Most homeowners who consider short-selling their properties are well intentioned, eager to unload them for personal or financial reasons beyond their control. Unemployment, divorce or even absurd inequity are all among the many reasons underwater water homeowners attempt to sell their homes for less than what is owed on the mortgage balances.
Unfortunately, opportunistic scammers who see dollar signs — or possibly even desperate underwater homeowners who feel the current system is convoluted, broken and/or unhelpful — have also set their sights on short sales.
The latter, dishonest group of folks are considered “floppers,” which is a creative spinoff of the “flippers” who actually follow the letter of the law to invest, rehab and re-sell short sales. “Floppers,” meanwhile, hatch schemes to devalue their homes as much as possible and then agree to sell them as cheap as possible to their like-minded crooked associates.
Les Christie on CNN (via HartfordBusiness.com) breaks it down:
“Flopping is the latest in mortgage fraud, in which sellers actually want as low a price as possible. The scheme works if they are underwater on their mortgage, and their lender agrees to a short-sale, forgiving the difference between the sale price and the amount owed. The seller unloads the home for the sandbagged price to an accomplice, who can then clean it up and flip it for a quick gain.”
How exactly does a upside-down homeowner devalue or “sandbag” his or her home? As you would imagine, it’s pretty simple to create a mess or the illusion of costly disrepair. Banks and their appraisers are so overwhelmed with properties that pulling the wool over their eyes under the guise of distress isn’t such a tough trick to turn.
The report mentions a few of the endless possibilities:
- Removing appliances
- Taking cupboard doors off their hinges
- Leaving dirty laundry lying around
- Painting what looks like water damage on the ceiling
- Invent plumbing or electrical problems
- Colluding with local contractors to fake repair estimates
It seems like a huge effort to undertake, especially when there are no guarantees that banks will approve — much less consider — short sales, as well as when other variables and wildcards that could derail the purchase process are factored into the equation.
Then again, with an average 34 percent gain and average profit of $55,000, it’s perhaps too enticing for some (less than 2 percent of all short sale transactions, according to the report) — to pass up.
Anyone with information about illegal or suspicious short sale “flopping” is encouraged to call 1-800-4fraud8.