Lenders allege inflated property valuations in Baltimore financing deals

Two lenders allege that investors used companies they controlled to buy distressed homes in Baltimore, transfer them between related entities at substantially higher prices and secure financing based on inflated appraisals. The allegations involve dozens of properties, many of which subsequently defaulted on their mortgages.

The lenders allege that shell companies enabled rapid transfers and that appraisals overstated values using inaccurate descriptions, manipulated photographs and other misrepresentations. Their complaints say accurate valuations would have prevented approval of the financing. These are civil allegations; the lawsuits alone do not establish that every defendant committed fraud.

The complaints also examine debt service coverage ratio, or DSCR, loans. These generally assess whether a property's rental income can cover its debt payments, rather than relying primarily on the borrower's personal income. The lawsuits question safeguards when related companies transfer properties at sharply rising valuations.