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Real Estate Flipping

Dec 15

Flipping Homes - The Good - Bad - and Ugly

by Mary Teresa Fowler
Illegal House Flipping

Real estate flipping refers to buying low and selling at a higher price. With the typical "fix and flip," an investor will buy a home selling for a low (often, very low) price. The deep discount in the home's purchase price may have come about for varied reasons from a state of disrepair to home owners' divorce to pending foreclosure.

Flipping Homes for Good Reasons

The investor will perform any necessary repairs and put the house back on the market in the hopes of making a profit. There is nothing wrong with this scenario if everything is carried out in a proper manner. In fact, the transaction can have a positive effect on many levels.

The home seller gets rid of the home. Obviously, the seller wanted (or had to sell) the house. The sale can free sellers to relocate or move on with their lives as in the case of divorce. Even with the stressful process of foreclosure, the actual sale puts an end to the stress of 'pending' foreclosure. It allows people to move forward in a new direction.

An investor puts an improved home on the market. That process has general overall benefits to the economy. The renovation companies and building suppliers get business. The neighbourhood gets a nicer home and a bonus - increased property values. Even the system gains with higher property tax assessment value and sales tax on the renovation supplies.

Flipping Homes for Bad Reasons

Yet sometimes flipping homes can either border on fraud or be all-out fraud. Flipping homes can be part of a criminal scheme. The investor in illegal property flipping is not concerned with home buyers, the neighborhood, or even making a reasonable profit through honest efforts.

Illegal flipping is a 'fraud-for-profit' scheme. The investor acquires property and resells it for a considerable profit at an artificially inflated value. The property is put back on the market in record time.

If the home required repairs, they either will not be completed or will just undergo a superficial fix. The new buyer may not be aware of the situation. The buyer borrows to finance the purchase and the lender gets drawn into the fiasco. This type of fraud is costly for lenders because it involves a substantial loss.

Of course, an illegal property 'flipper' needs help to carry out the scheme. Illegal property flipping usually requires collusion between an investor, real estate appraiser, mortgage originator, and closing agent. The appraiser plays a big part in the scam. A false and artificially inflated appraisal is necessary for the successful completion of this criminal scheme.

When Flipping Homes Turns Ugly

Illegal property flipping can end up in an ugly mess. One example would be the recent complaint filed in Manhattan federal court on December 14 against sellers, appraisers, and even lenders. All parties allegedly conspired to commit mortgage fraud.

According to the current civil lawsuit, sellers allegedly purchased 17 homes and 'flipped' them without proper improvement to inexperienced, low-income buyers who could not afford the properties. The appraisers allegedly overstated the value of these homes in their appraisal reports. As well, a mortgage lender allegedly underwrote mortgages for the buyers with the knowledge of the false appraisals and inability of the buyers to afford the mortgage payments.

Read more about what happens when flipping homes turns ugly....

Have You Been The Victim Of Illegal Property Flipping?

Image courtesy of houseflippingonline.com

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