The risk of property valuation fraud increased during the first quarter, and indicators suggest that the rise of properties being appraised well above traditional valuation thresholds in order to create “equity” is a contributing factor, analytics firm Interthinx reported July 2 in its 1Q 2014 Valuation Fraud Risk Index.
The report noted that in addition to high property appraisals, individuals purchasing and listing multiple properties in the same neighborhood to artificially control prices to their advantage also is a contributing factor to the rise in property valuation fraud risk.
“This quarter’s report is a reminder that lenders need to be aware of emerging fraud risks,” Jeff Moyer, president of Interthinx, said in the report. “The rise in property valuation risk is troublesome because collateral values are a critical element in making sound lending decisions. To make lending decisions with increased confidence in the loan's quality, we recommend that lenders use automated tools early in the valuation process to double check opinions of value, quality of work and regulatory compliance on issues such as licensing.”
The Property Valuation Fraud Risk Index is 128 (the mean is 100), up 27 percent from last quarter and 17 percent from a year ago.
At the state level, California continues to be the riskiest state with a mortgage fraud risk index of 146. The state has eight of the 10 riskiest metropolitan statistical areas and eight of the 10 riskiest ZIP codes. California also continues to dominate the type-specific lists with four of the 10 riskiest MSAs for property valuation fraud, seven of the 10 riskiest MSAs for identity fraud, six of the 10 riskiest MSAs for occupancy fraud and eight of the 10 riskiest MSAs for employment/income fraud.
After largely disappearing from the riskiest MSAs, Miami-Ft. Lauderdale-Pompano Beach in Florida reappeared in the first quarter as the ninth riskiest MSA in overall fraud risk with an index of 136 and ranked sixth riskiest MSA for property valuation fraud and fourth riskiest for occupancy fraud.
In order, the top 10 riskiest states and regions during the first quarter are California, the District of Columbia, Florida, Maryland, Arizona, Connecticut, New Jersey, Maine, Arkansas and Colorado. For the first time since the inception of this report in 2009, Nevada is not in the top 10.