Definition
Flopping refers to a scheme where a fraudster deliberately undervalues a property by using a falsified low-value appraisal. This undervaluation tricks lenders into approving short sales, allowing the fraudster to purchase the property below its market value. Subsequently, the fraudster resells the property at its true market value, reaping undue financial gains.
Examples
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Example 1: Homeowner Sarah is behind on her mortgage payments. The mortgage owed is $150,000. Fraudster Alex procures a fake appraisal showing the property is worth $100,000, despite its actual value being $140,000. Sarah and the lender are deceived, and the house is short-sold to Alex. Alex then resells the property for its true value, pocketing the difference.
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Example 2: John, a homeowner, is facing foreclosure, with a mortgage balance of $250,000. Fraudster Melanie arranges a fake appraisal showing the property value at $180,000 instead of its true value of $230,000. The lender, convinced by the bogus appraisal, approves the short sale to Melanie, who sells the property for $230,000 after purchasing it.
Frequently Asked Questions (FAQs)
Q: What is the primary goal of flopping? A: The primary goal of flopping is to deceive the lender and property owner into selling the property at a significantly undervalued price, allowing the fraudster to purchase and then resell it at a higher price, thus profiting from the difference.
Q: Who are most at risk of falling victim to flopping schemes? A: Homeowners facing financial distress or foreclosure and lenders who may not scrutinize appraisals thoroughly are most at risk of falling victim to flopping schemes.
Q: How can one protect themselves against flopping? A: Ensuring the authenticity of appraisals, consulting multiple appraisers, and working with reputable real estate professionals can help protect against flopping.
Q: What are the legal consequences of flopping? A: Legal consequences for flopping can include criminal charges for fraud, financial restitution to victims, and civil penalties.
Q: Can lenders take action if they suspect flopping? A: Yes, lenders can investigate suspicious short sales, involve law enforcement, and pursue legal action against fraudsters.
Related Terms
Short Sale: A real estate transaction where the sale proceeds fall short of the balance owed on the property’s mortgage.
Fraudulent Appraisal: A false property appraisal with deliberately misleading valuation for financial gain.
Mortgage Fraud: Any misrepresentation or omission intended to mislead a lender during a mortgage loan process.
Underwriting: The process lenders use to assess the risk of lending money, which can be compromised by fraudulent appraisals.
Foreclosure: A legal process where a lender takes possession of a property due to the borrower’s failure to pay the mortgage.
Online Resources
- Federal Bureau of Investigation - Mortgage Fraud
- Consumer Financial Protection Bureau - Avoiding Foreclosure
- National Association of Realtors - Fraud Prevention Programs
References
- “Mortgage Fraud Examinations and Awareness” by Lee T. Brotman
- Federal Bureau of Investigation (FBI) publications on mortgage fraud
- National Association of Realtors (NAR) resources on real estate fraud
Suggested Books for Further Studies
- “Mortgage Fraud and Predatory Lending: What Every Homeowner Needs to Know” by David S. Hilzenrath
- “Real Estate Fraud: Understanding the Schemes and Avoiding the Scams” by Michele Mattoon
- “Preventing Mortgage Fraud: An Industry Insider Reveals What You Need to Know” by Angelique Kelcz
- “The Other Side of the Coin: Fraud on the Sell-Side of Real Estate” by Christopher K. H. Ingram
