Property flipping, meet 'flopping'
"Flipping" has a shady reputation in Baltimore, "Flip This House" and similar shows notwithstanding. Reselling a house for more than you paid soon after you bought it is no crime -- unless you made the numbers work through deception, which happened in scores of cases here in the '90s and early part of the decade.
As Susan Gaffney put it in 2000, when she was inspector general of the U.S. Department of Housing and Urban Development, "When we see properties with FHA mortgage insurance bought and sold the same day for a 50 percent or a 100 percent profit, we can be reasonably certain that something is wrong. In most cases, the profit results from false and fraudulent documentation provided by one or more of the parties to the transaction, such as the lender and/or the appraiser."
Now, brace yourself for "flopping."
Four appraisal groups, including the Appraisal Institute, say it's essentially the reverse trend -- a property's value is falsely deflated for its first purchase, then resold for its true value.
They warn that the federal government's foreclosure-prevention plan to get more short sales approved could fuel flopping by cutting appraisals out of the process. A broker price opinion, known as a BPO, would be sufficient to establish a floor for offers.
What -- the appraisers argue -- is to stop an agent from giving a lowball BPO, then shepherding the bargain property "to a related party" who can resell for a profit?
"To restore investor confidence around the world and dig out from the current financial crisis, we must end the culture of corruption that has permeated all levels of real estate finance," the appraisal groups write in a letter to Treasury Secretary Timothy Geithner.
As you can imagine, the Realtors did not take this sitting down.
"There is no evidence to support the assertion that appraisers are more or less likely to engage in mortgage fraud than real estate agents," retorted Vicki Cox Golder, president of the National Association of Realtors, in a counter letter.
Oh, it is on.
The ranks of flipping fraudsters include appraisers and real estate agents, as it happens, so there's ammunition for finger pointing on both sides. Here's the question: Which is harder to fake, a BPO or an appraisal?
Or is there some third option that's a better fraud disinfectant?
This is a particularly important question for Maryland. A fourth-quarter report by Interthinx ranks the state sixth highest on the "mortgage fraud risk" list, after California, Nevada, Arizona, Florida and Colorado.