The New Flipping: Short Sales

BUYING AND FLIPPING SHORT SALES HAS BEEN A LUCRATIVE BUSINESS AS BANKS LOSE OUT AND INVESTORS POCKET THE PROFITS.  WITH THE FBI GETTING INVOLVED THIS TYPE OF BUSINESS MAY BE NO MORE.  This article was recently published in Florida’s Herald Tribune.

The new flipping: short sales

Untold millions of dollars that banks could have recovered from the sale of distressed Florida homes have instead been pocketed as profits by a new breed of property flipper.  These flippers target houses on the verge of foreclosure and persuade banks and mortgage companies to accept lowball buyouts, sometimes by using questionable appraisals and not disclosing that a quick sale at a higher price has already been arranged, experts say.  No one knows how widespread the scheme has become. But a national glut of short sales — pre-foreclosure sales in which the lender agrees to let the house sell for less than the mortgage owed — has spawned a small industry of short-sale flippers, some of whom use these questionable tactics, experts say.

The Herald-Tribune examined nearly 18,000 property sales that occurred in Sarasota and Manatee counties in 2009. The review showed that:
• At least 250 properties have been sold multiple times at escalating prices so far this year. Nearly 50 of those properties were bought then resold within 24 hours, suggesting that banks were underpaid for properties that already had a buyer willing to pay more.
• Just the most suspicious sales, where properties flipped within a day, have cost banks $1.7 million in Sarasota and Manatee counties so far this year. On houses bought and resold within a month, the bank short sales were $3.2 million less than the houses fetched just a few days or weeks later.
• Real estate professionals are a key part of short sale flipping. Of about 120 short sale properties that sold twice within a month in the Sarasota area, more than half of the buyers or sellers were real estate agents, real estate attorneys or mortgage brokers.
• Questionable short sales accounted for 1.4 percent of all property sales in Sarasota and Manatee counties this year.  At the peak of the housing bubble, 2 percent of all sales statewide raised suspicions, based on criteria used by fraud investigators.
• Bankers and some organizations that regulate the real estate industry have taken steps to curb the latest form of flipping. But the measures, including restrictions on writing mortgages for flipped properties, have not halted questionable transactions. Experts warn the number of short sale flips is likely to continue growing nationwide.

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