Understanding Illegal Property FlippingFlipping a property is the practice of buying a property and then quickly reselling it at a profit. While not all property flipping is illegal, there are situations where the practice turns into a scam, and this is what is known as an illegal flip. An illegal flip is when a con artist purchases a property with the intention to sell it at an artificially high price to make an enormous profit, even though they make minor changes to the property. Illegal flipping is a way for scammers to exploit the real estate market by taking advantage of people who are desperate to buy a home. These con artists will purchase a house, often one that has been foreclosed or that is in a state of disrepair, and then make some superficial changes that only mask any underlying problems with the property. They then resell the property at an inflated price, often using predatory lending practices that trap the buyer in a high-interest loan that they can’t afford.
How Con Artists Exploit the Real Estate MarketThe way in which con artists exploit the real estate market through illegal flips is by driving up property prices artificially. By convincing a buyer to pay significantly more than a property is worth, the con artist creates a bubble that can burst as soon as the buyer realizes they’ve been scammed. This has the potential to cause significant damage to the local housing market, as the rapid rises in property prices make it difficult for the average person to buy a home. What’s worse, is that these con artists are also using the money they gain through illegal flipping to buy more properties, keeping this vicious cycle going. In many cases, they are also using the scam to launder money from illegal activities, such as drug trafficking and human trafficking.
The Danger of Artificially Inflated Property PricesArtificially inflated property prices are dangerous for many reasons. For one, they can create financial instability. If a large number of buyers are paying too much for properties, the market becomes overvalued, and it crashes, leading to foreclosures and financial ruin for many people. Additionally, artificially inflated property prices can lead to gentrification. Gentrification is a phenomenon where low-income neighborhoods are transformed into high-end areas, pricing out the previous residents. This can lead to displacement and the loss of businesses that can’t afford the rising rents. If too many people fall victim to illegal flipping scams, it creates a ripple effect that can destabilize an entire community.
Identifying Signs of an Illegal FlipIt’s essential to know the signs of an illegal flip to avoid falling victim to this scam. Below are some of the red flags to look out for:
- The property has been owned for a short period
- There has been little to no improvement done on the property
- The seller is pushing for a quick sale
- The property has an artificially high price compared to comparable sales in the area
- The seller is pushing for the use of a specific lender
- The title has recently transferred several times in a short period