Anyone who is doing short sale flips (or even considering it), especially same day flips, needs to read this article.
The FBI is not a fan of so called investors who get involved in selling short sales within 24 hours of them buying them.
The FBI recently added short sale flipping, dubbed “flopping” by some mortgage fraud experts, to its list of recognized real estate fraud.
In a June 2009 report on mortgage fraud, FBI officials described various forms of short sale flipping fraud. Each type involves misrepresenting the value of a house to a lender.
Banking experts point out that those losses trickle down to taxpayers, who have bailed out the banking industry.
Basically, the reason this is different then flipping an REO has to do with who is the owner of the house. Short-sales have three parties involved, the buyer, the home owner (even-though they are not paying, they still own the house and have to give permission to sell it) and the lender. The lender does not own the house so does not have knowledge of the condition of the property and the true market value the same way they do as REOs. The real estate agents involved are also picked by the existing owner and not the bank.
A whole industry has been created with people who do this exact act above and you should be extremely careful. It is all public record and very murky waters, in my opinion.
Obviously, there are degrees of how fraudulent the actions are. The guy they profiled in the article linked above is definitely doing some very unethical stuff and I imagine will probably face legal consequences.
Since September 2008, Tampa real estate agent Joe Wright and accountant Kevin Byrne have worked together to buy more than 30 pre-foreclosure houses and condos, with Wright’s brokerage as the listing agent and Byrne’s company as the buyer.
In each case, the men arranged a short sale and quickly resold the property at a higher price. Of their 33 deals, 22 properties resold within 24 hours of purchase. The median one-day price increase was $25,000.
Byrne and Wright did not return repeated calls seeking comment.
Their purchases, including nine in Sarasota and Manatee counties, involved properties that ranged in value from $50,000 to $800,000. They also included four properties owned by Wright.
What do you guys think?