a lot of effort just to get $400, $500,” Spence said. “I think he really wanted to be an appraiser, and when he flunked the appraisal test twice he just decided to steal somebody else’s ID.”
While he is not a licensed real estate appraiser, White has been licensed as a real estate broker since 1997.
He was hired as a realtor with Coldwell Banker Danforth in 2009, during the time he was allegedly committing fraudulent home appraisals on a regular basis. The company terminated their association with him after his arrest last week.
Brad Benfield, a spokesperson for the Department of Licensing, said they are aware of the charges against White and will conduct their own investigation to determine if his license should be suspended.
Diana Merritt, who began dating White in 2006, last worked as a senior loan originator with Landover Mortgage in Bellevue. A phone number for the company was not in service Wednesday and it is unclear if Merritt is still employed there.
According to prosecutors, Merritt knew that White was conducting fraudulent home appraisals and recommended him to several business associates.
If convicted as charged, White and Merritt could face up to five years in prison for each count of identity theft. White could face up to 10 years in prison for each count of mortgage fraud.
Spence said, if convicted, White deserves every day of prison time he gets.
“He found, maybe, artificial value for millions of dollars’ worth of real estate loans,” he said. “I would wonder how many of these borrowers took out loans they shouldn’t have. I would want to know how many of these loans went into default.”
When called for comment, White hung up and did not answer further calls or return messages.
Prosecutors believe it is possible that there are more victims who have not been identified.
KIRO Radio’s Gillian Friedman contributed to this report.
“KIRO Radio On Assignment” features in-depth, investigative reports on a variety of topics including government accountability, consumer advocacy and the criminal justice system. To send a KIRO Radio reporter “On Assignment,” email [email protected] or use our online form.
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