Empire Savings and the Texas appraisal

Empire S&L, in Texas, grew 17 fold in the two years after the 1982 deregulation of the thrift industry. (Pizzo, page 4.) Later, regulators at the FSLIC would allege that the officers and management at Empire, amongst them Texas real estate developer Danny Faulkner, would sell land back and forth amongst themselves or associates so that the land would appear to be increasing in value. This then justified larger loans for the hundreds of apartment projects developers were building along Interstate 30, east of Dallas.

In one particular case, the value of one section of 117 acres reportedly increased from $5 million to $47 million in just a few weeks (Pizzo, page 341), supposedly properly valued by local appraisers who are supposed to know (roughly) what a property might be worth. The acreage was then sold to investors who borrowed from Empire naturally to fund the purchase. Faulkner and his partners would organise the land selling flips over weekend brunches at Wise's Circle Grill in the I-30 corridor. "Invited guests included officials from Empire Savings and Loan, investors, appraisers, and, increasingly, politicians, who drew huge campaign contributions from the events. Properties quickly changed hands over breakfast, and millions of dollars of phony profits were made in a few hours." (Calavita, page 50)

At the bottom of any effective real estate loan is of course an honest property valuation (appraisal) which lending institutions rely on to determine the true value of the collateral being offered for the loan. If the borrower defaults, the property value should cover the loan so made. Regulators reviewing the condition of Empire after it was closed down in 1985 found more than 400 examples of faulty or fraudulent property valuations. The $60 million in real estate collateral for the loans was found to be actually worth just $8 million.

The hundreds of miles of condo's built along Interstate 30, condominiums only, no schools, shops or stores, did not ever fill and rotted under the Texan sun. Empire's losses on its loan book ran to $300 million.

Meanwhile, a later report of the Texas thrift industry revealed that real estate developers had entered the thrift industry en-masse in the early 1980's and by 1987 owned 20 of the 24 most deeply insolvent Texas thrifts. (Calavita, page 35)

Follow up references:

Banking on Unreal Estate the Appraisal Scam, Washington Monthly, Vol. 18, February 1986.

Calavita K., Henry Pontell and Robert Tillman, Big Money Crime: Fraud and Politics in the Savings and Loan Crisis, University of California Press, 1997.

Pizzo, Stephen, Inside Job: The Looting of America's Savings and Loans, McGraw Hill Publishing Company,

Copyright: Phil Anderson, 2004


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