Made popular by DIY TV shows over the last few years, property flipping seems like a simple and easy way to make a bit of extra money. Especially if you are in the maintenance or construction industries, buying a property and flipping it may seem like a breeze.
Legal house flipping is very common and often used to the seller’s advantage in the real estate market. But how do you know if you have been taken for a ride? Real estate fraud is on the rise, so let’s take a look at what it is so you can stay protected.
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What Is Property Flipping?
Let’s start at the beginning – property flipping is buying a property below market value, revamping it or repairing it, and then selling it again for market value or above. These repairs are done quickly so that the value of the property does not depreciate further during the renovations.
This is often done when properties are older, and especially those that have not been maintained, such as deceased estates. Another popular choice is properties that have been on the market for a long time and are not selling.
Real Estate Fraud
Illegal property flipping is something you need to watch out for as a buyer or seller. Also known as real estate fraud, this happens when there is a misrepresentation of the value of the property. It can also involve omission or incorrect information about various details of the property, or both of these if you are unlucky.
The purpose of house flipping scams is to try and gain a larger loan amount than the property is worth, or funding for properties or deals that do not exist. Once the loan is issued to the buyer, they will often default on the repayments. This either leaves the seller with a house they cannot sell or a house in foreclosure.
Proving Real Estate Fraud
The line between legal and illegal property flipping is very fine, and it is not an easy task to prove. You will need a business lawyer to help you with the process. If the buyer proves it was a business decision to make money on the sale, you will have a very weak case.
If you can prove that one or various parties involved falsified any documentation, then your case is much more likely to move forward.
Who Is Involved in the Fraud?
There can be one or many people involved in real estate fraud. Sometimes it is the buyer and the flipper, other times there may be various parties coming together to defraud you.
- The buyer intends to flip the property
- “Straw buyers” – those who agree to buy in name only and never intend on paying the installments
- Real estate agents or brokers
- Real estate appraisers inflating the property price
- Mortgage brokers for processing and filing fake documents
- Anyone involved in drafting or forging documents making the sale look legitimate
Avoid Flipping Fraud
Property flipping is a legal and profitable pastime if done correctly. To avoid becoming a victim of real estate crime, make sure you stay vigilant throughout the process and be sure to do your research.
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