re:flipping RE people in MN being prosecuted for it. - Posted by milissa(MN)

Posted by Bill (oh) on March 21, 2000 at 21:47:22:

Ditto for here in the Cincinnati area. The lenders and feds are catching on to the criminal few among us and prosecutions/investigations are getting started. ‘Flipping’, as a term, refers to an illegal practice. ‘wholesaling’ is a better term to use for the legal practice of buying a property that needs to be rehabbed, and then selling the property on to a rehabber making a small profit in the process. RUN from folks such as mentioned by Rolfe that want to play with two appraisals and a specific realty company. That only gets you time at Club Fed, and there’s so many ways to make good, honest money.


re:flipping RE people in MN being prosecuted for it. - Posted by milissa(MN)

Posted by milissa(MN) on March 21, 2000 at 09:40:47:

I have a question about flipping properties…there are some investors in Minnesota that are being prosecuted for flipping properties and I’m curious to find out why. There was a story written about 2 weeks ago in the Star Tribune newspaper that a couple that bought a house from them…started investigating after the closing, why the seller had to sign off on two different sets of forms and that the figures on the first one were 9,000.00 dollars lower than what they paid…obviously this was the figure the investor paid for the property and was reselling it to then for the 9,000.00 higher price (Profit)…Now this part should all be legal Right?? The newspaper did say that they had gotten two appraisals one lower and one higher to show the seller and the new buyer…is this where the illegal part came in to play?? They also told the buyers they needed to go through a specific realty company in order to buy this particular piece of property. Which I would assume is a big NO NO! We are interested in getting in to Real Estate in Minnesota but we certainly don’t need legal problems like these guys…when the State investigated them they found they had done over 100 deals this way in the recent past. Is there some book We can read that deals with the legal parts of flipping. Also if there is an investor in Minnesota out there we wold love to get together to learn about your Real Estate Investing…We’re buying dinner! Reply to Thanks for any help you can give. Milissa(MN)

Here’s how it was done. - Posted by Rolfe Mpls/StP

Posted by Rolfe Mpls/StP on March 21, 2000 at 11:50:48:


Tis case involves investors and mortgages brokers. The case you cite in your post shows how it was done, but the numbers in your example are far less than the normal scam. 1000’s of properties were involved throughout the Twin Cities. The focus of the investigation is on large groups of associated investors, or “families”. Once, I was invited to “join the club”.

I had some rehabs for sale. You would not believe the number of people who came out of the woodwork, asking me to inflate the price by 20% (fine!), then agree to a phoney 20% seller carryback, which I would terminate after closing by signing a satisfaction of mortgage letter conveniently brought to closing by the lender(not fine!).

People at CREONLINE flip property with the intention of making as much money as possible, and rightly so. The people involved in this scam set out with the intention to commit fraud to make money, thus profiting via fraud, which is illegal. The fallout from all of this has made investing in Mpls much more difficult. Lenders, city officials, neighborhood representatives, the media, and the general public are now very suspicious of investors. Things are improving - the good guys always win in the end.

The investigation has nothing to do with legitimately flipping property. Instead, the scandle in Mpls is fraud, plain and simple. Phony appraiasals were done, showing tremendously inflated prices, such as $130k for a $70k duplex. Out of state lenders were foolish enough to be duped, actually trusting the people they were dealing with. Hundreds of times. The flipped property would either be sold to a buyer, using a phony 20% seller carryback, or sold to a straw(fake) buyer, who would then resell to the eventual buyer, offering the phony carryback. In my experience, buyers came to see my properties, saying they were pre-approved for a loan. Later, I’d find out the mortgage broker wanted me to inflate the price, then do a phony carryback. After closing, the carrybacks would be destroyed, complete with a fraudulant 'satisfaction of mortgage" letter. The out of state lenders fell for it. Hook, line, and sinker. Big time. Hundreds of times. The mortgages they sold on the secondary market were based upon fraudulant information. People lost a lot of money.

The whole idea was to defraud mortgage enders using unsafisticated buyers. Low interest rates at the time allowed unsafisticated buyers into the market, often attracted by “no money down” advertisements placed in the paper. These buyers could not qualify for a loan legitimately, but sellers offered a phony 20% carry back. Lenders believed the phony appraisals and the phony carrybacks, and were tricked into believing a 80%L/V loan.

In some cases, buyers were unable to keep up with payments. The lenders foreclose, subsequently repossessing a property worth far less than the appraisal indicated. They were ticked off!

The defrauding of lenders is obvious. The lenders were foolish not send someone out to check up on things, taking the time to verify property values. They trusted the people they did business to a fault, and paid the price. Open for debate is the impact of all this on the buyers. Many of the affected buyers would not have qualified to purchase a home in any other manner. If they can keep up with the payments, they’ve got a home.


Re: re:flipping RE people in MN being prosecuted for it. - Posted by Nancy Cason

Posted by Nancy Cason on March 21, 2000 at 11:42:02:


There are always legal and illegal ways to do business. Buying low and selling higher is not illegal. That is what all business is about. However in your story as soon as you mentioned two appraisals the red flags went up and bells rang in my ears. It sounds like the dealmaker (I don?t want to call them an investor) was trying to swindle the lender. There have been major problems all over the country with inflated appraisals being done and lenders are stuck with collateral that will not support the loan nor the lenders official lending policy. Virginia has a big scandal of a similar nature but I don?t remember the details.

You can make money without cheating anyone. It boils down to a matter of choice. Each individual makes a choice as to his/her personal code of ethics.