Legal Definitions - land flip

A "land flip" refers to a deceptive real estate transaction where a property is purchased and then very quickly resold for a significantly higher price. The primary purpose of this rapid resale at an inflated value is to mislead a lender into approving a larger loan than the property's true worth justifies, or to trick a subsequent buyer into believing the property is more valuable than it actually is. These schemes often involve straw buyers or shell companies to facilitate the artificial increase in price.

• Example 1 (Residential Property):

  An individual buys a rundown house for $150,000. Within a few days, they arrange for the house to be "sold" to a limited liability company (LLC) they secretly own for $350,000. The LLC then applies for a mortgage based on this inflated $350,000 sale price, presenting the transaction as legitimate. The intent is to secure a much larger loan than the property's actual market value would support, potentially leaving the lender with a significant loss if the loan defaults.

  This illustrates a land flip because the property was purchased and immediately resold at a much higher, artificial price to a related entity. The goal was to deceive the mortgage lender into believing the house was worth $350,000, thereby securing a larger loan based on a false valuation.

• Example 2 (Undeveloped Commercial Land):

  A group of investors acquires a large parcel of undeveloped land on the outskirts of a growing city for $750,000. Shortly thereafter, they execute a "sale" of this land to a different corporation that they also control, for an inflated price of $2.5 million. This artificially high sale price is then used to obtain a substantial development loan, making it appear as though the land itself is a much more valuable asset than its initial purchase price indicated, thus securing more capital than the property truly justifies.

  This is a land flip because the undeveloped land was rapidly transferred between related parties at a grossly inflated price. The objective was to mislead a bank into providing a larger development loan, based on the artificially high valuation, rather than the true market value of the land.

• Example 3 (Multiple Flips for Appraisal Fraud):

  A real estate speculator identifies a small apartment building in a struggling neighborhood and purchases it for $600,000. Over the next few months, they orchestrate two more "sales" of the building, each time to a different shell company they control, with the price escalating first to $900,000, then to $1.3 million. Each of these transactions is recorded, creating a false history of rapidly increasing property values. They then use this fabricated sales history to secure a $1.5 million loan from an unsuspecting lender, claiming the property is now worth significantly more than its actual market value, based on the fraudulent prior sales.

  This demonstrates a land flip scheme involving multiple rapid resales at escalating, artificial prices. The successive transactions between related entities were designed to create a misleading impression of increasing value, ultimately deceiving the final lender into approving a loan far exceeding the property's true worth.