Illegal Property Flipping Schemes Abound

The FBI reports that illegal property flipping schemes involving straw buyers are rampant. The scheme involves a fraudulent “investor,” a straw buyer, a compromised appraiser, and an unsuspecting lender.  In very broad terms, the scheme works like this:

  • An “investor” identifies and purchases a distressed property for a low price;
  • The “investor” makes very minimal improvements to the property, and lists it for resale or “flip” at a price that is significantly higher than the price he paid and/or the true value of the home;
  • The “investor” finds a “straw buyer” to purchase the property at the inflated price using his/her credit information, but with no intent to occupy or control the property;
  • The “straw buyer” enters into a contract to borrow significantly more than the property is worth from an unsuspecting lender;
  • An appraiser is paid (by the “investor”) to significantly inflate the appraised value of the home, in order to persuade a lender to loan the “straw buyer” significantly more than the property is actually worth;
  • After closing on the loan, the “straw buyer” and the “investor” split the loan proceeds, and the loan is allowed to go into default;
  • The default and depressed value of the property relative to the amount of the loan causes a loss to the lender.

If you suspect real estate fraud, you should contact authorities and an experienced real estate lawyer.