First “Flipping,” Now “Flopping”

Bloomberg Business Week published an article on a new scheme for profiting in the real estate market during a time of unprecedented foreclosures. Back during the boom, people “flipped” houses by buying low and selling high. During the bust, that same premise is being used to “flop” houses through the use of short sales.

In flopping, investors or home buyers hire brokers to assess a home for less than its market value and convince banks to accept a sale at that level. The buyer conceals from the lender that he has lined up a higher offer and then quickly resells the property for a profit. Someone interviewed in the article observed that investors often use real estate broker opinions, which may rely on drive-by inspections instead of full appraisals, to persuade lenders to sell at a low price.

Let’s not forget the impact of a short sale on the original owner

What the article failed to address was the impact of a short sale on the original homeowner. My partner, Rick Mitchell, and I have written extensively on short sales here. They are usually in the best interests of everyone but the seller for a number of reasons, most notably, debt forgiveness income.

The government, through its Home Affordable Foreclosure Alternatives Program, that month began offering as much as $1,500 to servicers, $2,000 to investors and $3,000 to homeowners who close short sales.  The Bloomberg Business Week article quoted data from the National Association of Realtors  that 12 percent of existing home sales, or almost 622,000 houses, were short sales in the 12 months through April.

If you are struggling to pay your bills and considering alternatives to bankruptcy, call a qualified bankruptcy practitioner for an expert opinion.  Bankruptcy lawyers know  how to avoid filing for bankruptcy.