Where there’s smoke, there’s fire; and wherever there are people who are the least bit vulnerable, there are con men prowling about—looking for every possible way to exploit their desperation to make a quick buck.

With many homeowners in serious hot water with their mortgages, now more than ever is the time to tread cautiously and be wary of predators out to capitalize off distress and fear. There are many scams out there, but one has been particularly widespread and especially aggravating for the sellers who fall victim to it—a form of mortgage fraud known as “flipping”.

The scam works like this. A consortium of people gets together to find homes that have been sitting helplessly on the market. When they find one, a representative is sent to haggle the owner down to a lower price by ensuring them of their commitment to take the property off their hands (let’s say $375,000) When the sale is complete, the new owner ups the price of the home ($425,000) and sells it to another member in the consortium. The difference between the original price and the inflated one ($50,000) is then split among the members as profit.

Theoretically this process could continue indefinitely, but its run is often is constrained by (1) the number of members in the consortium and (2) the size of the loans the members can take out. At some point the jig has to end and to do so some member has to default on a loan and completely destroy their credit in the process. However, the money made from the flips still remains in the consortium’s hands and they all—including the fall man—have made a huge profit. The popular radio show This American Life chronicled one such case of this in an episode aired last month. Craig “King of the Flip” Adams and his cronies bought a house from a desperate divorcee for $600,000 and sold it to one another until it was worth over $2 million. Sickening.

Avoid being victimized by these kinds of schemes by seeking out every resource possible. The Internet is replete with powerful tools that not only give you access to thousands of potential buyers, but also keep you informed as to what is really going on in the market. Using these resources is your best defense against you being someone’s stepping-stone to quick and easy money.

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This is filed under Home Loans/ Mortgages.

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