Be Wary of Flopping – Short Sale Frauds

Remember just a few years ago how “flipping” houses was all the rage? Someone would buy a house, spruce it up a bit inside and out, and resell it for a tidy profit. Obviously, you don’t hear about that much anymore

Now the depressed housing market has given us “flopping” instead. It’s a new term to describe an insidious form of fraud that has grown up around short sales. What happens is an unethical real estate agent will rig the short sale, with or without the help of an accomplice, in order to make a few bucks

Here’s one example of how it works: The agent has someone willing to buy the house for, let’s say, $150,000. But the agent presents a $120,000 bid from his accomplice. The lender accepts the offer, the house is sold to the accomplice, and the homeowners clear out. Then the house is immediately sold to the buyers who were willing to pay $150,000, making the fraudsters a quick $30,000 and cheating the lender out of money that rightly should have gone toward paying off more of the mortgage.

Flopping takes a few different forms, whether it’s rigging the sale price artificially low, falsifying offers, or other variations. It does illustrate how important it is to deal with a reputable and expert short sale agent, a point we always try to emphasize.

In fact, we’re trying to help someone right now who got caught in the middle of something like this. It’s a nice couple with several kids who sold their house and wanted to move up to a larger one. The house they chose – the wife fell in love with it – was being sold via a short sale, but the seller’s agent failed to disclose that upfront.

Then, when it came time to make an offer, it became clear that the short sale agent was planning to buy the short sale house himself at one price, and then sell it to the couple for $60,000 more. The couple’s own agent smelled a rat and advised them to run away from this deal as fast as they could.

But it was the wife’s dream home, and she really wanted to somehow make this work. They tried to get a loan, but every lender looked at the way this deal was being done and turned them down. Then the seller’s agent conned the short sale homeowners into signing the deed to the property over to him, and proceeded to pressure the couple into trying to get a personal loan or whatever it took to come up with the money.

The problem is now, through all of these ploys, the title to the property has been irreversibly clouded, I can’t see how this could be sold at all anytime soon, until everything gets sorted out.

This agent has messed this up to the point where a sale couldn’t possibly close. Foreclosure is the only option. Which means the short sale homeowners will be hurt by a foreclosure on their credit record, the short sale agent won’t get a penny (the only good thing in all of this), and the couple will lose out on their dream home, unless they are willing to wait until the foreclosure is complete and the house goes back on the market months from now.

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