"Middletown Appraisal
9) Prior to August 2004, the City of Middletown, New York (“the City”) began foreclosure proceedings on the property consisting of 136 approved condominium parcels off Ruth Court, Middletown, collectively known as Eastview Condominiums (“the Eastview property”) for non-payment of real estate taxes. Before it took title to the property, the City was approached by Emperor Development Co., LLC (“Emperor Development”), which was interested in purchasing the property. The City, in turn, hired the respondent to prepare an appraisal for the Eastview property to establish the selling price to Emperor Development. The respondent understood that the City was going to use his appraisal to establish the selling price (Hearing transcript, p. 206).
10) The respondent testified that Richard Smith, representative broker of R.J. Smith Realty, was the first person to contact his office about the City hiring him to do the appraisal. Concerned about who was actually hiring him and who is client was, the respondent contacted and confirmed with the City directly that it was hiring and paying him to do the appraisal, not the broker (Hearing transcript, pp. 174, 202-203).
11) However, the respondent stated that Richard Smith told him that the City did not want a “full-blown appraisal” and that is why he prepared a restricted use appraisal report (Hearing transcript, p. 182). Yet, the respondent did not contact the City directly to determine what type of report it wanted him to prepare, discuss under what situations a restricted use appraisal report was to be used, or ensure that the City understood the restricted utility of such a report.2
12) The Eastview property consisted of the remaining undeveloped 136 sites of a fully approved 200 unit condominium project. Only Phase I of the project, 64 units in four buildings of 16 each, had been completed.
13) On or about August 6, 2004, the respondent prepared an appraisal report valuing the Eastview property as of June 30, 2004 at $503,000 (State’s Ex. 9). The City of Middletown paid the respondent $1,500 for the appraisal.
14) The respondent used only two comparables in his appraisal report, the same and only two comparables found in his workfile and which had been provided to him by real estate brokerage R.J. Smith Realty (State’s Ex. 8). Although the valuation date for respondent’s appraisal was June 30, 2004, the sale dates of the two comparables used were October 30, 2000 (almost four years earlier) and January 1998 (over six years earlier) (State’s Ex. 9).
15) The respondent testified that he was looking for and obtained comparables of abandoned subdivisions, i.e., subdivisions requiring new approvals. However, his appraisal report to the City represented otherwise, “The purpose of the appraisal is to estimate the market value of the remaining approved sites which is 136 sites.” (State’s Ex. 9).
16) In December 2004, in reliance upon the respondent’s appraisal, the City sold the Eastview property to Emperor Development for $503,000.
17) Approximately four months after this sale, during which time it did not make any changes to the property, Emperor Development re-sold the property to Eagle Point Assoc., LCC for $3,400,000.
18) The City obtained an appraisal of the Eastview property from Empire State Appraisal Consultants, Inc. (“Empire Appraisal”) to provide an opinion of market value for their anticipated or pending litigation (State’s Ex. 12). On or about September 6, 2005, Empire Appraisal submitted its appraisal report appraising the Eastview property as of June 30, 2004 to be $3,125,000.
19) In or about late September 2005, the City commenced a civil action in the Orange County Supreme Court against the respondent based on the subject appraisal and alleging that he damaged the City in the amount of $2,897,000, representing the difference between the respondent’s appraised value (the City’s sale price) and Emperor Development’s sale price (State’s Ex. 10). That action is pending."
Yikes!
