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"Indeed, the rage of theorists to make constitutions a vehicle for the conveyance of their own crude, and visionary aphorisms of government, requires to be guarded against with the most unceasing vigilance."
     -- Joseph Story
     Commentaries on the Constitution of the United States
     Book III, § 1857.
 

Friday, September 17, 2004

This is something that has worried me for a very long time, now. This needs a much longer post, which I do not have the time to write just now, especially as I would need to be very careful about what I can and cannot say. For now, I will note, market pressures are producing new business practices that will increasingly sap the accuracy and reliability of the public records, and it will go on until enough buyers-in-good-faith get burned that they move the State legislatures to "do something about it." It's that last part that has me really worried: It's been a long time since legislatures were known for thinking out the consequences of the laws they passed.

About this specific fraud: Let's say you're a lender, and you're looking to cut costs. Well, those drive-by appraisals cost something, don't they? After all, the person doing the driving wants to get paid for it, and he spends a lot more time unproductively driving between properties, than productively appraising the properties as he drives by them. So instead you derive a "probable value" from the transfer tax on the most recent deed, and you call it good. Well, here's some news for you: County recorders are happy to accept more transfer tax than is actually owed. Here in California, each additional $1.10 of transfer tax stands for an additional $1000 of supposed property worth, so every extra dollar you "invest" in transfer tax can bring a return of over 90,800%; all it takes is a lazy lender, and as long as you're not too greedy, no one will ever notice. Then, of course, if your neighbors are doing it too, there are artificially-inflated comps all over the place, making the fraud even more undetectable.

-- posted by Clayton 9/17/2004 01:45:00 PM


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