The other type of flipping, unfortunately, comes from the dark side of real estate. This more commonly used meaning of the word describes a process used by those who participate in mortgage fraud to turn a property over for a quick profit. Most of the time, this scheme makes use of phony appraisals to make a property appear to be more valuable than it really is. 

The crooks, armed with fraudulent appraisals, then seek out of town investors who would like to purchase property. Armed with the phony numbers, the crooks sell the houses and pocket the money. Sometimes, these properties are sold more than once in a single day, each time for more and more money. It is only after the crooks have taken off with the money that the investors discover that their “investments” are actually run down hovels.

Sometimes the scheme involves a “straw man”, an unwitting consumer who has been hired to pretend to buy the house. This “straw man” is part of the scheme only because of his or her good credit. He thinks he will be paid for his participation in the scheme, without realizing that he will eventually be stuck with the entire bill for the fraud.

This very common type of mortgage fraud is growing rapidly and involves theft to the tune of several hundred million dollars per year.

It goes without saying that as mortgage fraud becomes more and more common, those who repair houses for resale are more and more likely to refer to what they do as “refurbish and resell.” That is a more accurate description of what they do and is certainly a less threatening term.

Mortgage flipping can mean one of two things - turning a bad house into a good one, or turning a bad house into a crime.