People are enthused after watching the television shows about flipping and making it rich. Honestly, flipping houses is a wonderful way to make some quick cash. People across the country are buying run-down properties and repairing them to sell. While this practice is commonly done with little to no issues, if false representations are made about the home’s value and or condition, then fraud charges can be filed.
It does not mean that if there is a small water leak that was not known that the owner conned the buyer. To prove deception, the defendant must have violated statues on either a state or federal level. If you have been accused of flipping houses fraudulently, then our attorneys can help.
Easily Commiting House Flipping Fraud
One way that illegal property flipping can occur is when a person buys a home and sells it at an exaggerated price. While rehabbing a house is about making money, the comps in the area are limited by the market. They can only sell the home for a comparable price to others in the region, which is determined by getting at least two recent sales. To sell it for an absorbent amount, the seller must get an appraisal that is beyond the market value, or they must misrepresent the properties features. Either way, it is considered as part of a scam.
For instance, to conduct this scam, the appraiser sets the value of the property at $180,000. However, the homes in the area are only going for $140,000 on the highest side. Appraising a home far beyond the acceptable range is illegal. The home might be a bit better than the best on the block but inflating the property value allows for larger loans and returns. When there are dishonest appraisals, it is often several people in on the house flipping con.
Another way that a flipper can commit fraud is by doing a total cash purchase with a kickback. The buyer makes an offer to a seller that is higher than their list price. The deal is that they will refund the difference of the funds at closing. So if the home sold for $150,000, but the agreed upon amount was $135,000, then at the closing the seller would refund the buyer $15,000. The buyer puts cash in their pocket and has a mortgage that is upside down from the start.
The problem is that many of these homes are so overpriced that they cannot get refinanced, and the payments are too high. Unfortunately, many are foreclosed on. They often claim that there have been upgrades that warrant the higher price tag, but upon further investigation, no upgrades have been made.
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(212) 300-5196Fraud When Flipping FHA Properties
Many people turn to FHA loans because they will finance those with a lower credit score and they do not require large down payments. FHA has never been able to finance short-term loans for house flippers, but in 2010 the rules all changed. Areas that have been ravaged by foreclosures can receive help from FHA. The government wants to help bring these neighborhoods back to life.
The previous rule required a person to own a home for at least three months before they could sell it for a profit. However, after many problems during this four-year period, they re-instituted the 90-day clause in 2014, and property flippers find using FHA to get great term loans is more difficult.
Consequences of Illegal Property Flipping
Each case of fraudulent flipping comes with severe consequences. If the amount is significant, it can lead to a prison term of up to 30 years, or a person can be fined up to $1,000,000. There are other charges that can also be brought against the guilty party. These charges include mail and wire fraud. The New York Penal Code Article 187 has very strict guidelines for mortgage fraud.
Todd Spodek
Lead Attorney & Founder
Featured on Netflix's "Inventing Anna," Todd Spodek brings decades of high-stakes criminal defense experience. His aggressive approach has secured dismissals and acquittals in cases others deemed unwinnable.
You purchased a dilapidated Brooklyn brownstone, made cosmetic repairs to hide serious structural and plumbing defects, and then sold it to a buyer for triple what you paid after getting an inflated appraisal from a friendly appraiser. The buyer's mortgage lender has now reported the transaction to federal authorities, and an FBI agent left a card at your door.
Can I really face federal fraud charges just for flipping a house and making a profit?
Property flipping becomes a federal crime when it involves inflated appraisals, concealed defects, or misrepresentations to lenders, potentially triggering charges under federal wire fraud (18 U.S.C. § 1343) and bank fraud (18 U.S.C. § 1344) statutes. If a federally insured lender was deceived into funding a mortgage based on a falsified appraisal or hidden property conditions, you could face up to 30 years in prison per count. Prosecutors in the Southern District of New York have aggressively pursued property flip fraud schemes, often adding conspiracy charges under 18 U.S.C. § 1349 when appraisers, contractors, or straw buyers are involved. You need to speak with a criminal defense attorney immediately and avoid any further contact with investigators or co-conspirators.
This is general information only. Contact us for advice specific to your situation.
Even if charges have been brought against you, our attorneys can help. We may be able to get the charges dismissed or pled down to a lower crime. If a bank was involved in the transaction, bank fraud can be added to the list of charges too. It is better to have an attorney than to take a chance when so much is on the line.
As a house flipping fraud lawyer, we can help provide you legal defense using a wide array of methods. Our goal is to convince the prosecution that there was no violation of the law and have the charges dismissed.
