From the Philly Inquirer:
Although reports of mortgage fraud nationally fell 41 percent in 2010 from 2009, the continuing downturn in the housing market has fostered new ways of perpetrating it, experts say.
Consider “flopping” – the intentional misrepresentation of housing value for purposes of illegal flipping.
Here’s how it works: A real estate agent or broker identifies properties with severely depressed values. These could be properties with mortgages that exceed the present values or they could be short sales or foreclosures.
A property is valued using a “broker price opinion.” The broker’s “opinion” is a low-ball price, because his intention is to profit from a quick resale for a higher price.
A lender, believing the broker’s assessment is legitimate and unaware of any scheming, agrees to the lower sales price.
The broker buys it at the greatly reduced price, arranges for a “straw buyer” to purchase it, then flips it for a higher price than negotiated with the lender. The broker pockets the profits.
The broker pays off any of the participants that enabled the scheme, and then moves to the next target property.
“This is a misrepresentation of value,” said Denise James, coauthor of an annual report on the topic by the LexisNexis Mortgage Asset Research Institute during a teleconference Monday.
She said such schemes could add to problems faced by regions with an abundance of distressed housing, since “lenders will grow concerned with false depreciation of values,” thus making the buying and selling of homes even more difficult in depressed housing markets.
“Flopping increases as desperation to get rid of rising inventory grows,” she said.
One of the fastest-growing ways homeowners are being bilked is by people posing as the new servicers of their mortgages, she said.
“They [the homeowners] get letters saying, ‘I’m your new servicer, send your payments to me,’ ” James said. “Homeowners who are not aware that there is a formal procedure involved in changing servicers” fall victim to this scam.