Why Most Property Flipping Transactions Are under Intense Scrutiny

Nowadays, because of the media and the hullabaloo surrounding the action taken by HUD, just about every property-flipping transaction is put under the microscope by lenders and title and escrow agents before they will agree to finance and close the deal. The reason for this intense scrutiny is that lenders and title and escrow agents are constantly on the lookout for fraudulent property-flipping schemes, which cost them millions of dollars annually. Most of the property-flipping shenanigans involve collusive relationships among investors, property appraisers, and mortgage brokers. In a typical property-flipping scam, a dishonest investor:

1. Buys a low-cost run-down property in a low-income neighborhood.

2. Buys an inflated property appraisal report from an unscrupulous property appraiser.

3. Steers an unsophisticated buyer to a crooked mortgage broker, who prepares a fraudulent loan application to obtain a mortgage or deed of trust loan from an unsuspecting lender to finance the purchase of a grossly overpriced property.

This type of fraudulent property-flipping transaction usually ends up in foreclosure because the new owner cannot afford to make the loan payments and pay for needed property repairs, too. And in most cases, the American taxpayer winds up getting stuck paying off the government-backed loan that was used to finance the scam.

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