The Federal Reserve has prohibited former Heritage State Bank Chief Lending Officer James Burns from working in the US banking industry after finding that loans were approved using altered property appraisals and valuations prepared by appraisers who were not properly licensed.
Under a consent order, Burns is barred from serving as an officer, director, employee or other institution-affiliated party at an insured bank, bank holding company or other covered financial institution unless he first receives written approval from the Federal Reserve and any other regulator whose consent may be required. :contentReference[oaicite:0]{index=0}
The order states that Burns caused Heritage State Bank to approve at least four loans in approximately 2016 using appraisals that had been altered to show higher property values than those contained in the original documents sent by the appraiser. On at least 25 other occasions, he allegedly failed to ensure that loans and renewals were supported by appraisals completed by professionals licensed in the state where the properties were located.
The Federal Reserve also said Burns ignored inconsistencies and irregularities that should have raised questions about the accuracy of the valuations. The affected collateral was later found to be worth significantly less when the properties were reappraised following the bank’s merger with The First National Bank of Carmi.
At Least Four Appraisals Were Altered Upward
Burns served as Chief Lending Officer of Heritage State Bank from 1999 until the Illinois bank merged into The First National Bank of Carmi on December 1, 2020. Heritage State Bank ceased to exist as a separate institution after the transaction, with the acquiring bank assuming its assets, liabilities and loan portfolio.
As Chief Lending Officer, Burns was responsible for ensuring that appraisers and their credentials were verified for real estate loans made to third parties. The Federal Reserve said that responsibility was not properly discharged.
According to the order, Burns caused the bank to approve at least four loans supported by appraisals that had been changed to report higher property values than the figures contained in the original appraisal documents. The order does not identify who physically altered the documents, the borrowers involved or the total value of the affected loans.
Inflated collateral values can make a loan appear safer than it is. Banks commonly use appraisals to determine how much they are prepared to lend against a property and how much they may recover if a borrower defaults. When the stated value is higher than the property’s actual worth, the bank may approve a larger loan or underestimate the loss it could suffer in foreclosure.
Fed Identifies Another 25 Problem Loans
The four altered appraisals were not the only issue identified by the regulator. On at least 25 additional occasions before the merger, Burns allegedly failed to ensure that loans and loan renewals were supported by appraisals performed by professionals holding current licences in the relevant states.
The Federal Reserve said the appraisals also contained inconsistencies and irregularities that should have caused Burns to question whether the valuations were accurate. Each of the 25 appraisals valued the collateral at amounts significantly above the figures produced when The First National Bank of Carmi commissioned new appraisals after acquiring Heritage State Bank.
The acquiring bank subsequently foreclosed on some of the loans. When the collateral was sold, the proceeds were substantially below the original appraisal values, resulting in a financial loss for The First National Bank of Carmi.
The order does not disclose the total amount lost, the number of foreclosed properties or whether any borrowers were involved in the alteration of appraisal documents. It focuses on Burns’ responsibilities as the bank executive overseeing lending and appraisal controls.
Conduct Involved Personal Dishonesty, Fed Says
The Federal Reserve concluded that Burns’ conduct constituted violations of law or regulation, breaches of fiduciary duty or unsafe and unsound banking practices. It further said the conduct involved personal dishonesty or demonstrated a willful or continuing disregard for the safety and soundness of Heritage State Bank.
Those findings gave the regulator grounds to impose a prohibition order under Section 8 of the Federal Deposit Insurance Act. Such orders are among the most serious individual sanctions available to federal banking regulators because they prevent a person from participating in the management or affairs of regulated financial institutions.
Burns consented to the order without admitting or denying the allegations. He waived his rights to a formal notice, evidentiary hearing, judicial review and any challenge to the basis, validity or enforceability of the settlement.
The consent structure means the case was resolved without a contested proceeding or a judicial determination of the facts. The Federal Reserve’s findings nevertheless form the basis for the restrictions imposed under the order.
Former Executive Must Cooperate With Further Investigations
In addition to the banking prohibition, Burns must cooperate with the Federal Reserve in any current or future enforcement action involving other people who were affiliated with Heritage State Bank.
That obligation includes providing information, testimony, documents, records and other evidence requested by the regulator. The provision indicates that the Federal Reserve may continue examining whether other former employees or officials were connected to the lending and appraisal failures described in the order.
The settlement also leaves other regulators and government agencies free to take additional action against Burns. The Federal Reserve agreed not to pursue him further over the same matters based on facts currently known to the Board, but that restriction does not bind other federal or state authorities.
Any violation of the prohibition order could expose Burns to additional civil or criminal penalties. The restrictions will remain in effect unless they are formally stayed, modified, suspended or terminated in writing.
Property Valuations Sit At The Centre Of Bank Credit Risk
The case shows why appraisal controls are a core part of bank risk management. Real estate collateral often determines how much a lender will advance, the terms offered to a borrower and the amount of capital the institution may need to hold against a loan.
Weak appraisal controls can leave a bank exposed to losses that remain hidden until a borrower defaults or the property is independently valued. The risk can become particularly visible following an acquisition, when the buyer reviews the acquired loan portfolio and reassesses the collateral supporting outstanding credit.
In this case, the problems emerged after The First National Bank of Carmi inherited Heritage State Bank’s loan book and obtained new valuations. The gap between those assessments and the earlier appraisals became financially significant when certain properties were foreclosed and sold.
The Federal Reserve’s order, effective July 9, 2026, removes Burns from the regulated banking sector unless he later obtains express permission to return. It also places the altered and unsupported appraisals at the centre of a case involving alleged personal dishonesty, weak lending controls and losses inherited by an acquiring bank.