Part I of a Multi-Part Series on HUD Regulations: Addressing “Flipping.”
Do back flips over “flipping” – FHA targets fraudulent multiple transfers.
Though “flipping” has been present for quite some time, it has become especially prevalent lately. Essentially, “flipping” is purchasing a property and reselling it within a short period of time for a great increase in price. This lends credence to a subsequent inflated appraised price. Oftentimes, flipping is the result of collusion between the buyer, seller, and appraiser. This con game is real enough to have been part of the plot of the HBO series “The Sopranos.” So why should you be aware of the practice? It is important to recognize the warning signs so that you can avoid becoming entangled in any unethical or illegal transactions.
HUD has recognized this problem and has taken steps to address it. As of June 2 of this year (2004), HUD has changed existing policies to prevent flipping, especially as it relates to FHA mortgages. While the regulations may go a long way to prevent predatory flipping, they could hurt some legitimate businesspeople, such as those who purchase run-down and foreclosed property, refurbish it, and then resell the real estate in a short period of time. You need to know about the new FHA “anti-flipping” rules because they will affect the resale of property that has changed hands multiple times within a year.