HomeOpinionJoe EdgeColumn: Trump lawsuit could set dangerous precedent for property owners

Column: Trump lawsuit could set dangerous precedent for property owners

Author

Date

(This column is an opinion piece)

Former President Donald Trump and the Trump Organization is facing a civil suit filed by the New York Attorney General, Letitia James. The complaint is based on the assumption that Trump indicated market value was much higher than appraised value on many of his property. 

The general argument in the lawsuit is that the values of properties were grossly inflated to obtain financial gain. If proven true the outcome of the suit could have far reaching implications on all commercial property owners nationwide.

Regardless of how anyone feels about the former president and his political affiliation it is undeniable that he is a real estate genius. The transactions, structured deals and financial maneuvers Trump has completed spanning multiple decades often serve as case studies for creative wealth generation. 

At the heart of the issue at hand is property valuation. What is a property worth? In real estate we often use the term “fair market value.” This is defined as what someone under normal market conditions is willing to pay for a property. It is highly subjective and is not the same as the appraised value. 

Appraised value is what the property should sell for under normal conditions based on previous comparable properties pervious sales.  While that is an oversimplification of terms the important thing to remember is that appraised value is not always what the property is worth. As the appraisers reading this start to squirm let me state that the appraised value is typically a safer indication of what true fair market value is. This is why banks go off of the appraised value not fair market value.

In case against Trump the New York Attorney General, Letitia James based the complaint on the fact that Trump indicated market value was much higher than appraised value. Again, that may be an oversimplification when you are talking hundreds of millions of dollars, but the principle is the same. Cushman and Wakefield valued the property at $200 to $220 million and Trump valued it at $525 to $550 million.

The suit alleges that Trump pressured Cushman & Wakefield to appraise the building at a higher valuation. Eventually they did appraise the building at $540 million. Trump refinanced the property in 2015 with a new $160 million loan. To date there has been no default on that loan. 

My main concern with all of this is that lenders are responsible for doing their own due diligence and determining value and thus the risk of the loan they are making.  Trump’s lender had no issue with the valuation of the property or the appraisal. Nobody was damaged, at least not yet. What then warrants a suit seeking $250 million in penalties more than 64% more than the loan amount. I have yet to see any rationale other than political motivation.

If the New York Attorney General is successful, this case could set a precedent that affects all commercial property owners.

When a person goes to apply for a loan on commercial property, they disclose pretty much every single thing own through a personal financial statement. On that document, the borrower outlines what the value of properties are, when they were purchased, and the amount of debt among other things. The property valuation though is subjective just like it was in Trumps case. Value is based on what someone is willing to pay for a property.

Lenders evaluate the data and do their own analysis and decide whether to make the loan on the new property or not. If there appear to be discrepancies in market value and what the borrower listed as value, the bank can request an appraisal on that property. But that decision is up to the bank. They make the loan and take on the risk so vetting market value on other assets owned by the borrower is part of their due diligence.  

In my 17 years of working in real estate I have never had a bank look at my property valuations and request an appraisal to verify the value. To say that I could be subjected to a lawsuit because my subjective valuation on what I think one of my assets is worth is ludicrous. If my lender thinks the value is off, it’s on them to investigate and verify the value.

The crazy thing about the suit against Trump is that the lender did an appraisal regardless of Trump’s valuation. If Trump had said the property was worth $1 trillion dollars, it wouldn’t have mattered. The lender was going to come to their own conclusions before loaning $160 million dollars. If the appraisal was manipulated, then the appraiser should lose their license. But even in that case the bank had to make its own evaluation. The level of sophistication required of a lender making a single point $160 million loan is very high. 

I go back to my question. Who was damaged? If the lender wasn’t damaged, then why is there even a complaint? Suggesting that someone be subjected to a lawsuit based on a valuation of real estate that didn’t result in a default is an incredible dangerous precedent that could have far reaching implications.

Joe Edge is the publisher of The Augusta Press. Reach him at joe.edge@theaugustapress.com 

Comment Policy

The Augusta Press encourages and welcomes reader comments; however, we request this be done in a respectful manner, and we retain the discretion to determine which comments violate our comment policy. We also reserve the right to hide, remove and/or not allow your comments to be posted. 

The types of comments not allowed on our site include: 

  • Threats of harm or violence 
  • Profanity, obscenity, or vulgarity, including images of or links to such material 
  • Racist comments  
  • Victim shaming and/or blaming 
  • Name calling and/or personal attacks; 
  • Comments whose main purpose are to sell a product or promote commercial websites or services; 
  • Comments that infringe on copyrights; 
  • Spam comments, such as the same comment posted repeatedly on a profile. 

9 COMMENTS

  1. I love the way you used your time machine to go into the future to 2108 and take a picture of Trump Tower as seen by his great. great, great, great, grandkids. Just as the caption says. The rest of the article is ON POINT and exactly what I experienced in 40 years of Real Estate dealings.

  2. “The suit alleges that Trump pressured Cushman & Wakefield to appraise the building at a higher valuation.” Pressured? I’ve disagreed with several appraisals over the years, and asked the appraiser to reconsider his/her valuation based on my factual concerns. I guess when you’re Donald Trump this is considered “pressuring” by the not-politically-motivated-at-all Democrat NY Attorney General.

  3. Hopefully the court that is assigned to hear this case will dismiss it with prejudice, ruling the NY AG has no standing, no laws were violated, and no party suffered financial loss. This is a disturbing indication of the totalitarian Democrat death grip on New York and NYC. People get the government they deserve. NY, CA, WA, OR, IL, MD, and DC are on my list of liberal, Democrat-controlled states that I will never visit again or buy their products, if at all possible.

  4. What LAW is she claiming he broke? As the author says, even if the whole thing was off kilter, the PUBLIC was not harmed in any way. If it went south it would be an issue between the lender, appraiser, and Trump. Purely political.

  5. The greater danger may be in greater regulation by elected officials and appointed bureaucracy who do not understand real estate transactions, particularly high-value properties, who are motivated by anti-capitalist thinking and that the wealthy are evil. The 1031 like kind exchange is a good example of the next domino that could fall. Never underestimate the ignorance of those who have power and whose egos wield it to the detriment of many. Good article, C

  6. When the woman was elected to the office she said that her only reason was to go after President Donald J Trump. Any fair judge would know that, and throw the whole thing out. The voters of New York State have a chance to rid themselves of all the Socialist Democrats at the state level, and make New York State great again.

Recent posts