Beware the flopping real estate scam

Throughout history, there have been scams that have been designed to make a quick buck for their unscrupulous perpetrators. Currently on the rise is the ‘flopping’ real estate scam.

The scam is perfect for these depressed housing market conditions whereby everyday Americans are struggling to pay their mortgages. The scam takes advantage of the practice of short selling.

Short selling occurs when homeowners cannot meet their mortgages repayments and agree with the mortgages company to sell the property for a reduced amount.

Flopping can involve either real estate agents or individuals working in partnerships who split the profits. There are various ways it is undertaken depending on the people involved.

Simply put, one party purchases the property from the seller at the reduced short sale amount and then sells it on quickly for its true worth. This can result in a quick and easy profit.

Real estate agents may be involved by undervaluing the property in the first instance so that the banks agree to a much reduced price based on the agent’s professional valuation.

The real estate agent may have buyers lined up for the property who are willing to pay a higher price but this is not disclosed to the mortgages company.

Instead, after the house has been sold for the reduced amount, it is then offered to these genuine buyers for the higher price. In the past, these two transactions have been known to occur on the same day.

This has resulted in both Fannie Mae and Freddie Mac issuing notices that short sale houses cannot be resold within 30 days. This may be a deterrent for some but not all those involved.

The cost of flopping, according to market research company, CoreLogic, is expected to be around $375 million in 2011. This is a rise of 20 percent from 2010.

The FBI is taking flopping seriously because of its economic and, some would argue, moral implications. It classifies as fraud and two Connecticut real estate agents were the first to be prosecuted for flopping in August 2011.

Flopping creates problems for sellers who are unaware that they are being targeted by unscrupulous real estate agents. Always ensure you get a variety of agents to value your house. Flopping real estate agents often provide price comparisons based solely on other short sales, which can create an inaccurate portrayal of the genuine market price.

Sellers may then be targeted by their mortgage company for higher deficiency judgments as the company tries to recoup the difference in outstanding mortgage fees.

If you wish to sell your house, use a reputable firm and question them about any involvement in flopping. Get multiple valuations from numerous agents so that you can work out the true value of your property.

As with any aspect of house selling, mortgages and moving, do your research to protect your own interests. If an agent offers to include you in something that sounds like flopping, do not work with them. Retain your integrity and sleep well at night by doing the right thing.