house of moneyWouldn’t it be nice to purchase a low priced property, make some mild renovations, and then quickly sell it for more? This process is called “flipping”, and before the housing bust, it was a popular and profitable past time for investors and savvy homeowners alike. Some are still turning a profit from flipping short sale and foreclosure homes. But beware; flipping can be a scam! Illegal property flipping is a fraud-for-profit scheme where a recently purchased real estate property is resold for a considerable profit with an artificially inflated value. Here are some examples going on right under our noses, and what‘s being done to stop it!

Scam#1- The Switcheroo: A con artist acquires a property and promises huge renovations. Instead they make few minor cosmetic improvements or none at all. Then they hire an equally unscrupulous appraiser to submit a fraudulent appraisal report indicating that major renovations were made to inflate the value of the property for the next buyer. Once the property is sold, the con artist and appraiser make a profit, and are laughing all the way to the bank.

Scam#2- Partners in crime: A scammer contracts to purchase a home in their name and before closing draws up a second contract to sell the property to a partner in crime at a much higher price. The con artist then receives an inflated appraisal value from an unethical real estate appraiser to legitimize the large loan amount to the mortgage lender. Once all contracts are approved, the con artist pays the appraiser triple their fee, split’s the rest between himself and his partner in crime, and then lets the property go into foreclosure. Sometime later the lender learns that the property was worth less than the loan they granted, but by then the scoundrels are long gone.

Scam-busters unite!: Fortunately, the US developed the USPAP to govern real estate appraisals and mortgage lenders to detect illegal flipping schemes. In addition, HUD is fiercely fighting this scheme by revising the rules governing federally insured mortgages. See illegal property flipping happening in your community? Contact your local FBI office.

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This is filed under Home Selling.

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