This real-estate scam can land you in jail

WASHINGTON (MarketWatch) — Rarely has a topic elicited as much response as my column about the scam known as flopping, which is the “art” of intentionally misrepresenting the value of a financially strapped borrower’s house in order to buy it at a discounted price from the lender and resell it at its true market value.

Under a flopping scam, the owner seeks permission from the lender for a short sale at a price that is below what he owes on the property. The lender hires a real- estate agent to provide what’s known in the trade as a “broker price opinion,” which is the agent’s informed estimate of the property’s worth. But instead of providing honest evaluations, some agents are low-balling the number. And then, if the lender accepts the figure, they or an accomplice buy the house in question at that price and flip it, or resell it quickly at the true market value and pocket the difference.

Crime and punishment

Some readers asked what’s the big deal? After all, no crime is committed. “I don’t really get the objection to this,” wrote Bill, a Colorado attorney. “If I buy a short-sale property from a bank and sell it a year later for a profit, there’s no issue. If I do it a month later, no problem. Why is it fraud if I resell it a day later? Lenders are not losing money on the marked-up price because they cannot sell the property; they are not the owners yet.”

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