Flip Property Legally & Where to Get Flipping Loans!

I have received two calls within the last two weeks from friends in the industry regarding flips. I can't tell you how much they concerns me due to the fact that an illegal flip is considered a felony by the federal government. Not only are the people doing the flips being arrested but the realty and mortgage industry is being looked at and charged as well. Not only are people being charged with mortgage fraud, but also with money laundering, illegal wire transfers and a few other things (you can look at the FBI website for more information).



Based on that I would suggest the following:



If you get a call that someone wants to flip property you need to look at a number of things and include some wording in your contracts to assure that you don't have the feds knocking on your doors.



1. A flip is considered illegal if the property is being purchased for a lower price, re-sold at a profit within 90-180 days and the middle man has done no improvements to the property which would account for the increased sales price. No ifs, ands or buts about that. It is just that simple. Anybody see the articles from the papers in Tampa and Miami about the realtors and mortgage people arrested because of being involved in flipping properties? Do a Google search, they aren't pleasant reports. I also found one on an attorney and two realtors in New Jersey who had been arrested and charged.



2. If a flip is going to happen the contract(s) must contain wording which discloses to the seller and the end buyer that the middle man is purchasing the property for $xxxxxxxxx with the sole intent of re-selling it at a profit to a third party. I know, I know, that could queer your deal but it beats sitting in a jail cell.



3. Does a cash transaction have the same requirements as a mortgaged transaction? You bet. Even if there is no mortgage lender involved in the purchase of the property the seller and end buyer MUST be advised that the middle man purchased the property for less than what could be construed as fair market value and is re-selling it for what would be construed as fair market, simply by virtue of the fact that someone is buying it for more money.



4. How does this affect a short sale? Easy, you probably won't get a short sale approval as the payoff lender is not going to want to take a discount on the mortgage payoff only to have the middle man walk away with what they would consider to be their money. However, again, it is your neck you are putting on the line when you submit a contract on a deal you know to be a flip and do not have the language in the contract.

5. Make sure that your middleman brings his own funds to the table to close. According to the articles I have read the middleman can not close with the seller using the end buyers funds as technically the middleman does not own the property to sell at that point, even if the transactions are closing simultaneously.

Talk to your broker and find out what they want you to do. Remember that no real estate commission is worth you losing your license or going to jail. I don't care how big that commission is. Another will come along.

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