Flipping Houses For A Profit: Is It Illegal?

Everyone has heard about house flipping. There is even a reality show called flip that house. A lot of news headlines and real estate people talk about illegal house flipping. But if this process is illegal, then how is everyone doing it and talking about how to do it?

The fact of the matter is that house flipping is not illegal if it is done properly and ethically. Anyone who has ever bought real estate for a primary home and then sold it for a profit later has successfully flipped a house. That is the basic idea behind house flipping. The real estate investment is purchased, and then resold later for a higher price. The length of ownership time may be months or decades, and that does not matter for this purpose. Sometimes this may involve renovating or repairing the real estate before selling it, to increase the value of the investment.

What everyone has been calling illegal house flipping is actually real estate fraud. These cases generally involve people who have lied or misled about significant facts to wrongly inflate the value of the real estate investment. This includes payments or bribes to get the property appraised at a value higher than what the real estate is actually worth, falsifying down payments or any other information like tax receipts and check stubs to get a loan that is not qualified for, and more. One type of real estate fraud is lying or covering up obvious or serious problems with the house to lenders, as well as to buyers who are not sophisticated. Another fraud type is to back date any documents that are needed for the loan, such as lease agreements, to give the impression of a longer length of time.

Unfortunately, the news media has confused house flipping with the types of fraud mentioned above. Many escrow and title companies refuse to do double closings, and many lenders have something that is called seasoning requirements on the ownership by the seller. This generally means that if you have not owned the real estate investment for at least half a year most lenders will assume there is something funny. This means that these lenders will not loan to a buyer who is trying to buy your house under these circumstances.

Flipping houses is not illegal as long as there are no misleading or fraudulent statements made or signed. If you are investing in real estate, make sure that you read all the paperwork and contracts very closely. The contract is the statement of facts that you are providing to the lender. This contract should not contain any deceptions or false statements. This process only becomes illegal when fraud is committed, usually in the form of deceptive or misleading statements made in the lending contract. As long as you act honestly and ethically, there is nothing illegal about making money by doing honest business.

Copyright © 2007 Joel Teo. All rights reserved. (You may publish this article in its entirety with the following author's information with live links only.)

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