With FULL disclosure by the buyer of their intent to resell a Short Sale property, there is no fraud and it’s NOT illegal to flip a Short Sale property.
However, the fraud cases arise from non-disclosure of the BC transaction where the principals of the original AB transaction acquire the property at much deeper discount and resell/flip the property simultaneously or immediately right after the 1st escrow closes.
The case for fraud become apparent since the buyers of the 1st AB transaction could be using the proceeds of the flip to fund the original purchase which is illegal.
In the case of these scams, the time required for a Short Sale approval is spent to find the 2nd buyer of the property. Scam also works with the attempt to dupe the Seller A’s Short Sale lender that the property is worth less than it’s worth. These scams are hard to pull off since the lender do order their own Broker Price Opinion to determine the value of the property.
That’s why the approval of Short Sales now is subject to a 90 day hold by most banks to discourage Short Sale flips. Agent should be aware of the flip scams since the principals in these transactions are often paid in cash to cooperate with these transactions. That’s why it’s illegal for the Seller to receive ANY funds for relocation without the approval of the Short Sale lenders.
Contact Us if you have any questions about Short Sale process and how to avoid getting scammed.