The national Property Valuation Fraud Risk Index rose 27 percent in the first quarter and 17 percent from a year ago, evidence that an epidemic of fraudulent home valuations is sweeping certain real estate markets on the East and West Coasts.

Property valuations are increasingly being manipulated by individuals who purchase and list multiple properties in the same neighborhoods to dominate values in hyper local markets ienabling them to set fraudulent sales prices to their advantage, according to a report from Interthinx, a subsidiary of First American that helps lenders minimize risk and review appraisals.

Another contributing factor observed is the rise in the number of properties being appraised well above traditional valuation thresholds to artificially create equity.

“This quarter’s report is a reminder that lenders need to be aware of emerging fraud risks. The rise in property valuation risk is troublesome because collateral values are a critical element in making sound lending decisions,” said Jeff Moyer, president of Interthinx. “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.”

California continues to be the riskiest state with a Mortgage Fraud Risk Index of 146, and it contains eight of the 10 riskiest Metropolitan Statistical Areas, (MSAs) 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.

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http://www.realestateeconomywatch.com/2014/07/valuation-fraud-soared-27-percent-in-q1/