Lenders and communities pay the price for fraudulent real estate flipping

Real estate fraud is one of the fastest-growing white-collar crimes in the United States, and the FBI notes that it could quickly become a national financial epidemic. According to the Chicago Tribune, lending companies reported losses resulting from such fraud of more than $1 billion in 2005 alone.

A widespread type of real estate fraud is called flipping—the practice of buying properties and then reselling or mortgaging them in a short period of time. In fraudulent flipping, no improvements are made to the property, which is then "repackaged" with strategically chosen camera angles or pictures of other houses and marketed on the Internet at prices of up to 500 percent or more beyond their market value. False appraisals and other types of fraud lead to the artificially inflated values, especially in mortgage transactions. Defrauded lending institutions, investors, and private insurers are among those who pay the financial price for these transactions, as there is a high risk of default on these properties. But the worst losers, and those least able to cope with fraudulent flipping, are the surrounding neighbors in the community who may well find a vacant house that becomes a haven for transients and drug addicts.

Hodgson Russ partner Harry G. Meyer, a member of the mayor of Buffalo’s Anti-Flipping Task Force, lectures frequently on the topic of fraudulent real estate flipping.