Property flipping is becoming a popular real estate practice. It involves buying and reselling a property for profit. Anyone who flips a property makes improvements to add more value to it. But, it can be illegal if the person falsely showcases the property's condition and value. This is a scam with serious complications.
Illegal property flipping is a prevalent mortgage fraud in the country. Flipping is only legal and ethical real estate practice when every disclosure of the property's condition and worth is correct.
Â
Selling a property at a high price while flipping is legal. But if a person does that quickly and sells it at an inflated price, then that is illegal. This write-up emphasizes the most common indicators of illegal property flipping, its consequences, and how to avoid it.
Illegal Property Flipping: An Overview
Property flipping involves buying a property, holding it, renovating it, and reselling it later. This type of investment can generate a hefty profit. But, flipping can become illegal in some situations. If you buy a property at a below-market rate and sell it immediately at an inflated price, you may be penalized.
A fraudulently evaluated property misleads prospective buyers. Buyers who become victims of illegal flipping may experience financial distress. Inflated prices are the main reason.
You may face criminal charges, penalties, or even imprisonment if you engage in illegal flipping.
Â
What are The Common Indicators of Illegal Flipping?
The practice of property flipping may involve fraudulent schemes and unethical activities. But you should be aware of the indications. Here is a thorough explanation of the most common indicators of illegal property flipping:
Misleading Documents
Property sellers might provide false or altered documents like phony income statements. This may result in a deceptive investment deal.
Predatory Lending
Predatory lending means when a buyer is misled to get a high-interest loan that he or she can't afford. This results in financial distress or foreclosure.
False Evaluation
Property sellers might manipulate evaluations to inflate the worth of the property. This makes the property seem pricier than its actual worth.
Concealment of Defects
The sellers may also try to cover the significant defects in the property, such as code violations and structural damage. They do so to make the property look more valuable and to resell it.
Flips With no Repairs or Improvements
Properties can also be resold several times without major repairs or improvements. This indicates a potential scheme that may fraudulently exaggerate the prices.
Penalties for Illegal Flipping
There may be harsh penalties when someone is convicted of illegal flipping. For example, if someone uses unlawful methods to get money from the bank, the person may have to undergo extra charges and illicit flipping.
Being found guilty of illegal property flipping may result in up to 30 years imprisonment and a $1 million fine. There are also situations when someone found guilty of illegal flipping may incur both penalties.
Negative Consequences of Illegal Flipping on Buyers
Flipping, when done the right way, can have severe consequences on a buyer. These may include the following:
Financial Losses
Financial loss is among the major consequences faced when investing in flipped properties. Flippers may puff up the rate of properties above the market price. The buyer may overpay for a property that's not worth its asking price. As a result, a tremendous financial loss may arise.
Legal Issues
There are situations when illegal property flipping may entail fraud or illegitimate activities. This risks buyers to legal issues or consequences with the property's title. If a flipped property was purchased via fraudulent means or is undergoing legal matters, the buyer may, too, inherit those problems.
Negative Impact on Community
Flipped properties left unoccupied can be susceptible to vandalism or other criminal activities. This can be risky and may lower the quality of life for residents. Since property flipping is only done for a profit with no regard for the community's needs or long-term viability, it can erode local trust and social harmony.
Foreclosure Risk
Flippers may also not reveal all the details about a certain property, such as damage or problems. These may impact the worth and safety of the property. Lack of full disclosure of the property condition can degrade the scores and would impact the buyer's mind.
What to do to Avoid This Illegal Act?
If you do not want to become a victim of illegal flipping, there is one way: Hire your own property appraiser. An appraiser is an expert with extensive knowledge of determining a property's worth.
With no appraiser to back you, you may find evaluating a piece of land hard as it demands specific skills.
Also, a property appraiser can expose an illegal property flip. Here are some signs indicating that a property isn't worth its price:
The seller refuses to answer questions about the property's condition and price tag.
The property is pricier than the other properties on sale in the same area.
The person taking charge of the sale transaction isn't the owner or doesn't represent the actual owner.
The seller tells the buyer that the property is available to use right away or before the completion of the sale transaction.
The seller promises to make specific repairs to the property but fails to incorporate such assurances into the sales contract.
Conclusion
Property flipping is legal, given that no misleading statements are made or signed. Whenever you decide to invest in a property, read all the paperwork and contracts. The contract you provide to the lender is a statement of facts. But, it should be devoid of any false assertions.
If there is honesty and integrity, the process is legal. If not, identify the signs of illegal property flipping and take appropriate action.
Are you planning to venture into house flipping? Flipping America Today is here to assist you. We are a trusted companion that assures complete transparency and legitimacy when flipping. Invest with us and ensure great attention to detail throughout the transaction. Count on our property experts without hesitation. Let us flip in the right way!