Friday, November 29, 2013

Interview techniques for appraisers and valuers

Each ACFE (Association of Certified Fraud Examiners) Fraud Conference has an optional pre-conference seminar on a subject of special interest by a dynamic and authoritative speaker.  This year’s presentation was on Forensic Interview Techniques for Fraud Examiners and Auditors by Jonathan Davison, director of Forensic Interview Solutions Ltd of New Zealand.  These interview techniques are meant to solve fraud crimes, but part of the job of a diligent real estate appraiser is to prevent fraud, thereby ensuring a more accurate valuation, and these interview techniques can be useful to the appraiser who cares about his clients enough to protect them from fraud.

Jonathan Davison
Mr. Davison travels the world for the ACFE, studies the investigative interviewing methods of various countries and measures their effectiveness on various quantitative scales. He has made investigative interviewing into a science.

Most people’s perceptions of "investigative interviewing" are not based on reality, but on dramatic representations, particularly in American television media.  Davison made a statement to the effect of “Don’t be Starsky and Hutch, be Columbo”, which immediately resonated with me, because in my own book on real estate fraud prevention (see right-hand sidebar), I also lauded fictional LAPD Lieutenant Columbo as having a particularly effective interviewing technique.

Columbo never starts an interview with a suspect by telling him that he is a suspect, and he is humble, deferential, friendly, inquisitive and persistent enough to keep the suspect talking under a false sense of security, revealing valuable clues along the way. He is a modest man who dresses poorly, drives an old car, and is easily underestimated.  It's only at the end of several encounters that Columbo finally does his trademark "Just one more thing…” that takes the suspect by surprise when he provides proof of the suspect’s guilt, with the suspect often having been tricked into proving his or her own culpability. And throughout the whole process, Columbo never shows any disrespect for the suspect.

What does this all mean, though, to real estate appraisers, investors, or lenders, when a crime has not yet been committed?  The answer is fraud prevention.

When starting any valuation assignment or performing a property inspection, I assume that the representatives I interact with are honest, but I remain alert to clues that they may be otherwise.  This often starts with honesty-calibrating questions.  The attorneys I work with advise other lawyers to only ask questions in court that they already know the answers to, and I do this to a limited extent when I start the interview process.

An appraiser should have already done homework on the appraised property prior to his inspection.  One honesty-calibrating question I like to ask is “Who owns the property, when was it acquired, and for what price?” The reason it works so well in the USA, Canada, Australia, the UK and some other British Commonwealth countries is that it is usually public record. If the answer to this first question is a lie or exaggeration, I remain on guard for more lies to come. Like Lieutenant Columbo, pretending to be ignorant of certain facts lays the bait for spotting liars or exaggerators, and it never ceases to amaze me that property owners, brokers, or other stakeholders are willing to believe that appraisers are ignorant. 

Keeping the property owner talking, even if I already know the answers to the questions, often dislodges inconsistencies or details that may have otherwise remained hidden and can open up new lines of questioning.  Inconsistencies are often clues to misrepresentations, as the truth should not vary.  Spotting inconsistencies is the way how Columbo caught killers and is standard investigative interview technique.

For instance, in one loan application I received three almost-identical purchase contracts from stakeholders in a purchase and sale transaction, with the one difference being that the amount of acreage being sold differed significantly but the total purchase price was identical in each contract. Situations like this make me suspect that the purchase transaction is not real.

In a private moment with the seller, I had the following conversation:

Me:  So, where are you going next?

Seller:  What do you mean?

Me:  After the sale closes, what will you do next?  Where will you move to?

Seller:  We’re not going anywhere; we’re going to have a lot of work to do, developing this property.

Me:  Oh.  I thought you were selling the property.


As it turned out, the buyer and seller were partners and old military buddies, and the purchase contracts were sham documents.

In another instance, the owner could not get his story straight about the tenant improvement allowance he would be giving a new tenant, a state legislator. I called the state legislator and found that the landlord had forged her name on a lease and she had no plans on moving offices.

I also stay alert for seemingly innocuous but odd statements, as I try to discern a purpose for any unusual statement. For instance, one Puerto Rican land developer talked of using one particular escrow company for his purchases.  This is often done to steer business to a relative or a friend who owns an escrow company, which is of no particular concern to me, but it is also a common element in mortgage fraud, and a quick Internet search of this developer's name disclosed that he had been convicted of mortgage fraud a year earlier and was fined $1 million. The court should have jailed him so he wouldn't keep on repeating the same tricks.

Sequential ordering of questions

Mr. Davison advises starting interviews with non-threatening questions, and when inconsistencies are identified, ordering the questions from "least impactive to most impactive" to preserve the cordiality of the interview.  As for my own interviews, I save any controversial questions until after I have been driven back to my car, as I often appraise in remote areas.  In the Dominican Republic, I waited until after I had left the country, as the developer claimed to be a personal friend of the president.

The moral of the story is that when an appraiser starts getting unusual statements and different answers to the same question, a lot more questioning and digging is in order. Also see my recent blog post on "Critical Thinking Skills".

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