Isn’t Flipping Illegal?
At seminars I’m often confronted by people who tell me that “Flipping” is illegal. What they don’t understand is that the part that’s “illegal” isn’t the transaction, it’s the mortgage fraud that some people commit in order to get the deal funded.
When you Option a House and sell it using a 7 Day Sale, the end buyer is responsible for their own financing, no “fudging” on your part, and no possibility of fraud. The Buyer agrees to pay a certain amount, and has a down payment and credit to match, and knows the deal.
Here’s what some people consider “flipping”:
Here’s an excerpt from the Florida Times-Union, January 13th.
Real estate lawyer gets 9 years for helping in mortgage scheme
… Parker, who ran seminars about how would-be investors could buy rental homes with no money out of pocket, signed contracts promising to buy houses cheap from financially distressed owners, then allowed people from his seminars to replace him as the buyer at a much higher price. A house Parker contracted to buy for $35,000 might be priced at $65,000 for one of his seminar investors.
Prosecutors said the higher prices were ridiculously inflated… Parker kept the difference between the two sales prices as his gross profit… He produced two versions of the closing paperwork for each sale -- a cheap one for the seller and an expensive one for the buyer and the mortgage company that financed it.
Part of the brokers' job was to fill out loan applications with false information, telling mortgage companies the investors had $20,000 or $30,000 in the bank for down payments and closing costs. In reality, closing costs were paid out of money the mortgage company thought was going to the seller.
Is this what you consider “Flipping”? Bribing appraisers and falsifying loan documents and paperwork? If so, then you’re right, it’s illegal.
But when you “Flip” a house to a retail buyer who works with a Mortgage Broker and gets their own financing, with no “funny stuff”, there’s nothing even slightly illegal or grey about it. It’s simple and easy, with no B.S.
Some people are just simply SOOO lazy that can’t be bothered to buy houses at a discount- instead, they falsely jack up the price, bribe an appraiser to confirm it, and try to pass them off on an unsuspecting investor who commits mortgage fraud to get them funded. THAT is illegal.
It’s important that you quickly become able to tell the difference between good advice and lousy advice. I know it can be tough, especially when you’re first starting out, but try to remember that crap rolls downhill- and broke people at the bottom of the hill are the ones who most want to give you advice.
Here’s something else you should learn from this: These supposed “victims” (who all volunteered for mortgage fraud and new what they were doing, by the way) bought these properties at grossly inflated values based on appraisals someone else ordered for them. (I know, it’s hard to imagine they were taken advantage of, huh?)
NEVER believe what someone tells you about a property without verifying it for yourself. That means you have to do your Due Diligence- check every assumption- about the property BEFORE you buy it, not after.