Video Transcript

Hello. I’m a special agent with the FBI. And this is A Mortgage Minute for the Average Joe. Today’s topic—illegal property flipping schemes.

Before the recent mortgage meltdown, property flipping was a common way to make money in the real estate business. You would buy a house, fix it up and then sell it for more than you paid for it. That was—and is—legal.

However, there are some illegal property flipping schemes out there. This is how they work: A con artist buys a property with the intent to re-sell it an artificially inflated price for a considerable profit, even though they only make minor improvements to it.

In order for this scheme to work, the con artist needs to find someone to buy the property from him quickly. So, he contacts a friend or acquaintance and tells them that they can make several thousand dollars by just applying for a loan to buy the house. This person is known as a “straw buyer” because they don’t intend to live in the house.

The con artist also pays an appraiser a fee to submit a false and artificially-inflated appraisal report to the bank. The bank then makes the loan to the straw buyer. The con artist will sometimes make one or two of the mortgage payments to the lender. Then, after the con artist pays off the straw buyer and the appraiser, he keeps the rest of the money for himself. It’s then up to the bank to foreclose on the property, but it will take a huge loss on a home that was never worth the amount of the loan they made.

If someone asks you to participate in an illegal property flipping scheme, or if you know of one already going on, you are encouraged to contact your local FBI office.

This segment of A Mortgage Minute for the Average Joe has been brought to you by the FBI.