Is Flipping Houses Legal?
A couple of years ago, during the height of the housing market crash, house flipping began to receive a lot of coverage in the press. This practice became appealing because it seemed to provide an opportunity to make money in spite of the failing market. This characterization of house flipping as a get-rich-quick scheme left many people wondering if the practice was illegal.
What is House Flipping?
House flipping is nothing more than buying a house and selling it for a profit a short time later. The housing market crash created an ideal environment for house flipping because many houses were placed into foreclosure and then sold for extremely low prices. House flippers could buy a house for this new low price, fix the house up and then sell for a sizable profit when the market recovered.
Is House Flipping Illegal?
The short answer is no, house flipping in and of itself is not illegal. However, the practice of house flipping can provide opportunities for illegal activities to occur. Some of these illegal practices include:
- Artificial Value Inflation: When a house flipper purchases a property and places it back on the market, they are expected to set an asking price that is an accurate reflection of the house’s market value plus any repairs or renovations. If a flipper lists a house with a price inflated by nonexistent repairs or renovations, they may be charged with housing fraud.
- Document Falsification: If a house flipper sells a property under illegal circumstances, they may forge or falsify sales documents in order to prevent the discovery of their illegal actions by authorities. This can also constitute housing fraud.
- Unqualified Buyers: If a property flipper has a house on the market for a long time, he or she might start to get anxious to sell the property before the market takes another turn. If this happens, the seller might be tempted to arrange for an unqualified buyer to purchase the property. An unqualified buyer might be someone who has insufficient funds or a history of financial mismanagement. Selling to an unqualified buyer might constitute fraud.