Is House Flipping Illegal?
What Is Illegal House Flipping?



Speaking of illegal house flipping, a few years ago, before my first no money down real estate deal, I walked into the offices of a title company and asked the settlement attorney there if he could draw up a contract to "help me flip houses".

He recoiled in horror and declared, “Flipping is illegal!” and the conversation went downhill from there...

Why do so many people think flipping is illegal?

If you don’t know the difference between the profitable and legal practice of acquiring or controlling property and re-selling it for profit, and the illegal practices also termed “property flipping” by our good friends at the Department of Housing and Urban development(HUD), I’ve created this page as a resource for you and anyone else you wish to educate on this issue.

In 2003, the Department of Housing and Urban Development (HUD) decided to combat increasing incidence of mortgage and loan fraud by revising the rules governing federally insured mortgages (so-called "FHA loans").

Due to carelessness on the part of members of the media, terms like “flipping scams” have been used to describe transactions involving loan or mortgage fraud.

Once upon a time all flipping was legal and unblemished. Ethical, law-abiding and happy wholesalers and rehabbers (house flippers, to the uninitiated) like you figured out how to make tons of profits finding property bargains and getting them to the attention of buyers.

Since the markets were generally stagnant, nobody noticed that some people were quietly making bundles of money flipping houses.

Until the home market values began to appreciate dramatically and suddenly, shady characters who had been in other industries decided to become real estate appraisers, agents, loan officers and mortgage brokers.

And yes, some members of the real estate flipper community began to indulge in illegal transactions as part of their real estate activities like:

  • Getting the appraisers to artificially inflate house values to get transactions done
  • Passing funds “under the table” to get unqualified buyers into houses
  • Falsifying documents that were needed in the transactions

HUD's response defined illegal house flipping and forever resulted in confusion over the legality of flipping.



Other House Flipping Considerations

Below, you’ll find a collection of articles, links and resources to help you gain a deeper understanding:

The Anti-Flipping HUD RULE: FR-4615
The rule that started it all; How the business of flipping houses changed and how to work within the restrictions and confines of this law.

2008 Update to Anti-flipping HUD Rule
Some of the requirements put in place in the earlier rule were relaxed in 2008 for bank owned foreclosure purchases.

Is Flipping Unethical?
This article attempts to answer some questions you may have about the ethics involved in flipping real estate…particularly when it comes to Wholesaling Real Estate.

Understanding Loan or Mortgage Fraud
Explore what exactly constitutes loan or mortgage fraud and how to recognize the signs.