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Property Flipping and Mortgage Loan Fraud

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What is Property Flipping?

"Property flipping" involves purchasing property, increasing the value of the property through improvements (e.g. renovations or landscaping), and reselling the property within a short period of time. This is a common practice within the real estate industry. Although it involves significant financial risks, many people make a very decent living through the legal practice of "property flipping."

Property flipping can contribute to the rejuvenation and restoration of distressed neighborhoods. The process of rejuvenation and restoration may attract new residents and businesses, create jobs, and increase revenues for local governments through higher property taxes. However, rejuvenation can also raise the cost of living in an area, which may force long-term residents to relocate.

When Does Property Flipping Become Illegal?

Illegal property flipping occurs when the flipper inflates the sale price without making any actual improvements on the property. An appraiser is often involved in the scam by valuing the property much higher than its actual worth. The ultimate buyer is usually unaware of the scam.

Scammers target victims who want to own a new home but believe that they cannot afford to buy a home or qualify for a mortgage loan. Scammers will often promise to place the victims in a home and arrange a mortgage loan despite their poor credit or little money.

How Can I Avoid Becoming the Victim of an Illegal Property Flip?

To avoid being a victim of a property flipping scam, you should always hire an independent appraiser to determine the value of the property. In today’s unstable real estate market, it is difficult to understand the true value of a property without the help of a qualified professional.

The following warning signs may indicate that the price of the property does not match its value:

  • The seller or lender does not answer your questions about the house’s price and condition.
  • The person you have been dealing with is not the person who owns the property.
  • The price of the house is higher than the prices of similar houses in the same neighborhood.
  • The seller offers to let you move in right away or before you buy the house.
  • The seller promises to make repairs but refuses to put those promises in writing.

Also, the following warning signs may indicate that the mortgage loan is fraudulent

  • The loan application is missing information about you, exaggerates your income, or hides your debts.
  • The seller promises to get you a loan even though you have bad credit or offers to lend you money to make payments on your debts.
  • The seller wants to give you a "gift" for the down payment or closing costs.
  • The seller tells you that you can buy a house for the same monthly payment as you are paying in rent.
  • The seller discourages you from getting independent advice.
  • The seller wants to make all the arrangements for getting the loan, inspections, and settlement.

Should I Hire an Attorney?

If you think you are victim of a mortgage loan fraud, consult a lawyer. An experienced real estate attorney can determine whether you have been the victim of mortgage loan fraud, preserve your rights and remedies, and recommend a course of action.

Photo of page author Peter Clarke

, LegalMatch Content Manager

Last Modified: 01-03-2014 11:59 AM PST

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