Is Foreclosure Flipping Legal & Legit?

If by foreclosure flipping we mean quickly buying and re-selling a foreclosed property bought from a lender then there’s no reason why such a transaction cannot be legal and legit.

Think about stock. You buy stock in the morning and sell it in the evening. You flipped the stock. Does anyone care? No.

Think about a foreclosed property bought from a lender, a REO (real estate owned by a lender). You buy this morning and sell this afternoon. Does anyone care? Maybe. Here’s why.

Foreclosure Flipping

First, a trail of quick sales for a single property often suggests illegal activity such as faked appraisals, false documentation, and fraudulent closings and settlements. If a home is bought for $200,000 at 10 AM, sold for $225,000 at noon and re-sold for $250,000 at 3 PM you have to wonder what caused the sudden increase in value.

Second, to protect against illegal flipping the FHA and many private-sector lenders have long had a rule which says that they will generally not finance a property which has been sold within the past 90 days. In January 2010 HUD suspended the FHA 90-day anti-flipping rule for a year, meaning that you can buy a property today, a buyer can purchase tomorrow, and the buyer can get an FHA loan. For specifics and the latest details please speak with lenders.

To protect yourself when dealing with foreclosures and quick sales, be sure to keep good records of any repairs as well as before-and-after photos of the property to document why a higher price could be justified.

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Posted in: Foreclosures

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