Is home-flipping legal or not? At seminars, I'm often
confronted by people who insist "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 unscrupulous people commit in order to get the
deal funded.
When you use an "Option to Purchase" to control a house and
sell it, the end buyer is responsible for their own
financing. That means 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. They
haven't been misled, and you haven't helped anyone commit
fraud.
The problem comes in when the seller and the Buyer are
working together to get an unqualified Buyer a loan they
really shouldn't get. As an example, here's what some
people consider "flipping":
They'll buy a house, or even just contract it, and then
turn around and sell it to an unsuspecting homebuyer or
Investor, often from out of town or with no Real estate
experience, and usually with no money down or for very
little down.
Next, they'll bribe an appraiser to give a fictitious
appraisal, much higher than the true Comparable sales.
They'll work with a mortgage broker who will show the
borrower how to submit false documents to the mortgage
lender to qualify for a loan they often can't afford.
Then last but not least, they'll forge the closing
statements from the Title Company to show a down payment
and/or closing costs coming from the borrower, in order to
get the bank to fund the deal.
Is this what you consider "Flipping"? Bribing appraisers
and falsifying loan documents and paperwork? If so, then
you're right, it is illegal.
But when you "Flip" a house by selling it for retail price
to a retail buyer, who works with a legitimate appraiser
and 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 onto an investor or homebuyer who
commits mortgage fraud to get them funded. THAT is illegal.
Don't get me wrong, I don't have a whole lot of pity for
the Buyers in those fraudulent transactions. They are the
ones buying houses without enough common sense to even
check the value first!
Here's something else you should learn from this: These
supposed "victims" (who all volunteer to commit mortgage
fraud and know what they are doing, by the way) buy 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.
While house flipping has gotten a bad reputation in the
last few years due to a few bad apples, it is still a great
way to get into Real Estate Investing if you know what to
watch out for. Done properly, house flipping is legal,
moral and ethical, and is a great way to invest in real
estate without tenants, rehabs, or risk.
----------------------------------------------------
About the Author (text)
Jason Loucks has mastered the art and science of retailing
properties for Cash NOW through his "7 Day Sale" system. To
get your Free "Secrets of the 7 Day Sale" Audio CD, that
explains how you can sell houses in just 7 Days, just
visit: http://www.7daysaleguy.com
No comments:
Post a Comment