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Real Estate

Distressed sales remain source of potential fraud risk

Short sale transactions on the rise since 2006

puzzle piece

The volume of the nation's shadow inventory is on the decline, but remains high as lenders and servicers continue to work through a backlog of properties, CoreLogic (CLGX) said. The research firm said during a webinar on fraud risk that distressed asset sales, such as short sales, remain a potential source of fraud.

Unrealized recoveries on suspicious short sale transactions can cost lenders as much as hundreds of millions per year.

“The overall suspicious short sale rate is 3.8% of all single-family residence short sale transactions through the second quarter of 2013," said Ed Gerding, fraud and risk strategist at CoreLogic.

Shadow inventory totaled approximately 2 million units valued at approximately $314 billion in April, down 18% when compared to April 2012.

“That was actually down from the previous year of $386 billion and then $320 billion in October 2012,” said Gerding. Gerding added that shadow inventory has experienced double-digit year-over-year declines for the past seven consecutive months.

Of the existing shadow inventory, 44% of the properties are located in four states: Florida, New York, Illinois and New Jersey. Florida came in fifth with 17% of the shadow inventory.

As of May of this year, the foreclosure inventory showed a 27% double-digit decline from a year ago, said Gerding, with seriously delinquent mortgages — those 90-plus days delinquent — at their lowest levels since 2008.

“We note that there were seven states that are showing year-over-year declines in foreclosure inventory of more than 40%,” said Gerding. California and Arizona reported year-over-year drops of more than 50%. Gerding went on to note that short sale transactions have steadily increased since 2006.

California, Florida, Nevada and Arizona remain the states with the highest single-family residence short sales and account for 45% of all short sale transactions so far in 2013.

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