Fraudulent property flipping ran rampant during this decade’s housing boom, with $10 billion in suspicious deals in Florida alone, a Herald-Tribune investigation has found.
The deals — many of them inflated sales among friends, family and business associates — drove up property values and tax bills during the boom, fed bank bailouts and failures after the boom, and fueled the foreclosure wave that has gutted property values.
Unscrupulous property flippers would buy houses or condos, then drive up the price in a few days or weeks by selling it to someone they knew. Buyers used the inflated price to get bank loans for more than the property was worth, leaving money for flippers to split as profit.
Despite their role in one of Florida’s largest white-collar crime sprees, the vast majority of unscrupulous real estate flippers will never be prosecuted. Most Florida law enforcement agencies have done little to investigate property flip fraud. The FBI has been left to chase far more cases than it can handle.
But evidence of illegal deals is available in the public records filed when a property changes hands.
The Herald-Tribune spent a year gathering and reviewing nearly 19 million Florida real estate transactions for red flags that can help identify flipping fraud. Using public records, including land deeds and mortgage filings, it found that:
- Since 2000, more than 50,000 Florida properties flipped under circumstances that fraud investigators identify as suspicious — where homes, vacant land or commercial properties were bought and resold in 90 days or less and increased in value by at least 30 percent. Even during the hottest days of the housing boom, average home prices increased at half that rate. More than a dozen fraud experts interviewed by the Herald-Tribune said such large price increases within 90 days are an indicator of fraud.
- In June 2005, when flipping hit its peak, more than 2 percent of all Florida real estate sales fit the criteria for potential fraud.
- Many of the questionable flip deals were orchestrated by real estate professionals. A close review of several thousand flips in Sarasota and Manatee counties showed that 40 percent of the flippers were industry insiders — real estate agents, mortgage brokers and attorneys.
- Lenders facilitated fraud by approving mortgages on suspicious transactions. In deal after deal, loan officers either failed to make the most basic checks to flag risky loans or ignored what they found. In some cases, the Herald-Tribune found, bank employees knew deals were suspect but approved mortgages anyway.
- Lenders continued to finance flips even after the boom, when property values were declining and price increases should have raised suspicion. Across Florida, more than 10,000 flips involving significant price increases occurred from 2006 to 2008 — after the market peaked in the second half of 2005. In 2007 alone, nearly $1 billion in suspicious flip deals took place.
The actual amount of fraudulent land deals in Florida is likely more than $10 billion, according to several fraud experts, who believe the newspaper’s findings are understated.
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