House flipping is the practice of buying properties and reselling them quickly for profit. If done correctly, this technique is entirely ethical.
However, there is plenty of opportunity here for illegal activity. By becoming involved in house flipping, you may have aligned yourself with some unscrupulous people and are now looking at fraud charges.
How the process works
Let us say you are the investor. You have located a distressed property that you can purchase for very little money. You believe you can rehab it and sell it for a tidy profit. You need the expertise of a building contractor and you find someone who will do the minimum renovation required affordably. Next, you find a willing buyer who qualifies for financing. The buyer gets an improved property and you get a nice profit.
Where the deal can go wrong
You hire an appraiser who inflates the value of the property, which the buyer, who is not sophisticated about real estate, overlooks. You do not disclose to your buyer that there is a roof leak and a plumbing problem, nor do you disclose this to the lender, who is also not aware of the appraiser's misdeed. The bottom line is that if you hide or misrepresent facts, you may be committing fraud. Illegal activities could proceed without you realizing it because multiple parties, including a mortgage broker and a closing agent, are in on a house-flipping project. Inflating the appraisal and falsifying loan documents are two of the most common fraudulent practices.
This may be your initial house-flipping project and the specter of fraud alarms you; after all, that is a serious federal charge. You may not be any more experienced in real estate matters than your naïve buyer is, and any mistakes you made may have been unintended. A criminal defense attorney will tell you that the circumstances in which you find yourself are not uncommon. That may be little consolation, but you should find comfort in knowing you do not have to face the charges alone. A strong defense will offer hope of a positive outcome.