Legal Definitions - flip mortgage

A flip mortgage refers to a type of mortgage fraud where a property is purchased and then quickly resold, or "flipped," at an artificially inflated price. This rapid resale typically involves a fraudulent appraisal that significantly overstates the property's true market value. A new mortgage is then obtained for this inflated amount, often leaving the lender with a loan that far exceeds the actual worth of the collateral, and potentially leaving the new buyer with an unaffordable debt on an overvalued asset. The intent is usually to defraud the lender and/or the subsequent buyer by profiting from the artificially inflated sale price.

• Example 1: A real estate speculator purchases a dilapidated house for $150,000. Without performing any substantial renovations, they collude with an appraiser to falsely value the property at $350,000. The speculator then quickly sells the house to an unsuspecting first-time homebuyer for $350,000. The homebuyer secures a mortgage for this inflated amount based on the fraudulent appraisal. The speculator pockets the difference, leaving the homebuyer with a mortgage far exceeding the property's actual worth and the lender exposed to significant risk.

  This illustrates a flip mortgage because the property was rapidly resold at an artificially inflated price, supported by a fraudulent appraisal, leading to a mortgage being issued for an amount much higher than the property's true value.

• Example 2: An organized fraud ring acquires a property for $200,000. Within a few weeks, they arrange to sell it to a "straw buyer"—an individual recruited to act as a purchaser, often with no intention of living in or paying for the property—for $450,000. They use a complicit appraiser to provide a valuation supporting this inflated price. A new mortgage is then secured for $450,000 in the straw buyer's name. The fraud ring extracts the $250,000 profit, and the straw buyer eventually defaults, leaving the lender with a property worth significantly less than the outstanding loan balance.

  This demonstrates a flip mortgage through the rapid resale to a straw buyer at an inflated price, facilitated by a fraudulent appraisal, resulting in a mortgage that does not reflect the property's actual market value.

• Example 3: A group of individuals, including a real estate agent, a mortgage broker, and an appraiser, conspire to identify properties in foreclosure. They purchase a foreclosed home for $180,000. Within days, they arrange for a "sham" sale to an accomplice at $400,000, supported by a grossly inflated appraisal. The accomplice then applies for a mortgage for the full $400,000. Once the loan is approved and disbursed, the conspirators split the profit from the artificially inflated sale, leaving the lender with a mortgage on a property that is worth less than half the loan amount.

  This is an example of a flip mortgage because it involves a quick resale of a property at a significantly inflated price, enabled by a fraudulent appraisal and a new mortgage taken out for that inflated amount, with the primary goal of defrauding the lender.