What Is House Flopping?

What Is House Flopping?

Flopping is the intentional misrepresentation of a home’s value in order to flip it illegally. This can work a number of ways and has become as much of an art as house flipping was in its heyday.

First, a broker or real estate agent notices which homes have severely depressed values. Either the homes have mortgages that greatly exceed the current value or they are homes that have been subjected to foreclosures or short sales. The broker can value the home according to a “broker price opinion,” since he wants to profit from a quick resale of the home at a much higher price.

A lender readily accepts the broker’s assessment and agrees to a lower price. This allows the broker to buy the home at a massive reduction. The broker then arranges for a buyer to purchase the home at a much higher price so he can collect the profits after paying off anyone who participated in the scheme.

Homeowners themselves have even resorted to flopping, although it may be harder to charge them with any criminal activity. If a buyer purchased a home a couple years ago for more than it’s currently worth, his mortgage balance is going to be more than the current home value. This means if he sells the home now at its current value, he would still owe more money on the mortgage.

A flopper will convince the bank to allow him to “short sell” the home for less than the mortgage amount owed. It becomes a scheme when the homeowner’s friend agrees to participate and buy the home for the reduced cost. The two then turn around and sell the home at an increased value and split the profits. Generally, a real estate agent is involved in the scheme because she can make two commissions within a short amount of time.

Some flopping attempts are blocked by lenders that have restrictions on the length of time you have to wait to resell the home. With the economy so bad, mortgage fraud is becoming more and more difficult to track down and verify because lenders themselves are still trying to recover from their own financial burdens.

It may not seem like a crime to buy a short-sale property and turn right around and sell it for a profit, but it is beginning to land people in jail. In some states, mortgage fraud can come with a 35-year prison sentence. Many brokers and real estate agents caught in flopping schemes are being arrested and most are facing jail time and million dollar fines.

To avoid falling victim to this scam, be wary of anyone posing as your new mortgage servicers. Victims usually receive letters in the mail stating that payments should now be sent to the new servicer, so be sure that your mortgage provider has actually sold your loan to someone else before handing those payments over to someone else. Be sure that your mortgage terms and payments are on track.

About The Author

Edwin is a marketer, social media influencer and head writer here at Stack The Chips. He manages a large network of high quality finance blogs and social media accounts. You can connect with him via email here.

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