Flipping
Is Flipping Illegal?
By Steve Cook
May 6, 2005, 14:09

Flipping, also known as the buying and selling of a home, is not illegal in any shape way or form. There is absolutely nothing wrong with buying a home cheap and selling it for more then what you bought it for. There is also nothing wrong with buying a home, fixing it up, and selling it for way over market value.



If your buyer wants to pay you way over market value, and they have the means to pay you, then it is their choice. They can do that and so can you without any recourse.

The problem arises when a lender is involved. What people typically refer to as "illegal flipping" should be called mortgage fraud. The media has given real estate investors in general a bad name, because they aren't focusing on the real problem. Without mortgage fraud, homes could not be sold for more then what they are worth when a lender is involved. Lenders want to lend based off of what a house is worth today. They lend at varying different Loan to Value ratios depending upon the borrowers credit worthiness. The problem with "illegal flipping" is when investors, mortgage brokers, loan officers, appraisers, etc… get together to "create" a better picture of a loan package to a lender. They do things such as inflating appraisals, gifting down payment, drawing up false w-2's, manufacturing pay stubs, writing credit letters, etc…

If you buy houses low, and sell houses high, but avoid mortgage fraud, then you are not doing anything illegal. You don't have anything to worry about.

Pre-Qualification Letters: Why do I need them, How do I get one, and what should it say?

Pre-Qualification letters are not absolutely necessary, but if you want to pursue Bank Owned and HUD homes they are a necessity if you don’t have provable cash. A pre-qualification letter from a lender let’s the seller in your real estate transactions know that you have at least taken the time to speak with a lender, and that the lender has preliminarily agreed to lend you money in a future transaction.

You can get pre-qualification letters from a lender or someone who represents a lender such as a mortgage brokers. For some people lenders pre-qualification letters are something that they write regularly. For others they have a fear of writing them because they don’t understand what they are being asked to do.

Commitment letters are something that used to be issued all the time in the past. I don’t know of lenders who will write commitment letters anymore. They want to be able to back out of deals last minute, and commitment letters have been used against lenders in courts. When asking for a pre-qualification letter, be sure to stress that you just want a letter stating that you are pre-qualified for a loan, and that the pre-qualification is subject to further review and due diligence. This gives the lender an out, it is not a commitment letter.

The pre-qualification letter that I used for well over a hundred deals read as follows:

To Whom It May Concern:

This is to confirm that Steve Cook has been pre-qualified for a purchase/rehab loan for a single family residential property based on a 70% loan to value appraisal, but with no cash out. This pre-qualification is good for 60 days from the above date and is renewable by mutual written consent.

As always, final loan commitment is subject to the appraised valuation of the property by an appraiser chosen by our firm.

Thank you for your cooperation.

Sincerely,

Mr. Hard Money Lender