While sitting on a Professional Standards Arbitration Hearing last week, some of my colleagues mentioned that some Phoenix area Realtors recently got in trouble from participating in a practice called ” Flopping” while selling short sale properties. Not hearing this term before, I was surprised , a couple of days later, to see a reference to a Bloomberg Businessweek Article describing the prosecution of 2 Realtors in Connecticut for short sale fraud for this same practice. Flopping, as it turns out, is the fraudulent practice of persuading lenders to approve the sale of property substantially below the balance owed without disclosing the fact that there are buyers waiting in the wings willing to pay more for the same assets. A closing takes place and the property is immediately flipped to the new buyer at a hefty profit. There is an important distinction to be made as there is nothing illegal about buying an asset from a lender , putting it back on the market and eventually reselling it at a profit. Many Investors are taking advantage of this market in that way. I believe its also an important part of quickening the recovery as we must sell these distressed assets before we can return to a more normal real estate market. The illegal act comes however by the concealment to the lender of a subsequent buyer at a higher price being lined up ahead of time. Obviously, a buyer , with the help of a Realtor, trying to convince a lender of a particular value, while knowing that value is lower than a true market value based on a waiting purchaser is unethical, illegal and should be prosecuted.

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