Avoid House Flipping Fraud - Be An Ethical Flipper
Any reputable house flipping expert will strongly advise individuals thinking of getting into renovating properties for profit to always work in an ethical manner. It's just not good business to cut corners and engage in any house flipping fraud. Besides, if you plan to stay in the business for a while, you'll find your reputation will precede you, and having a good one will make it easier to find people to work with and customers to sell to. Having said that, there have been individuals who have chosen to engage in dishonest practices when buying and selling real estate.
These days, most likely due to the plethora of TV shows that focus on ethical flips, the term 'house flipping' is usually taken to mean buying a distressed property, properly renovating and giving it modern appeal, and reselling for a deserved profit.
However, in the not too distant past, 'flipping' a house had a somewhat less desirable interpretation. Flippers were people who bought run-down houses and then resold them for large profits without doing a lick of work. They executed this scheme by enlisting the aid of dishonest accomplices such as appraisers, mortgage brokers, and others. The flipper would buy a house for say, $100,000 and list it for $175,000 with an appraisal to confirm the value of the property.
Usually, the scheme required the instigator to suggest that the mortgage for the property be sourced through an out-of-state lender that offered 'sub-prime' mortgages. Sub-prime mortgages have less stringent qualification standards than prime loans. Because the lender is not familiar with the property values in the particular neighborhood and has looser verification requirements, they frequently would approve such loans when a local bank with stricter standards would not. Often the fraud involves the use of second mortgages carried back by the seller or an accomplice. Since the house price is inflated so much, the seller doesn't really worry too much if this loan doesn't get fully repaid, but he still has a lien on the property. At one time, many of these fraudulent flips were financed through HUD and FHA loans, but rules were put in place a few years ago to provide some protection against this sort of ripoff. These scam flips are normally located in a rundown area, but one that is fairly close to a more affluent neighborhood. Unfortunately, the people most often victimized by such a ruse are those that can least afford it. However, there have also been reports of wealthy investors being invited to elaborate seminars where they're convinced to purchase, as an example, a property that's really worth a million dollars for as much as twice that amount. The perpetrators of this scheme find high-priced houses that have been on the market for an extended period of time without selling. They convice the owners to remove the houses from the market for a few months, then relist at the inflated price, and the scam moves on from there. Unfortunately, house flipping fraud still exists, even with the rules and regulations designed to defeat it. Recently, one of the stars of the 'Flip This House' TV show was accused of being a con artist and even faking the renovations featured on the show. Avoid this kind of disaster by being an ethical house flipper.
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