The FBI, Fannie Mae and fraud experts agree, the new short sale flipping scheme popping up around the country is on the rise and will cost banks millions of dollars.
The premise is quite simple. Make a low offer on a short sale and convince the bank that the offer is “market value”. Close the deal and within 24 hours sell the property to a second buyer at a profit. The second buyer has no clue that the home is under contract for far less than what they are offering and of course the lender has no idea that the value of the property is thousands more than they are accepting.
So how does this happen? According to the FBI, it takes a less than ethical real estate agent, a lender and BPO (Broker Priced Opinion) that reflects a lower value. Since many banks depend on the BPO to determine the value of the property versus a full appraisal making it easier to manipulate a lower value on a short sale than you might believe.
In some areas lenders and title insurance companies are starting to get wise to this scheme and are making changes to try and discourage the practice. Most short sales I’ve been involved in require that everyone involved in the transaction complete an “arms length transaction certification” stating that we have no interest in the property of will profit in any way from the sale of the property.
It is interesting to see real estate news from other areas of the country and the Sarasota (FL) Herald Tribune recently published an article on how “flopping” impact the market in two local counties. They found 250 properties that sold multiple times at higher prices in 2009 and 50 of those were within 24 hours. The conservatively estimated based on questionable sales, banks netted $3.2 million less than what the properties sold for a few weeks later when they were flipped.
If you take that number and multiple nationwide you can begin to see that as taxpayers (lets face it we are the ones who are paying for this) are being swindled out of millions, excuse me make that billions of dollars by this latest flipping scheme. Somehow this starts to have a taste of some of the tactics that got the real estate market into trouble just a few short years ago.