The Worst Form of Flipping: "Flopping" is Pure Short Sale Fraud
"Flopping" is a type of Short Sale fraud that can victimize home sellers and mortgage lenders. It’s an especially egregious scam because it can be pulled off by deceitful homebuyers with the assistance of the very few, dishonest real estate agents out there. In the interest of informing our clients, and those of the 99.9% of agents out there who are honest, reputable Realtors®, here’s how it works.
A short sale is approved based on a falsehood – a falsification of the home’s value. The scammer is the buyer purchasing from a short sale seller. He/she presents a lowball offer to the lender to buy the property, while providing a false, extra low valuation of the property. The lender is convinced that the property is worth less than it really is.
At the same time, offers from real buyers are held back from the lender. Why? Because the lending institution would be more likely to reject the scammer’s low offer if they knew there were higher offers out there The lender approves the short sale at the fabricated low price, the scammer/buyer of said property turns right around and sells (“flops”) the property at its real market value, without the short sale lender's knowledge.
Hence, the scammer is now a seller. They open a second escrow between them and a real buyer (willing to pay the actual, higher price), and offers to do a simultaneous closing with the first purchase, or very soon afterward.
What has the scammer done? Bought artificially low, sold high, and pocketed the difference. “Flopping” takes place in about one percent of short sales today. According to CoreLogic Inc., a real estate research firm, it could have cost lenders $50 million in 2011 alone.
Sellers beware. Lenders may hold the helpless seller/victims responsible for the deficiency, or the difference between what the seller owed and the artificially low sales price.